1. INTRODUCTION

1.1 INDUSTRY PROFILE:

HISTORY AND DEVELOPMENT OF SUGAR INDUSTRY IN INDIA:

India has been as the original home of sugarcane and sugar. Indians knew the art

of making sugar since the fourth century. However the advent of modern sugar industry

in India dates back to mid 1930’s when a few vacuum pan units were established in the

tropical belts of Uttar Pradesh and Bihar.

The Sugar industry is predominantly localized in Uttar Pradesh, particularly in

the districts of Meerut, Saharanpur, Bijnour, Bereilly, Muzaffarnagar, Moradabad,

Bihar and in the eastern coastal districts of Andhra Pradesh. If we refer to the historical

events in the Sphere of Sugar Industry, Uttar Pradesh and Bihar occupied the

predominant position as far as the location pattern of the industry is concerned and still

these States are enjoying the same position. The reasons for such heavy concentration in

the States of Utter Pradesh and Bihar are manifold. The unique position which Utter

Pradesh enjoys in respect of cane cultivation is due to the advantages conferred by the

rich and fertile alluvial soil of the Genetic plain, the bulk of which contains adequate

quantities of lime and potash, the presence of thin varieties of cane admirably suited to

the climate conditions of the region and the existence of cheap and extensive irrigation

facilities. The concentration of sugarcane crop in compact blocks enables the sugar

factories to get supplies of sugarcane direct from the fields. Moreover, the cost of the

cane cultivation is less and the cultivators are not accustomed to raise alternative crops

like groundnuts, chilies, plantains, etc.

In recent years the sugar industry spreading to other parts of India, notably in the

southern states on Maharastra, Karnataka, and Andhra Pradesh and so on. Since sugar

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mills got to be near the sugar fields, Sugar mills are getting established near places

where Sugarcane can be and is grown. Also, the consumption of sugar is widespread

and sugar is demanded practically in all areas. And, therefore there is in recent year’s

tendency in the case of sugar industry towards its dispersal in different parts of the

country.

India is the largest consumer and second largest producer of sugar in the

world. The sufficient and well distributed monsoon rains, rapid population growth and

substantial increases in sugar production capacity have combined to make India the

largest consumer and second largest producer of sugar in the world. The Indian Sugar

industry has not only achieved the singular distinction of being one of the largest

producer of white plantation crystal sugar in the world but has also turned out to be a

massive enterprise of gigantic dimensions. With over 450 sugar factories located

throughout the country, the sugar industry is amongst the largest agro processing

industries, with an annual turnover of Rs150bn. It plays a major role in rural

development and its importance for India stretches far beyond the role of a sweetener

supplier.

The Sugar factories located in various parts of the country work as nuclei for

development of rural areas by mobilizing rural resources and generating employment,

transport and communication facilities. Over 45mn farmers, their dependants and a

large mass of agricultural labor are involved in sugarcane cultivation, harvesting and

ancillary activities constituting 7.5% of the rural population. The sugar industry

employs over 0.5mn skilled and unskilled workmen, mostly from the rural areas.

Since the beginning of planning era, sugar industry operated under a policy of

partial control in 1950-51 and 1951-52, followed by a continuous period of six years of

decontrol between 1952-53 and 1957-58. This policy was followed under the pragmatic

leadership of the Minister of Food, Sri Rafi Ahmed Kidwai. However, with his

departure, the perception of decontrol was lost.

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After altering between control and the Government adopted the policy of partial

decontrol in 1967-68, which has since been the mainstay of Government policy except

for two short periods of decontrol in the 1970’s. Under this policy, the Government

procures 40% of production at controlled prices based on the Statutory Minimum price

for sugarcane, for supply through the Public Distribution System and the balance 60 %

is allowed to be sold by the mills in free market subject to the monthly release

mechanism. The details of past Government policies for sugar industry are provided in

annexure 1.

The levy quota for sugar mills has been brought down from the peak levels of

70% in 1968-69 to the present levels of 40% as a gradual process of deregulation of

sugar industry.

The number of operating sugar mills in the country has increased from 29 in

sugar year (SY) 1930-31 to 412 by 1996-97 (sugar year = October 1st to September

30th). The addition in number of mills was at its peak during seventies when nearly 100

mills were added between 1970 and 1980 to increase the number of operating units to

300. The development of industry in the past is as given in table below.

The average capacity of the sugar mills in the industry has considerably moved

up from just 644 ton per day in SY 1930-31 to 2656 ton per day. But still the growth in

the Indian sugar industry was driven by horizontal growth (increase in number of units)

compared to the vertical growth witnessed in other countries (increase in average

capacity).

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CENSUS OF SUGAR MILLS AND CRUSHING ACTIVITY IN INDIA

Sugar year

(oct-sept)

Number of

operating

Sugar mills

Average capacity

ton Crushed per

day

1930-31 29 644

1940-41 148 750

1950-51 139 882

1960-61 174 1172

1970-71 215 1394

1980-81 315 1718

1990-91 385 2088

1996-97 412 2656

2000-01 423 3000

2003-04 453 3200

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SIGNIFICANCE OF SUGAR INDUSTRY

Sugarcane and sugar beet are two main sources of white crystal sugar in the

world. Out of the world’s total white crystal sugar production about 70% comes from

sugarcane and 30% from sugar beet. More than 100 countries in the world cultivate

sugarcane while 35 countries produce sugar from sugar beet. About 12 countries

produce sugar both from sugarcane and sugar beet. Worldwide sugarcane occupies an

area of 20.1 million hectares with a total production of 1318.1 million tones and

productivity of 65.5 tones per hectare. Asia has the highest area (9.08 million hectares)

and contributes 42% towards world’s sugarcane production.

The main By-products of sugar industries are

(i) Molasses

(ii) Bagasse

(iii) Filter cake

1. Molasses is used to produce chemicals, spirit and alcohol.

2. Bagasse is the raw material for manufacturing paper.

3. Filter is used for manure.

Sugar is not only for domestic purpose but also it is used as semi industrial

goods for the manufacturing of foodstuff. So sugar industry has direct or indirect effect

on other industries. The different types of significances of Sugar industry are

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Sugar industry – Multi-product complexes:

There are 453 sugar mills in operation in the country. A few more are in the

pipeline. The existing mills have to diversify into “sugar-ethanol cum-electricity”

generation complexes. Around 1000 such complexes will have to be established to

process 3750 million tones of cane into value added products, with an investment of

Rs.1, 32,650 crores.

With 3750 million tones of sugarcane, the country can produce 16 million tones

of sugar, 10 million tones of jaggery/gur, 246.15 billion liters of ethanol and 298.35

billion KWH of surplus electricity after providing for captive consumption. The

domestic market can absorb the production of 16 million tones of jaggery/gur.

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1.2WORKING CAPITAL MANAGEMENT

A CONCEPTUAL FRAMEWORK ON WORKING CAPITAL MANAGEMENT

Working capital is the firm’s holdings of current assets such as Cash, receivables,

inventory and marketable securities. Every firm required working capital for its day to

day transaction such as purchasing raw material, for meeting salaries, wages, rents rates,

advertising etc. But there is much disagreement among various financial authorities

(financial manager, accountants, businessmen and economists) as to the exact meaning of

the term working capital. 

Definition:      

“Working capital is the amount of funds necessary to cover the cost of operating

the enterprise”   

-Shubin-       

“Circulating capital means current assets of a company that are changed in the

ordinary course of business form one form to another as for example, from cash to

investors, inventories to receivable, receivable into cash.”                                 

   -Gene Stenberg-   

Significance:

The world in which real firms function is not perfect. It is characterizes by the

firm’s considerable uncertainty regarding the demand, markets price, quality and

availability of its own products and those of suppliers.

These real world circumstances introduce problems to the firm must deal. While

the firm has many strategies available to address these circumstances, strategies that

utilize investment or financing with working capital accounts often offer a substantial

advantage over the other techniques. The importance of working capital management is

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reflected in the fact that financial managers spend a great deal of time in managing

current assets and current liabilities like

 Arranging short term financing  

Negotiating favorable credit terms.

Controlling the movement of cash.

Administering accounts receivables

Monitoring investment in receivables.

Decisions concerning the above areas play an important role in maximizing

overall value of the firm. Once decisions concerning these areas are reached, the level of

working capital is also determined in active decision sense, but falls out as residual from

the decision just made.

The management of working capital plays an important role in maintaining the

financial health during the normal course of business.  This critical role can be enunciated

by examining the flow of resources through the firm. By far the major flow is the

working capital cycle.  

Working Capital Cycle: 

This is the loop which starts at the cash and the marketable securities account,

goes trough the current account as direct Labour and materials which are purchased and

use to produce inventory, which in turn is sold and generates accounts receivables, which

are finally collected to replenish cash.

Concept & Scope:

There are two concepts of working capital

Gross Working Capital

Net Working Capital 

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Gross Working Capital:

Gross working capital, simply called as working capital refers to the firm’s investment in

current assets. Current assets are the assets, which in ordinary course of business can be

converted into cash within an accounting year.

Examples of Current Assets are:

Cash and bank balances

Short term loans and advances

Bills Receivables

Sundry Debtors

Inventory

Prepaid Expenses

Accrued Incomes

Money Receivable in 12 months

The gross working capital focuses attention of two aspects of current assets

management.

Optimum investment in current assets and

Financing of current assets.

The Consideration of the level of investment in current assets should avoid two

danger points - excessive and inadequate investment in current arranging funds to finance

current assets.  When ever a need for working capital funds arises due to the increasing

level of business activity or for any other reason arrangement should be made quickly. 

Net Working Capital:

Net working capital refers to the difference between the current assets and current

liabilities. Current liabilities are those claims of outsiders, which are accepted, to mature

for payment with an accounting year and include creditors, bills payable and outstanding

expenses.

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Net Working Capital    = Current Assets - Current Liabilities

Net working capital can be positive or negative. A positive net working capital

will arise when current assets exceeds current liabilities. It is a quantitative concept.

It indicate the liquidity position of the firm and

It suggests the extent to which working capital needs may be financed by

permanent sources of funds.

Types of Working Capital:

Working Capital can be classified into two categories i. e

Permanent working capital

Temporary or variable working capital 

Permanent Working Capital:       

It is the minimum amount of investment in all current assets which is required at

all times to carry out minimum level of business activities. Tandon Committee has

reserved to this type of working capital as “Core Current Assets”.

Variable working capital:

The amount of working capital over permanent working capital is known as

variable working capital. The amount of such working capital keeps on fluctuating form

time to time on the business activities. It may again be subdivided into seasonal working

capital and special working capital.                     

Seasonal working capital is required to meet the seasonal demands of busy

periods occurring at stated intervals on the other hand, special working capital is required

to meet extraordinary need for contingencies. Even like strikes, fire unexpected

competition; rising price tendencies or initiating a big advertisement campaign require

such capital.

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Approaches for financing working capital:

There are three approaches to financing the working capital:

Matching approach

Conservation approach

Aggressive approach 

Matching approach: 

The form cab adopts a financial plan, which matches the expected life of assets

with the expected life of the source of funds raised t finance assets. The firm follows

matching approach, long-term financing with is used to finance fixed assets and

permanent current assets and short term financing temporary or variable current assets.

However, it should be realized that exact matching is not possible because of the

uncertainty about the expected lives of assets. The firms fixed assets and permanent

currents assets are financed with long-term funds and as the level of these assets

increases, the long term financing level also increases.

The temporary or variable current assets are furnace with short-term funds and as

their level increases, the level of shot-term financing also increases. 

Conservative Approach:           

A firm is practice may adopt a conservative approach in financing its current and

fixed assets. The financing policy of the firm is said to be conservative when it depends

more on long- term funds for financing needs. Under a conservation plan, the firm

finances its permanent assets and also a part of temporary current assets with long term

financing.  In the periods when the firm has no need for temporary current assets, the idle

long- term funds can be invested in the tradable securities to conserve liquidity. The

conservative plan relies heavily on long term financing. 

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Aggressive Approach:           

A firm may be aggressive in financing its assets. A firm follows aggressive policy

when it uses more short –term financing than warranted by the matching plan. Under an

aggressive policy, the firm financing a part of its permanent current assets with short-

term financing. Some extremely aggressive firms may even finance a part of their fixed

assets with short-term financing. 

Importance of Working Capital:           

A business firm must maintain an adequate level of working capital in order to

run its business smoothly. It is worthy to note that both excessive and inadequate working

capital positions are harmful. Out of two, inadequacy of working capital is more

dangerous for a firm.

Excessive working capital results in idle funds on which no profit is earned.

Similarly insufficiency of working capital results in interruptions of production. This will

lead to inefficiencies, increase in costs and reduction in profits.

Working capital is just like the lifeblood of business. If it becomes weak, the

business can hardly prosper and survive. No business can run successfully without an

adequate amount of working capital. The following are the few advantages of adequate

working capital in the business: 

Cash Discount:

Adequate working capital enables a firm to avail cash discount facilities are

offered to it by the suppliers. The amount of cash discount reduces the cost of purchase.

Good will:

Adequate working capital enables a firm to make prompt payment. Making

prompt payment is a base to create and maintain goodwill. 

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Ability to face crisis:      

The provision of adequate working capital facilitates to meet situations of crisis

and emergencies. It enables a business to withstand periods of depression smoothly.

Credit – worthiness:          

It enables a firm to operate its business more efficiently because there is no delay

in getting loans from banks and others on easy and favorable terms. 

Regular supply of raw materials:   

It permits the carrying of inventories at a level that would enable a business to

serves satisfactory the needs of its customers. That is it ensures regular supply of raw

materials and continuous production.

Expansion of markets:        

A firm, which has adequate working capital, can create favorable market

condition. That is purchasing its requirements in bulk when prices are lower and holding

its inventories for higher. Profits are increased.    

Problems of working capital:

It may not be able to take advantage of profitable business opportunities.

Production facilities cannot be utilized fully.

Short-term liabilities cannot be paid because of lack of working capital.

It may fail to pay its dividend because of non- availability of funds.

Its low liquidity may lead to low profitability. In the same way, low profitability

results in low liquidity. 

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Danger of excessive working capital:

A firm may be tempted to over trade and lose heavily.

Unable to extract benefits of customer credit.

The situation may lead to unnecessary purchases and accumulation of inventories.

This cause more chances of theft, waste, losses etc.

There arises an imbalance between liquidity and profitability.

Excessive working capital means funds are idle.

The situation leads to greater production, which may not be having matching

demand.

The excess of working capital leads to carelessness about cost of production  

Determinants of working capital:             

The need of working capital is not always the same it varies from year to year or

even month-to month depending upon a number of factors. There is no set of rules or

formulae to determine the working capital needs of the firm. Each factor has its own

importance and the importance of the factors changes for a firm overtime. In order to

determine the proper amount of working capital of concern, the following factors should

be considered carefully.

Nature of Business:               

The amount of working capital is basically related to the nature and volume of

business in concerns where the cost of the raw materials to be used in the manufacturing

of a product is very large in proportion to its total cost of manufacturing the requirement

of working capital will be very large.

Size of the Business Unit:             

The size of the business unit has an important impact on its working capital needs. Size

may be measured in terms of scale of operation. A firm with larger scale of operation will

need more working capital than a small firm.

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Seasonal variation:             

Seasonal industries require more working capital to stock the raw materials during

the season.

Time consumed in manufacturing:              

The average time taken in the process of manufacture is also an important factor

in determining the amount of working capital. The longer the period of manufacturing the

larger the inventory required.

Turnover of circulating capital:              

Rapidly of turnover determines the amount of working capital. The faster the

sales the larger the turnover hence less working capital. 

Need to stockpile raw material and finished goods:        

In industries where raw materials are bulky and best purchasable in large

quantities such as cement or where labor stoppage is frequent large amount of working

capital is required. 

Growth and expansion:        

Rowing concerns requires more working capital than those that are static. It is

logical to expect larger amount of working capital in a growing concern to mean its

growing needs of funds. 

Business cycle fluctuations:         

Working capital is required more during boom period and lesser in depression

period.

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Terms of Purchase and Sale:          

Terms of purchase and sales affect the amount of working capital. The practice of

cash purchases with credit sales requires more working capital.

Pricing level changes:           

Rising price level requires more working capital to maintain the same levels of

current assets.

Inventory Turnover:          

With a better inventory control, a firm is able to reduce its working capital

requirements. If the inventory turnover is high the working capital requirements will

below.

Sources of working capital:           

After determining the level of working capital on the basis of various

determinants the next step is to consider how it will be financed. A large manufacturing

concern may procure funds from various sources to meet its working capital requirements

form time to time.

For the convenience of study the sources of working capital may be classified

under two heads.

Sources of long –term or regular working capital.

Sources of short term or seasonal working capital.

Sources of long term working capital:   

The long-term working capital requirements can be met from the following

sources. 

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Issue of Shares:      

It is the safest way of procuring permanent and regular working capital with out

any fixed charges. 

Issue of Debentures:       

Regular and long term working capital may be obtained at lower cost of trade on

equity.

 Retained profits:       

Accumulated large profits are also considered to be a good source of    a financing

long – term working capital requirements. It is the best and    the cheapest source of

finance. It creates no change in future profits.    

Sale of fixed assets:        

If there is any idle fixed assets in the firm can be sold out and the.    Proceeds may

be utilized for financing the working capital requirements. 

Term loans:      

Mid term and long-term loans for a period above 3 years provide import sources

of working capital such term loans can be borrowed from the special financials

institutions such as IDBI, IFCI, LIC etc. 

Sources of short term working capital:

The sources of short – term working capital may be classified in two.

Internal sources

External sources

Internal Sources:          

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Under this category the sources of working capital are tapped from within the

internal sources are depreciation funds, provision for taxation and accrued expenses.

1. Depreciation fund:             

Depreciation funds created out of profits provided they are invested in or

represented by assets. 

2. Provision for taxation:             

There remains a time lag between making the provision for and payment of

taxation. A company may utilize such provision during the intermittent period

temporarily. 

3. Bank credit:               

The greater part of the working capital is supplied by commercial banks to their

customers through direct advances in the shape of loans, cash credit or over draft and

through discounting the credit, papers, e.g. bills-payable and promissory notes etc.  

4. Customer credit:             

Advance may also be obtained form customers against the contracts entered into by the

enterprise such advances are generally asked for, by the Companies manufacturing large

plants and machinery involving longer time in completing the process of manufacturing

e.g., Ship building industries.   

5. Public deposit:             

Most of the companies in recent years depend on this source to meet their

working capital requirements. Under the companies Act 1956 a company is authorized to

raise funds equal to 25% paid up capital and free reserves by this source. 

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Standards of working capital management:

1. There is no one single criteria for judging the efficient arrangement    of Working

Capital.

2. Factors to be taken into account for organizing on efficient lines:

3. Ability to meet short – term commitments in time, make payment of bills on due

dates.

4. Ability to find adequate cash at the right time to present forecast levels of

business.

5. Ability to maximize sales turnover with minimum possible cash.

6. Minimum possible Inventory Turnover - Turnover norms are fixed.

7. Whether reasonable credit is extended to customers as a sales and monitoring

strategy.

8. Financing plans are prepared in anticipation of future need so that funds become

available at the right time and at least cast.

9. Policies for credit to present and new customers are prepared and forecast of

collections of receivables are whole along with forecast of sales. 

Ratios to measure the efficiency of working capital. 

1. Current Ratio:           

= Current assets/ Current liabilities

2. Quick Ratio:                  

= (Current assets – Inventories)/ Current liabilities 

Sales to Cash:             

= Sales during a period / Average cash balance

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Average collection period:             

Debtors divided by annual credit Sales and the resulting figure multiplied by 365.

This ratio indicates how many days of credit are being obtained from the suppliers.

Average payment period:       

Creditors divided by annual credit purchase and the resultant figure is multiplied

by 365. This ratio indicates how many days of credit are being obtained from the

suppliers.

Inventory turnover ratio:                         

= Sales / Average Inventory.  

Working capital policy:          

Working capital management policies have a great effect on firm’s profitability,

liquidity and its structural health. A finance manager should therefore, chalk out

appropriate working capital policies in respect of each competent of working capital so as

to ensure high profitability, proper liquidity and sound structural health of the

organization.

Objectives of Working Capital Management:    

The objectives of working capital management are two fold:

Maintenance of working capital and

Ability of ample funds at the time of need      

The basic goal of working capital management is to manage each of the funds

current assets and current liabilities in such a way that an acceptable level of networking

capital is always maintained in the business. 

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Working Capital Forecast:      

There are number of methods to determine the working capital needs by

determining the amount of current assets and current liability:      

The assessment of working capital requirement can be made on the basis of the

current assets required for the business and the credit facilities available for the

acquisition of such current assets from the current liabilities.

1. Cash forecasting method:       

In this method the position of cash at the end of the period is shown after considering the

receipts and payments to be made during the Period. Its form assumes more or less a

summary of cashbook. This shows the deficiency or surplus of cash as the definite point

time.

2. The Balance sheet Method:       

The Balance sheet method of forecast is made up of the various assets and liabilities of

the business. Afterwards, the difference between the two is taken which will indicate cash

surplus or deficiency.

3. Profit and Loss adjustment method:       

Under this method the forecasted profits are adjusted after adding the cash inflows and

deducting the cash outflows. The basic idea under this method is to adjust the estimated

profit on cash basis.

4. Working Capital as a percentage of sales:      

Under this method the working capital is to be related to sales and calculated as a

percentage of sales.

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Operating Cycle:        

Working Capital is required because of the time gap between the sales and their

actual realization in cash. This time gap is technically terms as operating cycle of the

business. In case of manufacturing company, the operating cycle is the length of time

necessary to complete the following cycle of event.

Conversion of cash into raw materials.

Conversion of raw materials into work in progress

Conversion of work in progress into finished goods.

Conversion of finished goods into account receivables.

Conversion of accounts receivable into cash      

This cycle is continuous phenomena. In case of “Trading Firm” the operating

cycle will include the length of time required to:

a. Cash into inventories     

b. Inventories into accounts receivables

c. Accounts receivables into cash.      

In case of “Financing Firm” the operating cycle includes the length of time taken

for 1 year.

Conversion of cash debtors and

Conversion of debtors into cash

Working Capital Ratio:      

It measures the efficiency of the employment of working capital. Generally higher

the turnover, greater is the efficiency and larger the sale of profits. Working Capital

turnover Ratio can be calculated with help of the following formula.

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Working Capital turnover Ratio =    Sales

Net working capital  

Components of Working Capital Management:              

Inventories constitute the most significant part of current assets of a large majority

of companies in India. The term inventory refers to the stockpile of the product. The

assets which firms store as inventory are: 

Inventories can be classified as three categories:

Raw material:

Inputs that are converted into finished products through manufacturing process.

Work in progress:

Semi finished products that require more work before they are ready for sale.

Finished goods:

Goods which are completely manufactured products /And /or ready for sale.         

Objectives:              

The objective of Inventory Management should be to determine and maintain the

optimum level of inventory investment since both excessive and inadequate inventories

are not desirable.

The optimum level of inventory will lie between the two-danger point’s excessive

and inadequate inventories. The optimum level of inventory should be determined on the

basis of trade off between costs and benefits associated with the levels of inventory. 

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Techniques:             

Many sophisticated mathematical techniques are available to handle inventory

management problems. Here attention is given to the basic concepts relevant to the

management and control of inventory and techniques for the major problems area that

comprise the heart of inventory control. The aspects are:   

Determination of the type of control required.

The basic economic order quantity.

The re-order point.

Safety stock   

As a matter of fact the inventory management techniques are a part of production

management. But a familiarity with them is of great help to the financial manager in

planning and budgeting inventory. Hence, forming an important part in current assets

leading to working capital management. 

Cash Management:      

Cash is the most important factor in financial management. It is also the most

important current asset for the operation of the business. Every activity in an enterprise

and it cannot be raised as and when required. It is therefore, desirable that available cash

must be management properly.      

Cash is the most liquid asset, is of vital importance to the daily operations of the

business. While the proportion of corporate assets held in the form of cash is very small

often in between 1% to 3%, it efficiency management is crucial to the solvency of the

business. In view of its importance, it is generally referred to as the lifeblood of a

business enterprise.

Meaning of Cash:        

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The term ‘Cash’ is used in two senses. In a narrower sense it includes coins,

currency note, cheques, bank drafts held by a firm with it and the demand deposits held

by it in banks. In a broader sense it also includes near cash assets such as marketable

securities and time deposits with bank.

There are two main reasons for a firm to hold cash:

1. To meet the needs of day – to – day transactions,   

2. To protect the firm against uncertainties characterizing its cash flows.

Objectives:

To meet the cash disbursement need as per the payment schedule i.e. the first

basic objective of cash management is to meet the payments schedule. In other words the

firm should have sufficient cash to meet the various requirements of the firm at different

period of time.    

The second basic objective of cash management is to minimize the amount locked

up as cash balances. In the process of minimizing the cash balances, the finance manager

is confronted with two conflicting aspects.

A higher cash balance ensures proper payment will all its advantages. But this

will result in a large balance of cash remaining idle. A low level of cash balance may

results in failure of the firm to meet the payment schedule.

Cash management basic problems:

The problems associated with the cash management are: 

1. Controlling ‘0’ level of cash:           

Level of cash can be fixed by taking into account the following

a. Predictable discrepancies through the technique of cash budget

b. Unpredictable discrepancies 

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2. Controlling inflow of cash:

It is necessary to check the fraudulent diversion of cash receipts and to collect the

receipts speedily. Fraudulent diversion can be controlled by internal check system.

Speedily collection of receipts may be arranged through.

3. Controlling outflow of cash:

Controlling of outflow of cash is equally important. For this purpose, a centralized

payment, avoidance of early payments, float and accruals should be taken recourse.

4. Investment of surplus cash:

Investment of surplus cash available with the company depends upon the

discretion of the executive of the company. Investment may be made on Temporary basis

and on Permanent basis. In taking investment decisions. 

Following point are usually given weight age.

Security

Liquidity

Yield

Maturity

Advantages of ample cash funds:    

Firms having ample cash reserve may derive the following advantages:

A shield for technical inefficiency

Maintenance of good will

Availing of cash discount

Old bank – relations

Exploitation of business opportunities

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Encouragement to new investment

Increase in efficiency

Over coming abnormal financial situations

Facts of Cash management:

The following are the four face of cash management

1. Cash Planning

2. Managing the cash flows

3. Optimum cash level

4. Investing surplus cash

Receivable Management:           

Account receivables constitute a significance portion of the total current assets of

the business. They are direct consequences of “Trade credit”. Which has become an

essential marketing tool in modern business?

Meaning of receivable:        

Receivables are asset accounts representing amounts owned to the firm as a result

of sale of goods or services in the ordinary course of business.

Meaning of receivables Management:            

It may be define, as the process of marking decision relating to the investments of

fund on this aspect, which will result in maximizing the overall on the investment of the

firm the problem of management of receivables is basically a problem of balancing

profitability and liquidity.   

Soft credit terms are attraction for higher sales and hence longer the time a

company allows its customers to pay, resulting in greater sales as higher profits.

27

However, on the other hand the longer the period of credit, the greater the risk, greater

the level of debt and greater the strain on the liquidity of the company. 

Cost of Receivables:

The cost with respect to maintenance of receivable can be identified as follows: 

1. Capital Cost:          

Maintenance of accounts receivable result in blocking of firm’s financial

resources in them. This is because there is a lag between the sale of goods to customers

and the payments by them. The firm therefore has to arrange for additional funds to meet

its obligations such as payments employees, suppliers of raw materials etc. while waiting

for payments from its customers.

2. Administrative cost:     

The firm has to incur additional administration costs for maintaining account

receivable in the form of salaries to the staff kept for maintaining accounting records

relating to customer, or conducting investigations regarding potential credit customers to

determine their credit worthless.

3. Defaulting cost:

Sometimes after making all serious efforts to collect money form defaulting

customers the firm may not able to recover the over debts because of the inability of the

customers. Such debts are treated as bad and have to be written off since they cannot be

realized.

Optimum size of receivables:

The optimum investment in receivables will be a level where there is a trade off

between costs and profitability. When the firm resorts to liberal credit policy, the

profitability of the firm increases on account of higher sales.

28

However, such a policy results in increased investment in receivables increases

and thus the problem of liquidity is created on the other hand a    stringent credit policy

reduces the profitability but increase the liquidity of The firm. Thus optimum credit

policy occurs are a point where they’re Trade off between liquidity and profitability”.

Credit policy variables:     

The important dimensions of a firm credit policy are:

Credit standards

Credit period

Cash discount

Collection effort 

Credit standards:          

It represents the basic criteria for extension of credit to customer. The firm’s

credit standards are generally determined by the five ‘C’s I. e., charter, capacity capital,

collateral and conditions. Information about 5 Cs can be calculated both form internal as

well as external sources.       

Internal sources include the firm’s previous experience with the customers

supplemented by its own well-developed information system. External resources include

customer’s reference, trade associates and credit rating organizations. 

Credit period: 

Extending the credit period stimulates sales but increase the cost on account for

more tying up of funds in receivables. Similarly shortening the credit period reduces the

profit on account of reduced sales, but also reduces cost of tying up of funds in

receivables. 

29

Cash discount:      

A cash discount is a reduction in payment offered to customers to induce them to

repay credit obligation within a specified period of time

 Collection procedure:      

A target collection procedure is expensive for the firm because of high out of

pockets costs and loss of goods will of the firm among its customers. However, it

minimizes the loss on account of bad debts as well as increase savings in terms of power

capital costs on account of reduction in size of receivable. A balance has therefore to be

struck the cost and benefit of different collection procedures or policies.  

System for receivable control:       

The management should consider the following four factors in keeping the level

of investment in receivables within controllable limits.

Deciding Acceptable Level of Risk:   

The first point is to decide to whom goods should be supplied bearing in mind the

risk involved. It is therefore essential to assess the credit worthiness of the customers

before advancing any credit to them.

Terms of credit sales:     

The second steps in this regard into decide terms of credit sales and the level of

cash discounts. Cash discount has important bearing on the cost of capital and on credit

sales.

Credit collection policy:       

The management should provide for bad debts to keep the losses minimum.

Usually 5% to 7% of sundry debtors are provided for bad debt. A collection procedure

should be established and action should be taken accordingly. The other steps should be

30

to record the age of debt to facilitate the collection of debts. The age of debt is called as

average collection period. The age of debt is computed by following methods. 

Payable Management:

Management of accounts payable is as much important a management of accounts

receivable of course, there is a basic difference between the approaches to be adopted by

the Finance Manager in the two cases.

Whereas the underlying objective in case of accounts receivable is to maximize

the acceleration of collection process, the objective incase of accounts payable is to slow

down the payments process as much as possible.

But it should be noted that delay in payments of accounts payable may result in

saving of some interests costs but it can prove very costly to the firm in the form of loss

of credit in the market. The finance Manager has, therefore to ensure that the payments to

the credits are made at the stipulated time period after obtaining the best credit term

possible.

Control of accounts payable:        

Computing the average age of payables can do this. This may be calculated by

any of the following methods.    

1. Months or days in the period/ Accounts payable turnover = Credit         

Purchases in the period/ Average accounts payable    

2. Average accounts payable/ average month/ daily credit purchase.    

3. Average account payable × months/ days in the period/ purchases.

31

2. COMPANY PROFILE

HISTORICAL BACKGROUND OF DELTA SUGARS LIMITED:

Sree Hanuman Co-operative sugars Ltd., Hanuman Junction was registered on

30-09-1972 and the contribution started on 17-11-1972 by the chief Minister Sri

Jalagam Vengala Rao. Sree Hanuman Co-operative Sugars Limited was established in

90 acres of land. The machinery was supplied and established by the Andhra Foundry

and Machinery Company Ltd., Hyderabad. The installed capacity of the factory was

crushing per day. As on March 1991, enrolled members in the society are 6,334.

Hanuman Junction Co-operative Sugar Mills that was laid off in September

2001 and revived in November 2001 by Delta sugars Ltd. It is one example of the

implications of revival of closed SLPEs through privatization for varied stakeholders of

enterprise reform programme in Andhra Pradesh. Contrary to the fears of a section of

the society about the moves of privatization of sugar factories, transformation of

Hanuman Junction Co-operative Sugar Mills into Delta Sugars Ltd reveals a different

reality. Perceptions of the workers, cane farmers and Sugar enterprises in the area

demand attention to appreciate the nature of implications of privatization programme.

Cross-section of the society in the sugarcane belt of Hanuman Junction Co-

operative Sugar Mills views privatization with hope and expectations for a brighter

future. However, there are issues that need to be resolved to address apprehensions and

conflicts of the pre privatization tangle. A closer look at the ground realities makes one

believe that post privatization scenario after another crushing season is likely to present

a different picture more in favor of the transition as by then the pending issues of pre

and post privation would be resolved meaningfully. Issues that require attention include

payment of job severance compensation for the workforce that is not absorbed by the

new management, capacity building of the surplus labor force, and resolution of the

payment of long standing arrears to the farmers.

32

In September 2001, the Government of Andhra Pradesh privatizes the sugar

factory and running by the private management i.e., M/s Delta Sugars Limited,

Hanumanjunction. The factory registered under Companies Act 1956. The present

capacity of the plant is enhanced to 3000 MT per day.

Crushing season:

Generally the season starts from November to April of every year depending

upon availability of raw material i.e., sugarcane. The main objective of the industry is to

manufacture white crystal sugar from sugarcane through various manufacturing

processes. In addition to the main product, we obtain the by-products such as molasses,

bagasse and filter cake.

Location:

Sree Hanuman Co-operative Sugar Ltd is located in Seri Narasannapalem

village, Bapulapadu Mandal, Krishna District, A.P., beside National High Way

5(GNTRoad) which is about 42 kms away from Vijayawada and 4 kms away from

Hanuman Junction. The Head Office is on the factory site, the main railway station is

Nuzvid, which is at a distance of 6 kms from the factory site, and the main railway

station is Vijayawada.

Lorries, bullock carts and tractors transport sugarcane and other materials. There

are two major towns, Vijayawada at a distance of 42 kms and Eluru at a distance of 23

kms from the factory. Factory is connected to these two towns by railway as well as

roadways. The factory has nearest marketing facility at Vijayawada which is one of the

biggest centers in South India. It offers a wide market for sale of sugar and other by-

products.

There are three sugar factories in the immediate neighbor. They include

1. KCP limited, Vuyyuru, which is at a distance of 40 KMS.

33

2. The West Godavari Co-op sugar, Bhimadole that is at a distance of 43 KMS.

3. KCP Sugar Ltd, challapalli at a distance of 65 KMS.

The main raw material of the sugar factory is sugarcane. The sugar production

area of the organization is very vast. There are 260 villages in the area of operation of

the factory. The 260 villages are extended into 16 mandals.

Size:

The crushing capacity of the plant is initially 1250 tons per day. This plant is

gravity flow type. The white mass will flow by gravity pumps and avoided as the crystal

ligers are placed in the first floor along with the evaporator, pans in second floor. The

present capacity of the plant has extended to 3000 MT tons per day.

CANE PROCUREMENT PROGRAMME OF DELTA SUGARS IMITED:

Delta sugar factory has 1,600 cane growing members. Though it has 1,600

members only about 100 are the active cane growers. Delta Sugars ltd commenced

crushing during 1974-75 season. It has a new factory having the privilege to enjoy the

benefit of the general central government incentive scheme given to the new sugar

factories. It has to crush a minimum quality of 1, 62, 500 MTs. For optimum point but

so far it has not crushed even 1, 00,000 Mts. It is due to mainly lack of raw material.

The area is very compact which is radius of about 15 kms from factory.

There are 150 villages in the area of operation of the factory from where it has

enrolled the members. These villages are extended into 9 mandals. The total land

holding of the members is about 6529 acres and the average holding of the members of

each members work out to 4.8%. About 90% of the area hold by the members is quiet

for cane cultivation. As per by law no.33, it is obligatory on the part of he member to

supply cane @ 25 MTs. During each crushing season but due to lack of proper

irrigation facilities, lack of remuneration price to cane, riots are not showing such

interest to grow cane. So to make the cane cultivation economical, the company has to

34

provide good seeds. Material incentives for early maturing, high yielding and better

varieties and to make cane cultivation viable to farmers. To achieve this object,

developing seed nurseries and providing pesticides etc., to farmers is essential.

Policies with respect to Cane Growers:

Cane growers are the major link in the supply chain of sugar unit. Cane growers

coexist with sugar unit and vice versa. The interest of the sugar unit and the cane

growers are complementary to each other. The cost of sugarcane supplied by the cane

growers constitutes nearly 80-85% of the total cost of producing sugar. Delta Sugars

limited lays special emphasis on the cane development and welfare of farmers. Cane

developmental efforts are directed towards improvement in the quantity and quality of

sugarcane produced

Efforts towards quantitative development:

Prompt payment to farmers for sugarcane supplies.

Field Education by field officers on cane varieties and plantation techniques

through seminars, meetings, supply of pamphlets and coordinating meetings

with experts from Cane Development Counsels and Drip Irrigation

companies.

Free and subsidized distribution of pesticides and fertilizers.

Extending crop loans.

Efforts towards qualitative development:

Operation of subsidy schemes to encourage the farmers to cultivate more area.

35

Providing seeds, fertilizers and pesticides to the farmers so that their crop is not

vulnerable to diseases etc., and improving the quantity.

Conducting trial demonstration on plots for different methods and varieties.

Cane procurement programme starts with the survey work of assessment of cane

availabilities in the area of supply no the plantation is completed. Such programme

comprises of actual measurement of the acre age sugarcane plantation and the date of

plantation. In case of Raton, the date o harvesting has also to be recorded. A

consolidated statement is prepared of this information for assessing period, the actual

cane availabilities also to arrive at possible maturing period for finalizing the

harvesting. Graphs and charts are prepared based on these dates for each section of cane

supply area comprising the detailed information of all field and villages of the area.

These dates are very helpful for guidance for harvesting programme.

The factory staff will take the maturing test a few months earlier from the date

of actual start of crushing. During the survey brides of the standing cane are observed

on the spot by hand and refract meters. The result of such survey recording the brides of

the juice are there brought to the laboratories where actual laboratory tests are done for

expected sugar recovery. Such pre harvest maturity tests are continue till the period

when the general maturity in the cane salt sets in and then maturity tests may not be

necessary. Then the harvesting as to which cane could be harvested earlier when the

factory starts is finalized.

Early varieties:

This variety matures earlier than other varieties. The early varieties plat will take

11 months for mature and will take from 10 and half month to 11 months. Some of the

early varieties are

86 V96

Co 690 791V83

36

Co 671 85 A261

87 A298 81V48

93 V 297

Mid/Late varieties:

Mid/late varieties take more time for maturing in the CAE of Raton these take at

least 11 to 11 ½ month and in plant case they take 12 months. Some varieties are

Mid:

7805

7219

85V110

89032Co

Late:

89 V74

85 R186

88 A 184

7219

Procurement Programme:

A cane procurement programme start with the survey work of assessment of

cane availabilities in the area of supply on the plantation is completed. Such programme

comprise of actual measurement of the acre age sugarcane plantation and the date of

plantation. In case of Raton, the date of harvesting has also to be recorded. A

consolidated statement is prepared of this information for assessing period the actual

cane availabilities also to arrive at possible maturing period for finalizing the harvesting

37

programme. Graphs and charts are prepared based on these dates for each section of

cane supply area comprising the detailed information of all field and villages of the

area. These dates are very helpful for guidance for harvesting programme.

The factory staff undertaken prepares maturing test a few months earlier from

the date of actual start of crushing. During the survey brides of the standing cane

observed on the spot by hand refract meters. The result of such survey recording the

brides of the juice are than brought the laboratories where actual laboratory test are

done for expected sugar recovery. Such pre harvest maturity tests are continued till the

period when the general maturity in the cane salt sets in and next maturity tests may not

be necessary. Then the harvesting programmes as to which cane could be harvested

earlier when the factory starts are finalized.

The work of cane procurement programme has to be formulated for proper

execution. The most harmful feature of the cane is less planning of the procurement

programme or the over supply and accumulation of sugarcane in the factory yard. Sugar

content in the cane decreases soon after the cane is harvested and the cane dries out due

to assertive supply or delayed transportation that affects the sugar recovery drastically.

To avoid this problem Delta Sugars ltd is fixing dates to harvest the cane to reduce the

over supply of cane in some days.

The factory is getting cane from 30 to 37 villages only. At present the farmers

are cultivating cane mostly in upland area with the help of bore well irrigation. In some

areas the farmers are not interested to grow cane because of lack of water during the

yield. This resulting cane cultivation un-remunerative. To make the cane cultivation

remunerative, provision of bore wells is essential to supplement the canal irrigation in

the upland areas.

Mainly in the factory zone of the Hanuman Junction, Bapulapadu mandal, the

farmers are cultivating in nearly 6529 acres (1997-1998) and the supply of Raton is

38.839 MTs to the factory. It is the highest procurement and the next places are

Pedavegi and Eluru mandal respectively.

38

Reasons for short fall of cane and recovery for season:

Irrigation source:

Delta Sugars is private limited sector factory and the zone is spread over 16

mandals of Krishna District. Usually the sugarcane is being grown in upland area only.

The entire sugarcane is affected by power cut since last 2 seasons. As, such every year,

the sugarcane is being dried up to some extent and also the lack of continuous rains

worse the cane quality.

Late application of chemical fertilizers:

In Delta Sugars Ltd, the cane growers are arising development of sugarcane

every year from December to the march and with early and mid cane varieties. But due

to power cut in the peak summer month, the bore wells are not properly functioning to

lift the water and hence the farmers are being faced difficulties in applying chemical

fertilizers to the sugarcane fields due to non-availability of required irrigation.

Application of chemical fertilizers, nitrogen in heavy dose:

In spite of several instructions and directions given by Delta Sugars Ltd

agricultural staff and other scientists, the growers are habituated in applying nitrogen

with heavy dose to their cane fields.

Salinity:

On analysis, it is observed that about 50% of bore well tater is highly salinated

and low sodium water.

39

Cane Development Expenditure:

The factory is providing crop loans through the commercialized banks on tie up

arrangement at 3,000 per acre and the factory is providing many facilities.

Organization and Management

The organization has five departments. The Departmental Heads are accountable

to managing director who co-ordinate all the activities of the departments. He is

accountable to chairman and board of directors.

The departments of organization are as follows

1. Administrative Department

2. Accounts Department

3. Engineering Department

4. Agriculture Department

5. Manufacturing Department

6. Mechanical Department

7. Civil Department

1. Administrative Department:

The Administrative Officer is the Head of this Department. He is responsible to the

Managing Director for his department activities. The Duties of the departments are as

follows

40

i) Purchasing

ii) Inventory control

iii) Sales of sugar and molasses

iv) Personal activities

v) Security and other general matters

The administrative Officer directs, motivates the subordinates and controlling the

above activities. The following personnel assist administrative officer:

Office manager

Purchase Manager

Store Keeper

Sugar Godown In-charge

Security Officer

41

CHAIRMAN

BOARD OF DIRECTORS

MANAGER

ADMINISTRATIVE ACCOUNTS MANAGERCHIEF AGRICULTURAL OFFICER

OFFICE MANAGER

PURCHASE MANAGER

STORE KEEPER

GENERAL ACCOUNTANT

CANE ACCOUNTANT ASST.AGRICULTURALOFFICER

FIELD MEN

CHIEF AGRICULTURAL OFFICER

STORE ACCOUNTANT

ORGANIZATIONAL STRUCTURE

42

2) Accounts Department:

Chief Account’s officer is the lead of this department. He is responsible to the

Managing Director for the maintenance of the accounts of all divisions of the company

and his duty involved in preparation of balance sheets and correspondence with the

investors, merchants, banks and financial institutions. This department maintains 3

account ledgers such as

cane Accounts

Store Accounts

General Accounts

The following personnel assist Chief Account’s officer

1. General Accountant

2. Cane Accountant

3. Store Accountant

4. 3) Agricultural Department:

Chief Agricultural Officer is the head of this department. The main function of

this department is the procurement and development of sugarcane. Chief Agricultural

officer estimates the sugarcane supply of each season. These estimates are useful to the

organization for preparing the budgets. The following personnel assist Chief

Agricultural officer:

Deputy Chief Agricultural Officer

Assistant Agricultural Officer

43

4) Engineering Department:

Chief Engineer is the head of this Department. He formulates the techniques of

cutting and crushing sugarcane suiting top the machinery and equipment. He makes the

recommendations regarding planning of engineering section, such as rehabilitation,

modernization. He has to supervise, plan schedule maintenance work with the

assistance of shift engineers. The plant and machinery of the factory are under his

control. The following personnel assist the Chief Engineer:

Assistant Engineer

Assistant Engineer Workshop

Civil Engineer/Electrical Engineer

Supervisor (Civil Engineering)

Manufacturing Department:

The actual sugar production starts from the manufacturing department. The

manufacturing department is to see the good quality of the sugar production. Chief

chemist is the head of this department, responsible for the overall operation of sugar

manufacturing of the factory from juice to final sagging sugar. He has to constantly

endeavor to minimize sugar losses and process and has to institute revise and check

chemical control methods. The following personnel assist the Chief Chemist:

Deputy Chief Chemist

Manufacturing Chemist

Lab and Bench Chemist

44

The Board has unfettered and completes access to any information with in the

company and to any employee to the company. At meeting of the Board, it welcomes

the presence of managers who can provide additional insights into the items being

discussed. The information regularly supplied to the board includes;

1. Annual operating plans and budgets, capital budgets update.

2. Quarterly results of the company and its operating divisions in comparison withe

budgets.

3. Minutes of the meeting of the board, Audit committees as well as the abstracts

of the Circular Resolutions passed.

4. General notices of interests of Directors.

5. Materially important litigations, show cause notices, demands, prosecution and

penalty notices.

6. Fatal or serious accidents or dangerous occurrences any material effluent or

pollution problems.

7. Any material default in financial obligations to any by the company or

substantially non-payment for goods sol by the company.

8. Significant labor problems and proposed solutions.

9. Sale, lease, transfer of material nature of investments, subsidiaries, assets, which

is not in the normal course of business.

10. Progress on the committed business plan of the company unit-wise.

11. Quarterly appraisal on the implementation of the code of corporate governance.

45

There are no material significant related party transactions, pecuniary

transactions or relationships between Delta Sugars and its director’s management,

subsidiary or relatives except for those disclosed in the financial statements.

Environment and pollution control:

The company continues to pursue its environmental friendly approach towards

industrial growth. The company enjoys good safety record. Constant improvements are

being made in the process and equipments, to minimize the discharge of effluents and

emissions. Further the Company has established the effluent treatment plant to bring

down the pollution levels to zero.

Manufacturing Process:

Bull cocks, trucks, wagons or tractor bring the sugarcane. The cane cutting

equipment called levelers, which are also basically cutters all having knifes fitted on

revolving shafts engines. These cutters as they rotate cut the sugarcane in small pieces

as it moves towards the curser rollers.

The first set of roller to which cane is first delivered by cane carrier consists of 2

or 3 wheelers. Ion a three- roller mill, three heavy iron rolls arranged in Pyramid

formation, two below and one above so that the crushed cane mass passed through a set

of rolls. It receives double pressing first as it passes upwards. The top roll with the

second of the lower rolls facilities the conveyance of the crushed cane mass. This is

called as trash plate.

The crushed cane arriving to the mill rollers is scraped by scrapers, which have

also curved iron plates grooved to suit roller grooves. Each one of the mills is so placed

that the crushed cane will rapidly pass through each mill in succession and each mill

yield desired juices and at the last mill the extraction is considered to be completed.

46

In order to achieve complete extraction, water and juice are sprinkled on crushed

cane called bagasse as it emerges from the mill except the last mill. This process of

adding water or juice is called Maceration or Ambition.

The crushed cane is delivered from one mill to another through endless belts

called enter carrier. The action of maceration is to often the cane mass fibers and dilute

and remaining juice and make it possible to extract last possible drops available drops.

A Tandem may consists of three consists of three to seven mills. The residue of

the crushed sugarcane emerges from the last mill called bagasse is conveyed by further

endless belts called bagasse elevator and bagasse carrier to the boilers where there are

steam generation takes some times. The loss of sugar juice may either be due to

mechanical or chemical cause. The juice is there after weighed and analysis of sugar

available is ascertained in the laboratory. The juice is now a dark opaque water fluid

containing sucrose between 10.15 to 11.05 and rest water. The total percentage of solids

contained in the juice including the sucrose and other impurity is termed as ‘Bricks’ and

the ratio of sucrose to bricks are termed as ‘purity’.

Clarification:

Mill house juices after being at rained is pumped to weighting tanks or

measuring juice tanks then it is pumped through a juice heater to sulphitation tanks or

carbonation tanks. In the first juice heater, juice is heated to 60°C either by steam or

heaters of second body or first body of evaporator some time solutions added weighted

juice tanks. Actions of acids do clarification of juice and heat. Whatever the process

whether sulphitation or carbonation the object is to separate non-sugars, waxes, gums

etc. which are contained in raw juice.

The carbon dioxide is prepared by burning limestone in limekiln and sulphur

dioxide by burning sulphur in sulphur burners. The gases are taken to clarification

vessel calves carbonation tanks. In the classifier the clarified clearly juice is taken out

47

and impurities in a form of slumming or mud is passed on to filters which on be of plate

and frame type or a factory vacuum type called olive or emco filters.

In plate and frame type filters, the juice from mud is filtered through filter cloth.

The juice without impurities is taken for evaporation.

The object of initial evaporating process is not to all the water in the clarified

juice but only to concentrate the consistency of thick syrup. The modern method of

affecting an apparatus in which scientific knowledge and mechanical ingenuity have

been effectively blended. Its invention rested upon the knowledge that the boiling point

of water bears mathematical relations to atmosphere higher than on mountains where

the atmospheric pressure is less and consecutively sugar liquor will boil the vacuum at

lower temperature than at atmospheric pressure. Obviously, lower temperature than and

adopts therefore less fuel will be needed for the evaporation.

When the first has been charged with clarified juice, a light vacuum is created in

it and steam is run into heating pipes with which it is lined and contained sugar will boil

at the temperature determined by the degree of vacuum with in the body. The steam that

rises in this body from the boiling sugar liquors passes into the heating pipes of the

second vessel and at the proper time the steaming liquor itself is released and flows into

the body of the second vessel in which a sufficient higher vacuum is maintained to

present a boiling point of first vessel. Thus, the steam that was evaporated in the first

vessel and passed into the heating tubes of the second vessel, hot liquor itself as it

passed from first to second combined to continue the boiling in the second vessel

without introducing any other heat. This process is repeated from one vessel to another,

every succeeding vessel being under higher vacuum than the predecessor and therefore

offering a lower boiling with the result that the entire multiple affect of evaporation is

completed without supplying fresh heat at any point except in the first vessel.

More than half of water contained in the clarified juice will evaporate by this

process. The evaporated liquid has it leaves the body now becomes thick syrup

containing only 30% to 40 % water as against 85% present.

48

Crystallization:

From the multiple effects evaporator, the syrup is conveyed to the vacuum pans-

1 where crystallization is to be effected. The vacuum pan resembles to evaporator body

in construction, except that the size of brass tube is larger in diameter of 4 inches or so

and shorter in length. Each pan is connected with a powerful vacuum, to avoid

discoloration due to higher temperature of boiling. The boiling point of the syrup. , is at

120 to 140 degrees foreign heat depending on the vacuum in the plan.

In the pans small body crystals are created out the syrup and later developed to

bigger grams by feeding syrup or molasses as the case may be. To enable the sugar pan

boiler to watch the growing crystals with in the vacuum pan, glass windows are fitted

and also the proof stick from which samples can draw from time to time. As the syrup is

drawn into the pan, the crystals grown in size and the contents continue to boil and fill

the pan finally when crystals have attained the desired size.

Separation of crystals:

From crystals the masscult is followed mixer called pug mill stationed above the

centrifugal machines from where it flows to other machines.

A sugar centrifugal machine consists of a basket of perforated metal suspended

with in a like iron jacket called housing. The masscult is charged in the basket and is

spun at high speed where by the masscult is thrown against the liners and the molasses

is forced out through the perforations and into the jacked and all the crystals cling to the

inner liners where they form well form well like thick coat of sugar and it is dropped on

the underlying pans. Then it is sent to elevators and then to graders, here the grade is

classified for different grains and bugged after weighing for sale or storage in godowns.

49

Financial Management:

Financial management is that managerial activity which is concerned with the

planning and controlling of the firm’s financial resources. Three most important

activities of a business firm are: finance, production and marketing. The firm secures

capital it needs and employs it in activities, which generate returns on invested capital.

A business firm thus is an entity that engages in activities to perform the functions of

finance, production and marketing.

A firm requires a number of real assets to carry on its business. Real assets can

be tangible or intangible. The firm sells financial assets or securities, such as shares and

bonds, to investors in capital markets to raise necessary funds. Financial assets also

include obligations and borrowing from applied to assets by the firm are called capital

expenditures or investments.

There are two types of funds that a firm can raise: equity funds and borrowed

funds. Firm has to sell shares to acquire equity funds. Shares represent ownership rights

of their holders. Shareholders invest their money in the shares of a company in the

expectation of a return on their invested capital. The return on the shareholders capital

consists of dividend and capital gain.

The three important managerial finance functions are: investment decision,

financing decision and dividend decision. These financial directly concern the firm’s

decision to acquire or dispose of assets and require the commitment of funds on a

continuous basis. It is in this context that finance functions are said to influence the

production, marketing and other functions of the firm. This consequence will affect the

size, growth and profitability and risk of the firm and ultimately the value of the firm.

Business Overview

During the year under review, the Management had taken steps to replace the

existing machinery in the sugar units as a part of modernizing the existing plant and

50

machinery. In this connection the company has incurred capital expenditure amounting

Rs.3.36 crores. During the year under review, the management had taken steps to

modernize the existing unit to adhere to the changing technological changes with the

internal generation of funds.

Implementing various productivity improvement programmes for sugarcane

cultivation. Extending various inputs to the farmers for purchase of fertilizers, seeds and

other necessary materials and also extended load facilities to farmers to establish drip

irrigation. Adopting of different extension methods to inculcate cane cultivation among

small farmers.

Policies with respect to Employees

The Indian Sugar Industry has so far treated the human resource as an adjunct to

industrial relation and workers welfare matrix. On the contrary, Delta Sugars limited

has focused on the development of human resources and pooling of intellectual capital

to attain increased productivity and maximize profitability. Allocation of limited human

resources has been carefully planned to meet the needs of new dynamics of

management and minimize cost of production. The management cadre at delta sugars

Limited consists of a few but rich experienced personnel in their fields.

The employees of Delta Sugars Limited are a working group team of self-

motivated and motivating individuals. They carryout their respective jobs with a vision

and missionary zeal. The employees perceive the goals of the company as their personal

goals and spare no efforts in accomplishing the tasks assigned to them.

Sugar Industry being a seasonal industry has different staff strength during

season and off-season Delta Sugars limited is one of a sugar unit in India, which is not

over-staffed in spite of political pressures and other constraints.

51

1. Training programmes and Management development programmes are conducted

to educate the employees and to enable them to discharge their duties with

panache and aplomb.

2. Shop floor training is imparted to workers to hone their skill.

3. Work shops are conducted for the benefit of employees to educate them on

preventive maintenance. Services of experts are summoned to help and educate

toe workers.

4. Employees are continuously guided about industrial safety and safe industrial

practice.

5. The employees are encouraged to participate in suggestion scheme is in

operation, which enable the employees too frankly and fearlessly put-forth their

suggestions for overall improvement of the performance.

6. The strengths and weaknesses of each employee are critically evaluated to

ensure that the right peg is in right hole. Career planning and job enrichment of

each employee is an ongoing activity in Delta sugars Limited.

Facilities to the Employees

The Delta Sugars Limited has evolved its own employee’s policy, briefly

described as under to its workers and staff to obtain the qualitative performance in an

un-interrupted way;

1. Issuance of the festival advances to workers to meet their expenditure.

2. Creating the provisions for Leave Encashment and gratuity to the entire

employee’s.

52

3. Providing uniform to create an identity of the Company employee’s.

4. Supplying safety shoes in adherence to the safety norms and to create a safety

environment for the employee’s.

5. Issuance of timely increments to the workers.

The company believes that the quality of its employees is the key to its success

in the long run and is committed to provide necessary Human Resource development

and training opportunities to equip them with skill, enables them to adapt to

contemporary technological advancements.

None of the employees was in receipt of remuneration during the year under

review, in excess of the limits prescribed under Section 217(2A) of the Companies Act,

1956 and as amended and therefore the particular required to be furnished under

Companies Rules, 1975, are nil.

Presently Delta Sugars Limited has 400 employees and they are categorized into

four types. They are

Permanent Employees,

Seasonal Employees,

Consolidate salaried Employees,

Daily wage workers.

Among these Permanent employees are 100, Seasonal employees are 130,

Consolidate salaried employees are 70 and daily wage workers are 100. The total

incurred amount for the employees in respect of salaries and allowances is rs.220.9

lakhs during the year 2005-06. Both permanent and seasonal employees got 12%

53

provident fund from their salary and 12% from management. Every year company gives

8.33% salary as bonus. The employees were provided with earned, casual, special

loaves. Every employee works 8 hours in the company according to their allotted shifts.

Employment exchange is the major source of recruitment to the Delta Sugars

Ltd personnel department deals with this the recruitment will takes places through

various steps such as selection, interviews and appointments.

Retirement benefits are accounted on accrual basis and company’s liability

towards the gratuity if an employee is covered by a gratuity policy with LIC. Leave

encashment benefits are not available and hence no provision is made to this effect.

54

3. RESEARCH METHODOLOGY

3.1 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVES

The main objective of the study is to know the WORKING CAPITAL

MANAGEMENT of the company.

SECONDARY OBJECTIVES

1. To study the purchasing mechanism of the firm..

2. To know profitability position of the firm.

3. To know the working capital sources of the firm.

4. To know the liquidity position of the firm.

3.2 METHODOLOGY

This information is gathered from

1. Primary sources.

2. Secondary sources.

Primary sources;

1. Direct interview with the accounts managers

2. Through various questions to staff.

55

Secondary sources;

1. Annual reports of the company

2. various reports submitted to financial institutions

3. databases stores in the computers

4. journals on the accounts offices

5. Magazines.

ANALYTICAL TOOLS USED

Profitability Ratios

Coverage Ratios

Turnover Ratios

Financial Ratios

3.3 LIMITATIONS

Time is a constraint as the project is only for 8 weeks.

I have to limit myself to Delta Sugars for my study as the information regarding

the industry as a whole or any other company was difficult to compare in the

time.

There is confidentiality in the information obtained.

Busy schedule of the managers left little time to gather more information.

56

Balance sheets were provided by the company is only for 3 years.

3.4 NEED FOR THE STUDY:

Working capital management is an important tool of financial management. It

helps to provide more information regarding financial operations. It deals with the

management of all short term current assets and short term liabilities. It helps to know

about the day to day liquidity expenses of the company, and day to day operations of

the company. All techniques will surrounds around the working capital management

technique. It places an important role in financial management. Comparative all others

techniques under financial management it provides more information regarding the

firm.

SCOPE OF THE STUDY:

My area of the study is limited to Delta Sugars Limited, the financial analysis

and trends are all made within the scope of the company. And the data provided by the

company is limited. That is 2007-2009 three years balance sheets. The managers and

guide in the organization some times were not responded to my doubts

4. DATA COLLECTION

57

4.1COLLECTED DATA:

BLANCE SHEETS OF THREE YEARS

Particulars 2007 2008 2009

Shareholder

s funds

Capital 30,00,000.00 60,00,000.00 600.000,000.00

Reserves &

Surplus

21,312,525.72 65,739,178.64 67,925,348.66

Loan Funds Secured

loans

11,125,239.72 609,835,096.93 544,161,338.91

Unsecured

loans

10,451,154.76 66,215,944.38 64,945,109.38

Fixed

Assets

Land 16,254,6350.55 21,743,575. 21,743,575

Buildings 35,214,588.99 40,486,110.57 48,789,824.51

Plant &

Machinery

6,212,253.53 149,876,52.04 127,700,133.67

Weigh

Machines

1,254,365.25 1,124,607.35 1,181,290.95

Office

equipment

1,246,321.16 121,431.48 114,809.98

Furniture

&fixtures

08.081,24216 70,109.81 209,923.16

Vehicles 5,247,589.05 4,909,097.51 4,342,870.15

58

Bore wells 354,256,447.32 555,330.60 518,209.51

Communica

tion

equipment

Computers 698,478.10 836,672.95 753,286.88

Two

wheeler

Excavation

machinery

98,365,.56 101,330.50 140,638.83

Sugar

godown

12,658,356.36 11,984,945.65 11,776,86.20

Air

conditioners

1,254,369.56 1,798,400.55 159,825.22

ETP 156,358,698.21 172,692.83 1,563,069.28

High

efficiency

boller

5,658,478.25 7,490,364.51 6,491,618.98

Current

Assets

Inventories 132,2549.36 355,696,726.32 477,752,075.35

Sundry

Debtors

56,365,365.32 58,448,632.85 60,898,955.88

Cash&Bank

balances

125,325,012.33 154,509,188.48 47,160,494.60

Other

current

4,247,369.95 3,185,134.97 15,718,742.90

59

assets

Loans &

advances

55,321,3654.86 48,586,501.89 7,308,317.32

Current

liabilities&p

rovisons

Current

liabilities

106,174,241.85 173,173,738.77 188,383,589.11

Provisions 98,124,356.09 190,299,738.77 189,318,589.11

Working

capital

132,092,365..51 231,136,405 198,054,236.21

60

PROFIT AND LOSS ACCOUNT OF THREE YEARS

Particul

ars

2007 2008 2009

Income Sales 375,325,41

0.92

525,510,04

3.89

521,010,24

3.78

Other

Income

1,529,250.

64

1,171,481.

16

12,589,425

.33

Increase in

goods

55,129,450

.47

66,967,337

.27

122,803,14

4.82

Expendit

ure

Raw

Materials

312,131,12

7.58

356,358,81

1.99

347,921,24

3.55

Manufacturi

ng expenses

59,944,252

.33

73,822,412

.67

119,598,15

1.59

Repairs&

maintenance

7,211,366,.

54

9,599,842.

75

4,370,793.

26

Salaries,wag

es

32,114,228

.64

32,216,338

.29

31,225,921

.60

Taxes &

Duties

25,665,584

.11

28,907,856

.00

34,996,422

.00

Administrati

ve, selling

exps

22,210,222

.94

23,050,320

.26

15,545,739

.38

Gross Operating Profit 69,693,288

.36

102,744,48

8.55

61

Interest,fina

ncial

charges

35,443,254

.45

39,728,538

.66

66,632,805

.27

Profit Before

Depreciation

26,665,251

.21

29,964,749

.70

36,111,683

.28

Depreciatio

n

23,555,644

.21

27,305,985

.42

31,328,522

.27

Profit before Taxation 3,335,698.

35

2,658,764.

28

4,783,161.

01

Provisio

ns

Current tax 3,221,100.

00

2,020,000.

00

745,000.00

Deferred tax 586,552.22 736,447.00 1,477,997.

00

Fringe

benefit tax

321,501.54 235,000.00 190,000.00

Profit for the year 9,254,365.

32

1,140,211.

20

2,370,164.

01

Dividend on

Red.Cum.Pref. Shares

Dividend tax on the

above

Net profit carried to

Balance Sheet

52,658,789

.35

65,739,178

.64

67,925,348

.66

62

4.2 DATA CALCULATIONS

CHANGES IN WORKING CAPITAL OF 2007 AND 2008 YEARS

Particulars 2007 2008 Increase Decrease

Current Assets

Inventories 281,263,523.13 355,696,726.32 74,433,203

Sundry Debtors 468,342,114.13 58,448,632.85 409,893,482

Cash&Bank

balances

183,437,086.23 154,509,188.48 28,927,898

Other current assets 2,953,164.83 3,185,134.97 107,348,694

Loans & advances 53,386,481.63 48,586,501.89 4,127,818,4

Current liabilities 159,153,568.61 173,173,738.77 15,20,985,1

Provisions 193,299,137.54 190,299,738.77 98,1149

63

Net profit 4,127,818,4

Working capital 637,529,663 637,529,663 105,224,365 105,224,365

Particulars 2008 2009 Increase Decrease

Current Assets

Inventories 355,696,726.32 477,752,075.35 122,055,349

Sundry Debtors 58,448,632.85 60,898,955.88 2450,323

Cash&Bank

balances

154,509,188.48 47,160,494.60 107,348,694

Other current

assets

3,185,134.97 15,718,742.90 125,33,608

Loans &

advances

48,586,501.89 7,308,317.32 4,127,818,4

Current

liabilities

173,173,738.77 188,383,589.11 15,20,985,1

Provisions 190,299,738.77 189,318,589.11 98,1149

Net profit 25,81,63,00

Working capital 231,136,405 231,136,405 163,836,729 163,836,729

CHANGES IN WOKING CAPITAL OF 2008 AND2009

64

STATEMENT SHOWING CHANGES IN WOKING CAPITAL OF 2007 AND2009

Particulars 2007 2009 Increase Decrease

Current Assets

Inventories 281,263,523.13 477,752,075.35 122,055,349

Sundry Debtors 468,342,114.13 60,898,955.88 2450,323

Cash&Bank

balances

183,437,086.23 47,160,494.60 107,348,694

Other current

assets

2,953,164.83 15,718,742.90 125,33,608

Loans &

advances

53,386,481.63 7,308,317.32 4,127,818,4

Current

liabilities

159,153,568.61 188,383,589.11 15,20,985,1

Provisions 193,299,137.54 189,318,589.11 98,1149

Net profit 25,81,63,00

Working capital 637,529,663 163,836,729 163,836,729

Findings:

65

The company working capital is not good because the working capital was decreasing

from the year 2008 (256952705) to 2009 (231,136,405). So, it is not good sign to the

company.

Problem Identification;

Outstanding expenses are increasing

Reason:-

Sales are less compare to last year because of non availability of sugar cane in time. So

the payments are not made in time.

Solution:-1

The company should increase more number of suppliers.

Advantage:-

If the suppliers are increased they will promote raw material availability.

Disadvantage:-

If the company have more number of suppliers it will Increase the advances, amount to

be paid to them.

Solution:-2

The company should go for bank loans purchase some field and cultivate sugar cane.

Advantages:-

You need not rely on outsiders for sugar cane supply then we can increase sales.

Disadvantages:-

This is risky compare to purchase from suppliers

66

4.2 RATIO ANALYSIS

GROSS PROFIT RATIO:

This ratio establishes relationship between gross profit and sales to measure the relative

operating efficiency of the corporation and to reflect its pricing policies. it is computed

by dividing sales into sales minus cost of goods sold. It can be calculated on the basis of

this formula…

GROSS PROFIT RATIO= Gross profit

----------------- * 100

Net sales

FINDINGS: The gross profit ratio of the firm is increasing from the year 2007(0.018) to

2009(0.454.

YEAR GROSS PROFIT SALES RATIO

2007 10,51,534.65 554,544,302.47 0.018

2008 11,40,211.28 525,510,043.89 0.201

2009 23,70,164.01 521,010,243.78 0.454

67

NET PROFIT RATIO

It is also called as net profit margin, is calculated by dividing net income by net sales.

This ratio provides considerable insight into the overall efficiency if the business. a

higher ratio is an indication of efficient use of total resources. a low ratio on the contrary

would mean poor financial planning and low efficiency. this ratio is based on the

following formula…….

Net profit

NET PROFIT RATIO = ------------- * 100

Net sales

YEAR NET PROFIT SALES RATIO

2007 64,541,255.99 552,143,602.47 11.74

2008 65,739,178.65 525,510,043.87 12.50

2009 67,925,348.66 521,010,243.78 13.03

FINDINGS: The NET PROFIT RATIO ratio of the firm is increasing from the year

2007(11.74) to 2009(13.03)

68

FIXED ASSETS TURNOVER RATIO

Fixed assets are used in the business for produced goods to be sold. The effective

utilization of fixed assets will results in increased production and reduces cost. It also

ensures whether investment in the assets have been judicious or not. The following

formula is used for measurement of the ratio. 

Fixed assets turnover ratio =  Sales or cost of sales

                         ---------------------------

                         Fixed assets

YEAR SALES FIXED ASSETS RATIO

2007 63,112,541.05 55,564,544.60 1.22

2008 65,739,178.64 58,448,632.85 1.55

2009 67,925,348.66 60,898,955.88 1.59

FINDINGS: The Fixed assets turnover ratio of the firm is increasing from the year

2007(1.22) to 2009(1.59)

69

WORKING CAPITAL TURNOVER RATIO

The working capital turnover ratio measures the relationship between working capital and

sales. The ratio shows the number of times the working capital results in the sales.

Working capital as usual is the excess of current assets over the current liabilities. The

following formula is used to measure this ratio. 

WORKING CAPITAL TURNOVER RATIO=

                              Sales or cost of sales

                              ---------------------------

    Working capital 

YEAR SALES WORKING CAPITAL RATIO

2007 551,254,312.24 623,112,254.14 1.47

2008 525,510,043.89 620,426,181.54 1.80

2009 521,010,243.78 668,838,583.65 3.17

FINDINGS: The WORKING CAPITAL TURNOVER ratio of the firm is increasing

from the year 2007(1.47) to 2009(3.17)

70

DEBT TURNOVER RATIO

The Debtor’s turnover ratio is also known as receivable turnover ratio. It establishes

relationship between sales and average debtors. This debtor’s turnover ratio is indicating

that how quickly the receivables are collected. It shows the relationship between credit

sales and average debtors. This ratio is calculated on the basis of the following formula. 

Debtors turnover ratio =       Credit sales \       Average debtors

FINDINGS: The Debtors turnover ratio of the firm is increasing from the year

2007(11.74) to 2009(7085)

YEAR SALES OUT STANDING

DEBITS

RATIO

2007 558,256,225.12 634,587,214.25 11.74

2008 521,010,243.78 58,448,632.85 8.91

2009 525,510,043.89 60,898,955.85 7.85

71

DEBT EQUITY RATIO

The debt equity ratio measures the contribution of the shareholders or owners to the long

team finances of the company as compared to contribution of its long term creditors.

Debt represents borrowing on the long term or in other words the term liability of the

company. Equity represents the equity share capital and reserves and irredeemable

preference shares capitals and preference share capital not resemble within a period of

12yrs from thedateof the balance sheet. 

 

 Debt Equity ratio = Long term liabilities\  Equity or net worth

FINDINGS: The Debt Equity ratio of the firm is increasing from the year 2007(1.37) to

2009(3.46)

YEAR TOTAL

DEBTORS

SHAREHOLDER

FUNDS

RATIO

2007 58,548,225.35 114,556,214.35 1.37

2008 60,898,955.88 127,925,348.66 1.47

2009 58,448,832.85 125,739,178.64 3.46

72

STOCK TURNOVER RATIO

The stock turnover ratio or inventory turnover ratio measures how many times on an

average sock is sold during the year. Promptness of sale indicates better performance of

the business.Lower inventory turnover ratio shows that stock is block and not

immediately sold. It shows the poor performance of the business. And inefficiency of the

management. The ratio measures the effectiveness of the stock policy of the management.

Stock   Turnover Ratio = Cost of goods sold\       Average Stock

There is no ideal ratio for the stock turnover ratio but higher the ratio is a positive

sign to the organization. Here in this ratio we see that it is increasing. The stock turnover

ratio of delta sugars ltd is increasing. Here this ration is increasing because of sales

increasing. The stock turnover ratio of delta sugars ltd of the three years like 2007, 2008,

2009 is 3.56, 2.64 and 3.12.

The stock turnover ratio is increasing basing on this ratio we say that the delta sugars ltd

is in good sign. But the increasing stock turnover ratio is very less so it is better to

increase cost of goods sold.

YEAR SALES CLOSING

STOCK

RATIO

2007 558,256,225.1

2

457,332,635.32 3.56

2008 521,010,243.7

8

421,653,737 2.64

73

2009 525,510,043.8

9

329,202,178.23 3.12

FINDINGS: The Stock Turnover ratio of the firm is increasing from the year 2007(3.56)

to 2009(3.12).

CURRENT RATIO

The current ratio can be calculated on the basis of the formula:

Current assets

Current ratio = ----------------------

Current liabilities

The ratio most commonly used to appraise the debt exposure represented on

the balance sheet is the current ratio. This relationship of current assets to current

liabilities is an attempt to show the safety of current debt holders claims in case of

default.Presumably, the larger this ratio, the better the position of debt holders. From

the lenders point of view, a higher ratio would certainly appear to provide a cushion

against drastic losses of value in case of business failure..

It could indicate idle cash balances, inventory levels that have become excessive when

compared to current needs, and poor credit management that resulted in over extended

accounts receivable.

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

RATIO

2007 418,873,412.19 369,173,702.20 2.13

2008 355,696,726.32 173,173,738.77 1.55

2009 477,752,075.35 188,383,583.11 2.56

74

FINDINGS: The Current ratio of the firm is increasing from the year 2007(2.13) to

2009(2.56) so, it is good position to the company

5. DATA ANALYSIS

GROSS PROFIT RATIO:

2007 2008 20090

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.104

0.201

0.454

Interpretation:

The gross profit ratio of the firm is increasing from the year 2007(0.104) to 2009(0.454)

so this is good sign to the firm. But the increment is low.

75

NET PROFIT RATIO

2007 2008 200911

11.5

12

12.5

13

13.5

11.74

12.5

13.03

2007

2008

2009

Interpretation:

The net profit of the firm is increasing from the year 2007(11.74) to 2009(13.03). so, the

firm is in good position.

76

FIXED ASSETS TURNOVER RATIO

Interpretation:

There is no ideal ratio for fixed assets turnover ratio. But lower the ratio is a positive sign

to the company. The above data express the fixed assets ratio of the company delta sugars

77

ltd is increasing. In the year 2007, 2008and2009 the fixed asserts turnover ratio is 1.22,

1.55, and1.59.here in the year 2009 have more ratio than other.  

WORKING CAPITAL TURNOVER RATIO

2007 2008 20090

0.5

1

1.5

2

2.5

3

3.5

1.47

1.8

3.17

2007

2008

2009

Interpretation:

 This ratio indicates that how the firm utilize its funds. The higher ratio is sufficient for

the firm to say the firm position & good.

The above table working capital turnover ratio is having a good position by comparing

the three years the ratio is in the year 2007 is 1.47, in the year 2008 the ratio is 1.80 and

78

in the year 2009 the ratio is 3.17. Here the ratio is increasing and the year 2009 is having

higher ratio.

The performance of the delta sugars ltd is good with regard to its working capital

turnover ratio.

DEBT TURNOVER RATIO

2007 2008 20090

2

4

6

8

10

12 11.74

8.91

7.85

2007

2008

2009

Interpretation:

There is no specific ideal ratio to the debtor’s turnover ratio. But higher the ratio is a

positive sign to the organization.

79

   The debtor’s turnover ratio of the delta sugars ltd is increasing like as in the

year 2007 the ratio is 3.09, in the year 2008 the ratio is 7.85 and in the year 2009 the

ratio is 8.91. The ratio is increasing by seeing the above ratio we can calculate that the

organization is maintaining a good relation between credit sales and number of debtors

DEBT EQUITY RATIO

2007 2008 20090

0.5

1

1.5

2

2.5

3

3.5

1.37 1.47

3.46

2007

2008

2009

Interpretation:

The ideal ratio for debt equity ratio is 1:2, which means per each 1 rupee of long term

debt or total debt the company should maintain 2 rupees of share holder funds. In the year

80

2007, the ratio is 1.37, in the year 2008 the ratio is 1.47 and in the year 2009 the ratio of

the company is 3.46. Here the ratio of the 2009 is increasing, but the increment of the

ratio is very less. So it is better to increase share holders funds of the company. If it is

possible, then it leads to earn high ratio.

The Debt Equity ratio increment is less, but it will not affect the company. But it is better

to increase share holders funds of the company. It will lead to the increment of the Debt

Equity ratio of the company.

STOCK TURNOVER RATIO

2007 2008 20090

0.5

1

1.5

2

2.5

3

3.5

43.56

2.64

3.12

2007

2008

2009

Interpretation:

There is no ideal ratio for the stock turnover ratio but higher the ratio is a positive sign to

the organization. Here in this ratio we see that it is increasing. The stock turnover ratio of

delta sugars ltd is increasing. Here this ration is increasing because of sales increasing.

81

The stock turnover ratio of delta sugars ltd of the three years like 2007, 2008, 2009 is

3.56, 2.64 and 3.12.

The stock turnover ratio is increasing basing on this ratio we say that the delta sugars ltd

is in good sign. But the increasing stock turnover ratio is very less so it is better to

increase cost of goods sold

CURRENT RATIO

2007 2008 20090

0.5

1

1.5

2

2.5

3

2.13

1.55

2.56

2007

2008

2009

Interpretation:

The above ratio express the current ratio of DELTA SUGARS

LTD it tells the company is good sign. Because the current ratio of the company is

increasing from the year 2007(59.05) to 2009(167.97). So, the company is in good sign.

82

6.RECOMMONDATIONS AND SUGGESSIONS

FINDINGS

1. From the various ratios we founded the following findings have been drawn out.

2. The outstanding expenses are increasing from the year 2007 to 2009 so it is bad

sign to the

3. The net profit ratio explains per rupee profit generating capacity of sales.

Company always gets good profits in our project period, but some decrease is

happened on 2008. But on 2009 it reached a peak level.

4. The return on shareholders fund make us to know that the organization always

give positive opinion to their shareholders. The Organization achieved it objective

in earning its profits.

5. From the return on total assets we come to know that the organization started to

give more importance from the last couple of years. Up to that we can’t see that

much of importance.

6. The fixed assets ratio makes us to know that the rate is moving according to the

net profit of the organization. Although the net profit of the company decreased in

2007, the rate is increased from 1.27to 1.59.

83

7. The sales to fixed assets ratio measures the efficiency of the assets used. This is

very important ratio because it is a manufacturing organization. The effective

utilization of the organization of its assets is seen in this ratio. The assets are used

according to the sales.

8. The sale to working capital ratio is always going to increasing but a little step

back is happened on last year. The higher is the ratio, the lower is the investment

in working capital and greater are the profits of the organization.

9. From the current ratio we find out that the firms ability to cover its current

liabilities with current assets. Generally 2:1 is considered ideal for the concern.

But here the current assets are very higher, so the creditors are very comfortable.

10. The liquid ratio shows the company’s ability to meet the current liabilities with its

most liquid assets. 1:1 is considered ideal ratio for a concern because it is wise to

keep the liquid assets at least equal to the liquid liabilities. But in our project

period except on 2008 the liquid assets are very high over the liabilities.

11. The fixed assets ratio explains whether the firm has raised adequate long term

funds to meet its fixed assets requirements. It gives an idea as to what part of the

capital employed has been used in purchasing the fixed assets for the concern.

The ratio is goes on decreasing year by year which is a positive sign for the

organization.

12. The debt equity ratio measures the extent of equity covering the debt. This ratio is

determined to ascertain the soundness of long term financial policies of the

company. The ratio is goes on decreasing in our project period except on 2007

which is favorable for long term creditors, because a large margin of protection

provides safety for the creditors.

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SUGGESTIONS

The Delta Sugars Limited overall financial performance and operating

performance is satisfactory which can be achieved with proper financial

planning and profit planning.

The organization is in a position to issue bonus shares.

The fixed interest cover ratio of the organization is goes on increasing so that the

lenders are confident to receive periodical interest charges.

A very high turnover of working capital is a sign of over trading and may put the

concern into financial difficulties. So the organization must be very careful in

using funds.

The organization is fluctuating with its current liabilities year to year. So it is

better to streamline its current liabilities.

The organization should improve its sales with compare to last year which is

below than the before last year.

Cash planning technique should be improved which protects the financial

condition of the firm by developing the forecast of expected cash inflows and

outflows.

In order to run toe organization effectively Delta Sugars Limited should try to

control and reduce the non-operating expenses so that it can earn profits in a

better way in near future.

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In 2008 the liquid assets are very low, so it betters to not repeat the same in the

future.

It is better to the organization that the fixed assets ratio is must always above 1.

The good ideal ratio is1.59.

The low debt equity ratio may be taken as quite unsatisfactory by the

shareholders because they find neglected opportunity for using low-cost

outsiders’ funds to acquire fixed assets that could earn a high return. Keeping in

view the interest of shareholders and long term creditors’ debt to equity ratio of

2:3 is acceptable.

BIBILOGRAPHY

Erich A. Helfert; Techniques of Financial analysis, Irwin Publication Company,

1997.

I.M Pandey; Financial Management, Vikas Publishing House Pvt.Ltd, 1999.

Richard A. Brealey & Stewart C.Myres; Principles of corporate finance, the

Megraw-Hill Publishers, 1996.

S.P.Jain & K.L.Narang; Finanicial Accounting & Analysis, Kalyani Publishers,

1998.

S.P.Jain, K.L.Narang, Simmi aggrawal & Monika Sehgal; Cost and Management

Accounting, Kalyani Publishers, 2003.

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