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MBA PROGRAMME JOCIL
INTRODUCTION
An enterprise whether industrial, trading in other acquires two types of
assets to run its business. They are fixed assets, which are necessary for
carrying the production/business. It is the current assets which are generally
referred to as “Working Capital”.
In managing fixed assets the time factor is very important that’s why
discounting and compounding play a very important role in any capital
budgeting decision. But because the time frame of current assets is only one
accounting period the time value of money is significant in the management of
current assets.
Any short run immediate need of the company whether that is need for cash
or adjustments to fluctuations in sales can be made only through adjusting the
levels of the various components of the current assets. This calls for efficient
management of current assets, which forms part of working capital.
Working capital management involves not only managing the components
of current assets but also the managing the current liabilities. A set-financing
pattern is evolved to meet the requirement of a unit for acquisition of fixed
assets and current assets. Fixed assets are to be financed by owned funds and
long term liabilities raised by a unit while current assets are partly financed by
current liabilities and other short term loans arranged by the unit from the bank.
Net working capital=current assets-current liabilities
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MBA PROGRAMME JOCIL
CONCEPTS OF WORKING CAPITAL
There are two concepts of working capital:
Balance sheet concept or traditional concept.
Operating cycle concept.
BALANCE SHEET CONCEPT OR TRADITIONAL CONCEPT
It shows the position of the firm at a certain point of time. It is
calculated on the basis of balance sheet prepared at a specific date. In this
method there are two types of working capital.
Gross working capital
Net working capital
GROSS WORKING CAPITAL
It refers to a firm’s investment in current assets. The sum of the current assets is
the working capital of the business. The sum of the current is quantitative aspect
of working capital which emphasizes more on quantity than on its quality, but it
fails to reveal the true picture of the financial position of the business because
every increase in current liabilities will decrease the gross working capital.
NET WORKING CAPITAL
It is difference between the current assets and current liabilities or the
excess of total current assets over total current liabilities. It can also be defined
as that part of a firm’s current asset which is financed with long term funds. It
may be either negative or positive. When the current assets exceed the current
liabilities, the working capital is positive and vice-versa.
OPERATING CYCLE CONCEPT
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MBA PROGRAMME JOCIL
The duration or time required to complete the sequence of events right
from the purchase of raw materials for cash to the realization of sales in cash is
called operating cycle or working capital cycle. The operating cycle consists of
three phases:
In phase 1, cash gets converted into inventory. This would include
purchase of raw materials, conversion of raw materials into work-in-progress,
finished goods and terminate in the transfer of goods to stock at the end of the
manufacturing process. In the case of trading organization, this phase would be
shorter as there would be no manufacturing activity and cash will be converted
into inventory directly. The phase will, of course, be totally absent in case of
service organizations.
In phase 2 of the cycle, the inventory is converted into receivables as
credit sales are made to customers. Firms which do not sell on credit will
obviously not have phase 2 of the operating cycle.
The last phase, phase 3, represents the stage when receivables are collected.
This phase completes the operating cycle. Thus, the firm has moved from cash
to inventory,receivables and to cash again.
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MBA PROGRAMME JOCIL
FIXED/PERMANENT WORKING CAPITAL
To carry on business, a certain level of working capital is necessary on a
continuous and uninterrupted basis, for all practical purpose, the requirement
has to be met as with other fixed assets. Permanent working capital represents
the minimum level of raw materials, work-in-progress, finished goods, stores,
accounts receivables and cash which are in circulation to ensure continuity of
production.
Permanent working capital is again divided into two parts: regular working
capital and reserve working capital. The portion of fixed working capital which
is utilized to carry out the cyclical operation of current assets in the form of
conversion of liquid cash into raw materials, raw materials into finished goods,
finished goods into debtors and debtors into liquid cash in a continuous manner
is known as regular working capital. On the other hand, the portion of fixed
working capital, which is preserved for meeting uncertain and emergent
working needs (like sudden price hike, abnormal scarcity in times of war,
natural calamity, etc) is known as reserve working capital.
VARIABLE/TEMPORARY WORKING CAPITAL 4
MBA PROGRAMME JOCIL
Besides fixed working capital, a business may need additional working
capital to meet the growing demands of busy seasons at stated intervals. If the
demand for the products of the business goes up at any time it needs additional
funds to pay for more materials, labour and other expenses and to meet the
requirement of cash balance to be maintained in the changed situation. This
additional working capital needed to feed the operating cycle in busy business
periods is known as variable or temporary working capital. It is called variable
or temporary because the business does not need it always but it is required
according to the need of the situation.
Generally the importance of variable working capital is more acute in business
concern having seasonal market demands. Variable or temporary working
capital may be further sub- divided into (a) seasonal working capital and (b)
special working capital.
The additional working capital required by a concern to carry out its
operating activities in busy seasons of high market demands is known as
seasonal working capital. Businesses which mostly have seasonal demands of
their products like ice- cream, cold drinks, wool and likely products
manufacturing concern may need huge amount of seasonal working capital. In
other business concerns too the market may rise to the peak in some particular
time period. So in all types of business a portion of working capital may be
preserved for meeting seasonal needs. On the other hand, the portion of working
capital that is needed by a concern to meet the extraordinary requirements of
special situations is known as special working capital. This is called special
working capital because it is needed in special situations and not in normal
circumstances.
Diagrammatic representation of the concept of working capital
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MBA PROGRAMME JOCIL
IMPORTANCE OF WORKING CAPITAL
the adequate reserve of working capital ensures a steady flow of raw materials to the production process.
The adequate reserve of working capital indicates the good solvency position of the concern and helps it to get loan from the market at favorable terms.
The adequate stock of working capital makes it possible for a concern to purchase the trading goods in cash and cash purchase always carries the benefit of getting cash discount.
A strong working capital base is probably the only remedy to overcome the odd situations like dull market conditions, scarcity of
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MBA PROGRAMME JOCIL
raw materials and other components in case of any emergency, sudden market fluctuations, etc.
A business concern can exploit the market opportunities with the help of adequate working capital.
The regular flow of adequate working capital makes possible efficient use of fixed assets, reduces wastage, ensures quick replying of current assets, and establish a well- tuned working environment.
A quick rotation of working capital cycle and an efficient management of working capital reduce cost and increases production and sales. The combined effect of all these favorably add to the profitability of the concern.
The adequate amount of working capital and its quick rotation increases profit. The rate of dividend of the shareholders also increases as a result of such increase in profit.
Sufficient working capital helps in research and development to face the present era of cut throat competition and quick technological advancement.
DETERMINANTS OF WORKING CAPITAL
The total working capital requirement is determined by a wide variety of factors. It should be, however, noted that these factors affect different enterprises differently. They also vary from time to time. In general, the following factors are involved in a proper assessment of the quantum of working capital required:-GENERAL NATURE OF BUSINESS:
The working capital requirements of an enterprise are basically related to the conduct of the business. According to the nature of business they have to maintain a sufficient amount of cash, inventories and book debts. The industrial concerns require fairly large amounts of working capital though it varies from industry to industry depending on their assets structure.PRODUCTION CYCLE:
Another factor which has a bearing on the quantum of working capital is the production cycle. The term “production or manufacturing cycle” refers to the time involved in the manufacture of goods. It covers the time-span between
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MBA PROGRAMME JOCIL
the procurement of raw materials and the completion of the manufacturing process leading to the production of finished goods. To sustain such activities the need of working capital is obvious.BUSINESS CYCLE:
The working capital requirements are also determined by the nature of the business cycle. The variations in business conditions may be in two directions: (i) upward phase when boom conditions prevail, and (ii) downward phase when economic activity is marked by a decline. During the upswing of the business activity the need of working capital is more as opposed to the downward phase of the business.
PRODUCTION POLICY: The requirement of working capital also depends on the production policy
of the firm. In manufacturing concerns having mostly seasonal demand for the product the production policy is a significant determinant of working capital.
CHANGES IN PRICE LEVEL:General increase in price level increases working capital need of a firm
because the firm has to pay more for maintaining the previous level on working capitalGROWTH AND EXPANTION:
As a company grows, it is logical to expect that a larger amount of working capital will be required. The critical fact is however, is that the need for increased working capital funds does not follow the growth in business activities but precedes it.AVAILABILITY OF RAW MATERIALS:
In case raw materials are easily available on soft terms the firm does not require maintaining a huge inventory of raw materials. Such a firm does not require blocking up huge amount of working capital for this purpose. On the contrary if raw materials are scarce and its supply is irregular and seasonal in nature the firm needs to store a reasonable quantity of raw materials in hand. The working capital need of such a firm is significantly high.DIVIDEND POLICY:
The payment of dividend consumes cash resources and, thereby, affects working capital to that extent. Conversely, if the firm does not pay dividend but retains the profits, working capital will increase.
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MBA PROGRAMME JOCIL
DEPRECIATION POLICY:Depreciation policy also exerts an influence on the quantum of working
capital. Depreciation charges do not involve any cash outflow. The effect of depreciation policy on working capital is, therefore indirect.At DSP depreciation is provided on straight line method at the rates specified in schedule- XIV to the companies act, 1956. However where the historical cost of the depreciable asset undergoes a change, the depreciation on the revised amortized depreciable amount is provided prospectively over the residual useful life of the asset based on the rates specified in schedule- XIV to the companies act, 1956. Depreciation on assets installed/ disposed off during the year is provided with respect to the month of addition/ disposal there of.
STRUCTURE OF WORKING CAPITAL
The structure of working capital includes a study of the components of current assets and current liabilities.
CURRENT ASSETS:The list of current assets comprises inventories (including raw materials,
work-in-progress and finished goods and spares), sundry debtors including receivables, readily realizable securities and tax reserve certificates, short-term investments, accrued incomes, prepaid expenses (not in the nature of deferred charge), cash at bank, and cash in hand.In jocil limited current assets are:
Inventories (stores & spares, raw materials, semi-finished products) Sundry debtors Cash & bank balances Interest receivable/accrued Loans & advances etc
CURRENT LIABILITIES:The list of liabilities includes trade creditors, accounts payable,
outstanding or accrued expenses, bank overdraft, outstanding liabilities, short-term loans and borrowings and certain obligations including different provisions, i.e., provision for taxation, proposed dividend etc. In jocil limited current liabilities are:
Sundry creditors 9
MBA PROGRAMME JOCIL
Advances from customers Security deposit Other liabilities etc.
FACTORS TO BE CONSIDERED WHILE ESTIMATING WORKING CAPITAL REQUIREMENT
Total costs incurred on materials, wages and overheads.
The length of time for which raw materials remain in stores before they
are issued to production.
The length of the production cycle or work-in-progress, i.e., the time
taken for conversion of raw materials into finished goods.
The length of the Sales Cycle during which finished goods are to be kept
waiting for sales.
The average period of credit allowed to customers.
The amount of cash required to pay day-to-day expenses of the business.
The amount of cash required for advance payments if any.
The average period of credit to be allowed by suppliers.
Time-lag in the payment of wages and other overheads.
INVENTORY MANAGEMENT
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MBA PROGRAMME JOCIL
Inventories constitute the most significant part of current assets for a majority of companies in India. The term inventory refers to the stockpile of the product.
Inventories can be classified as three categories:
1) Raw material: Inputs that are converted into finished products through manufacturing process.
2) Work-in-progress: Semi finished products that require further work to be done before they are ready for sale.
3) Finished goods: Goods which are completely manufacture products and / or ready for sale.
Need to hold Inventories
There are three general motives for holding inventories.
1) The Transaction Motive: Which emphasis the need to maintain inventories to facilitate smooth production and sales operation.
2) The precaution Motive: Which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors?
3) The Speculative Motive: Which influences the decision to increase or reduce inventory level to take advantage of price fluctuation.
OBJECTIVES
The objective of inventory management is to determine and maintain the optimum level of inventory management as both excessive and adequate inventories are not desirable. The optimum level inventory lies between the two danger points, 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.
TECHNIQUES
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Attention is given to the basic concepts relevant to the management and control of inventory. The aspects include:
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. However a familiarity with them is essential for a financial manager in planning and budgeting inventory.
DETERMINATION OF THE TYPE OF THE CONTROL REQUIRED
ABC System:
The ABC system is a widely used classification technique to identify various items of inventory for purpose of inventory control. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep a more rigorous control on items that are (1) most costly, and / or (2) slowest turning while items that are less expensive should be given less control effort.
On the basis of cost involved the various inventory items according to the system are categorized into three classes.
A = Largest inventory leading to most sophisticated inventory control techniques.
B = Midway and deserving less attention than ‘A’ but more than ‘C’ leading to employing less sophisticated techniques.
C = Small investment with fairly large number deserving minimum attention.
Order Quantity Problem:
Economic Order Quantity (EOQ) model:
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MBA PROGRAMME JOCIL
After various items are classified on the basis of the ABC analysis, the management becomes aware of the type of control that would be appropriate for each of the three categories of the inventory items. The group ‘A’ items warrants the maximum attention and the most rigorous control. A key inventory problem particularly in respect of the group ‘An’ items related to the determination of the size or quantity of inventory.
Buying in large quantities implies a high inventory level, which will assure
(i) Smooth production / sale operation and(ii) Lower ordering or set-up costs. However it increases the ordering
costs and likelihood of interruption in the operation due to stock outs.
Thus a trade-off between benefits derived from the availability of inventory and the cost of carrying that level of inventory as to be derived by placing an optimum level of inventory order that minimizes the cost associated with inventory order that minimizes the cost associated with inventory management.
The optimum level thus derived is known as Economic Order Quantity. EOQ equates the cost of ordering with the cost of storage of raw materials.
Ordering cost:
It is difficult quantity this cost, as there are many factors involved. It includes cost of stationery, salaries of those engaged in preparing the purchase orders etc.
Cost of storage (or) cost of carrying inventory:
This includes the cost of store keeping, interest in capital locked up in stores, the incidence of insurance cost, evaporation etc.
For effective material control and to avoid overstocking and under stocking of raw materials, an important requirement is to decide upon various levels of materials.
These levels are minimum level, minimum level and re-order level. By taking action on the basis of these levels, each item of material will automatically be held within appropriate limits of control.
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MBA PROGRAMME JOCIL
These levels are not permanent, but need revision according to the changes in the factors, which determine these levels.
FACTORS INCLUDE
Rate of consumption of materials.
Storage capacity.
Availability of funds for investment in inventories.
Cost of storage.
Risks of loss due to deterioration, theft, fine etc.
Seasonal factors – certain materials are cheaply available during certain seasons.
Fluctuation in market prices.
Insurance costs.
CASH MANAGEMENT
Cash and near cash; what is blood to human body, cash is to company. It is like oil to lubricate the over turning wheels of business; without it the process grinds to a stop. Cash is an asset which earns only when it is in use. It is the basic input needed to keep the business running on a continuous basis.
MOTIVES OF HOLDING CASH
The firms need to hold cash may be attributed to the following three motives.
Transaction motive-
The transaction motive requires cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salary, other operating expenses, taxes dividend etc.
Precautionary motive-
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It is need to hold cash to meet contingencies in the future. It provides a cushion or buffer to withstand some unexpected emergency. The precautionary amount of cash depends upon the predictability of cash flows. If cash flows can be predicted with accuracy, less cash will be maintained for an emergency.
Speculative motive-
The speculating motive for holding of cash is to invest in profit making opportunities as and when they arise. The opportunities to make profit may arise when the security prices changes. The firm will hold cash, when it is expected that interest rate will rise and security price will fall. Securities can be purchased when the interest rate is expected to fall; the firm will benefit by subsequent fall in interest rates and increase in security prices. The firm may also speculate on material prices. If it is expected that the material’s price will fall, the firm can postpone purchase of materials and make purchases in future when price actually falls. Some firm may hold cash for speculative purposes. By and large, business firms do not engage in speculations. Thus the primary motive to hold cash and marketable securities are: the transaction and precautionary motives.
The firm should evolve strategies regarding the following four facets of cash management.
Cash planning- Cash inflows and out flows should be planned to project cash surplus
or deficit for each period of the planning period. Cash budget should be prepared for this purpose. Managing the cash flows- The flow of cash should be properly
managed. The cash inflows should be accelerated while, as far as possible, the cash out flows should be decelerated.
Optimum cash level- the firm should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.
OBJECTIVES OF THE STUDY
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MBA PROGRAMME JOCIL
To analyse the working capital management strategies of “JOCIL LIMITED” .
To study the entire working capital cycle of the firm.
To find out the working capital policies and procedures of the firm.
To analyse the company’s receivables, cash, inventory techniques.
To examine the cash management policies through liquidity ratios.
To analyse the inventory management in the firm through inventory turnover ratios.
To study the liquidity position through cash inflows, outflows of the company.
Significance of the study
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MBA PROGRAMME JOCIL
The Study is significant of following groups
The study provide and inside into the various aspects of working
capital management.
Studies of this type one more useful to Academicians and
scholars to make further inside the working capital management.
Studies of these types of make necessary steps to improve
working capital management.
Studies of these types are more useful to policy maker.
Studies of these types are also useful to competitors to more
necessary steps to improve working capital management.
Limitations of the Study:
The study was under taken with some market assumptions but in reality
they are Unfortune.
These decisions are cannot be taken as ultimate tools for the estimation of
company whether good or bad.
This study is also limited to the topic taken “WORKING CAPITAL” .
The study is limited by Cost & Time factors.
The limited period of the study may not by detail full-fledged in all
aspects.
Other statistical tools for further in depth analysis could not be used due
to constraint of time.
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MBA PROGRAMME JOCIL
The study is conducted with the availability of Jocil Ltd expansion data &
annual reports.
The opinions or conclusions drawn may not be generalized in macro level.
SCOPE OF THE STUDY:
The study is based on company analysis.
The study is based on five consecutive years from 2006-10.
The trend is in ratio analysis and comparative analysis.
The study is only for three months period of time.
The study is related with various aspects of working capital like current assets, current liabilities.
The information collected from primary data and secondary data.
The calculation may be done in various analysis through some selected ratio.
NEED FOR THE STUDY: 18
MBA PROGRAMME JOCIL
Working capital refers to current assets of the company that are changed in
the ordinary course of business and one firm to another, for instance from cash
to inventories, inventories to receivables, receivables into cash. It refers to the
firms investment in current assets. Current assets are the assets which can be
converted in to cash with in the accounting year and include cash, short-term
securities, debtors, bills receivables and stock. When current assets exceed.
Current liabilities, the working capital is positives. Working capital is needed
for financing current assets
Whenever the requirements of working capital funds arises due to increasing
level of business actively arrangements should be made quickly to rise the
finance. In case of some surplus funds are there in the organization. It should
not be allowed to remain idle should be invested short-term securities.
Therefore, the need of working capital requirement cannot be over emphasized.
The need for working capital to run the day-to-day business activities would be
felt essential. However, firms differ in their requirement of working capital.
METHODOLOGY OF THE STUDY:
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MBA PROGRAMME JOCIL
For the preparation of a project the collection of data is very essential. There
are two broad methods, from which date is to be collected. They are primary
data and secondary data.
Primary data:
This is collected through discussions and by interviewing the personnel
concerned within the Company.
Secondary Data:
This information is collected mainly from published information Viz., annual
reports, journals, books, magazines, internet available on the subject.
Annual Reports of the Company
Magazines
Journal
Internet
period of Study:
For the purpose of the project work we have considered five years from 2006-
11.
INDUSTRY PROFILE
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MBA PROGRAMME JOCIL
INDUSTRY OF FATTY ACID
Fatty Acids, as the name itself indicates, are in the organic acids derived from fats and oils. Fats and oils are glycosides of Fatty Acids. Fatty acids are manufactured by hydrolysis of fats and oils, which is popularly known as Fat Splitting. Glycerin is obtained as a byproduct on the process of fatty acid manufacture.
Fatty Acids are having diversified application in various fields of
Industries like textile, type, plastic, surfactants, Rubber, cosmetics, Foods and
Pharmaceuticals both as it is and as the derivatives
PRESENT STATUS OF INDUSTRY:
Present manufacture of Fatty Acids is dispersed all over the country with
units in various states. Production of fatty acid in India was insufficient prior to
the period of Second World War. Deduction on a small scale was initially
started in the mid-forties that too with obsolete equipment. The quality of fatty
acid coming out from these units is far from desirable and recovery of Glycerin
was inefficient
It is in 1953, the first high pressure Fat splitting plant in our country went
stream in Bombay It started production as a batch –operating Unit, which was
soon converted to a semi –continuous One. The industry, which started taking
shape in the early fifties, was established process technology.
A BRIEF NOTE ON FATTY ACID INDUSTRY IN A.P.
The fatty Acid industry is dependent on availability of the oils& oil seeds for extraction and further processing, as mutton tallow is banned in India. The Industry found that Rice Bran Oil (R.B.Oil) in one such source, which is cheaper than other oil Thus, most of the fatty Acid / Stearic Acid manufactures have chosen rice bran oil as Their raw material and the rice bran oil extraction units found placement near the raw Material source i.e. Rice Bran even though the customers are well spread all over the Country.
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MBA PROGRAMME JOCIL
The consumption pattern of Rice Bran Oil depends on the level
of free Fatty Acid Content available for industrial grade varies from time to
time as the Rice Bran availability is seasonal, having direct relation to the rice
roping and Harvesting schedules. Therefore, fluctuations are observed in the
Rice Bran Oil Prices, which are almost fixed in their pattern. However, at times
due to climate conditions and temperature variations, the status of the Rice Bran
oil changes from edible grade and vice-versa.
In India, as explained already Rice Bran Oil extraction is mostly valuable in the major rice growing states of Andhra Pradesh and Punjab Fatty Acid manufacturing units have also found their duration in these states to be nearer to the raw material source. Tamilnadu state, even though produces major quantities of rice, most of it’s consumed as boiled twice for local consumption. In Andhra Pradesh there are about 70-rice bran oil extraction units and 6 fatty acid manufacturing units. Another new unit is coming up. Among all these, M/s. Jocil limited is the second oldest and its products are well accepted among the customers the installed capacity of these units is more than one lack tones per annum. The Commercial sales of Stearic acid by these Andhra Pradesh based unit’s account approximately for 48 per cent of the all India sales volume.
The Fatty Acid manufacturing units in Andhra Pradesh are m/s.
Food Fats and Fertilizers Ltd., M/s Sree Jocil Ltd., M/s. Sudha Agro Oil And
Chemical Industries Ltd., M/s Sree Rayalaseema Alkalis and Allied Chemicals
LTD, M/s. Swastik Oleo chemicals Ltd., M/s. Golden Agro –Tech industries
Ltd., are yet to start commercial production.
All these are manufacturers of Stearic acid and other fatty acids. Some of
them ate utilizing portion of their capacity for captive consumption (on all India
basis about 52 Per cent of installed capacities is used for captive consumption
and about 34 per cent is idle capacity. About 14 percent is used for commercial
sales of fatty acids). The idle capacity of M/s. TOMCO, KSDL and vegetable
vitamins and fats alone is about 73 per cent. Andhra Pradesh State is growing
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MBA PROGRAMME JOCIL
industrially and there is ample scope and potential for entry of new industries.
Thus, the Stearic acid using industries like PVC, chemical, rubber retreating and
related and related industries are still possible to be set up in Andhra Pradesh, is
still to, grow, inspire of the competition among the fatty manufacturers. The idle
capacity thus, is not a permanent feature.
The industries using Stearic acid in Andhra Pradesh are mostly
PVC pipes, rubber retarding, Hawaii Chapels, Cycle Tires, Chemical
Auxiliaries, Stearates, Cement, Pints and cosmetics. The growth rate though is
high in cosmetics industry at 25 per cent. The volumes are low due to lower
production levels of cosmetics indust
INDUSTRY OF STEARIC ACID:
In the Stearic acid different grades are produced with standard
specification for different industrial consumers.
The following are the different grades of Stearic acids consumed by different industries in manufacturing their own Industrial products.
VARIOUS GRADES OF STEARIC ACID:
JOTEX GRADE, JOTEX SPECIAL GRADE
Used in drugs, pharmaceuticals, cosmetics, chemicals and plastics
JOSTRICPECIAL GRADE
Chemicals, calcium carbonate.
JOCIL GRADEMetal polish, Grease, Metallic Polish, PVC Stabilizers and chemicals.
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MBA PROGRAMME JOCIL
M
P
R
R
24
NAME OF THE MANUFACTURER
QUANTITY MARKET (M.T)
SHARE (%) REGION
Godrej Soaps Ltd 17000 22 NORTH
VVF Limited 9000 12 NORTH
Jocil Limited 10000 13 A.P.
FFF Limited 6000 8 A.P.
Nahar Agro 5000 7 NORTH
Raj Agro 5000 7 NORTH
OCL & Thapar 2000 3 NORTH
Wipro Limited 2000 3 Karnataka
Siris Agro Limited 5000 7 A.P.
Sudha Agro Limited 2000 3 A.P.
Rayalaseema Alkalies Ltd
5000 7 A.P.
Swastik & Oleo Chemicals
7000 9 A.P.
Imports 1000 1
MBA PROGRAMME JOCIL
PRESENT MARKET SHARE OF STEARIC ACID MANUFACTURES
WISE:
SL.NO. Name of the industry Quantity
(M.T.)
Industry
Share (%)
Growth
1. Rubber – Tyre 13000 17 5
2. Rubber-Nontyre 12000 16 3
3. Stearates/Stabilisers 15000 24 6
4. PVC/Polymers 9000 12 7
5. Cement Paints 3000 4 6
6. Chemical Auxiliaries 6000 8 5
7. Calcium Carbonate 3000 4 6
8. Food/Pharma 1000 1 9
9. Metal Polishes 3000 4 5
10. Lubricants/Greases 3000 4 8
11. Cosmetics 3000 4 30
12. Others 2000 3 5
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MBA PROGRAMME JOCIL
SOAP INDUSTRY:
The Rs.45 billion Indian soaps and detergents industry has been expiring
low growth and intense competition in urban areas.
The physical market for detergents at about 2.7 million tonnes is
one of the largest markets in the world. It categorized popular economy,
premium and super premium. In India, the per capita consumption of detergents
is only 1.6 kg. Per annum as against over 16 kg. Western Europe. Soaps 1.4 kg.
From 93-94 report. In Taiwan 6.2 kg. Thailand 32 kg. Per annum, Indonesia
2kg, Korea 7.3 kg per annum per capita, Malaysia 3.7kg per annum per capita,
Japan 8.9 kg per annum per capita.
The per capita consumption of toilet soap in India is at present
whole fully low as compared to many developing countries. The Industry has
made rapid progress after lifting of the price control.
The overall growth rate of the industry in the recent years has
been in the neighbourhood of 2% per annum. The total turnover of toilet soap
industry is Rs.4000 crores. The market is estimated at more than 3 lakhs tones
and its growth rate is about 2% per annum.
The overall consumption of toilet soaps in the country has been
increasing at the rate 6.7% and at more than 12% per annum in rural areas. The
industry faces serious problem on account of inadequate availability of linear
alkaline benzene, which has to be imported on a large scale. The gap between
demand and supply of for production of toilet soap is a matter of serious
concern. 26
MBA PROGRAMME JOCIL
The working group has assessed the availability of oils by the year
1999 and 2000 A.D at 6.5 lakhs tones, which will have to be the basis of present
reckoning by, imports. The soap market is divided into sub-popular and popular
premium on the basis of price. But for the purpose of market study, the market
is categorized into popular and premium soaps make up the remaining 13%.
Segmentation of the Total Toilet Soaps:
Market Share of Premium, Popular, Sub Popular.
Segment Market share in (%)Growth rate (per
annum)
Premium 31 6%
Popular 45 2%
Sub-popular 24 8%
The above table reveals the market share of premium, popular and
sub-popular soaps where a major share of 45 % is captured by popular soap
segment which is growing slowly at 2% per annum. While 31 % of total market
27
Price range (in Rs.) Soap segment
6-10 Sub-popular
11-15 Popular
16& above Premium
MBA PROGRAMME JOCIL
share is contributed by premium soap segment which is growing at 6% per
annum. But the sub-popular soap segment which is showing the least of all i.e.
24% is growing at a fast rate of 8% per annum.
Hindustan Lever Ltd., (HLL):
Hindustan Lever Ltd. has become a major player in the Indian personal
wash market. In India HLL has gained 60% of share in the total toilet soap
market. HLL gives its products in several brand names. The brand names of
HLL are Liril, Pears, Dove, Lux, Denim, Fair & Lovely, Rexona, Lifebuoy,
Hamam, Breeze, and Ayush. Different brands are popular in different regions.
HLL have brought a few benefits to the consumer as a marketer of toilet
soap has tried to woo. Consumers through up graded offerings and better quality
soaps. As a result of sharp fall in farm disposable incomes, the consumers
persuaded low-income households to down trade, that is, switch from high-to-
low –priced brands. HLL too appears to endorse the phenomenon of down
trading.
The major competitors of HLL are Nirma, Godrej consumer care and
WIPRO, Godrej consumer care has introduced, fairness soap, fair glow which
claims to enhance a fairness, has been a success too, as against this, spawning a
competitive response from HLL in the form of Fair & Lovely soap. HLL
offering to combine two benefits in a single tablet, Breeze 2-in-1 actually offers
a cost-effective replacement to consumers who we hair wash products and soap.
HLL claims Breeze is the largest brand in the discount segment. HLL has
increased Lifebuoy’s market share by introducing, Lifebuoy Active, Lifebuoy
Gold, Lifebuoy Plus. HLL has gained major share in discount segment.
Now-a-days HLL has become a dominant player in the Indian personal
wash market. 28
MBA PROGRAMME JOCIL
WIPRO:
WIPRO has become a major player in the Indian personal wash market.
In India Wipro has gained 50% of share in toilet soap market. Wipro gives its
products in brand names of Santoor, Wipro Baby Soap, and Chandrika.
It covers 1.6 million outlets across the country for its distribution. 50
percent of Wipro consumer care business comes from the toilet soap category.
The biggest brand of Wipro is Santoor was launched in the late 80’s. Wipro
through Santoor is the leading Soap marketer in Andhra - Pradesh with 18
percent market share. Wipro baby soft diapers gained almost 65 percent of the
business from Northern Markets.
Wipro have come out with new mixes and are confident of delivering
value. The company introduced Chandrika as an ayurvedic and herbal product
as against Medimix. The companies’ further interests in naturals/ ayurvedic
segment of the toiletries market.
The company faces several competitions from HLL, Godrej, Nirma, and
Henko. In spite of competition Wipro has generated consumer satisfaction.
Nirma:
Nirma has quickly become a significant player in the domestic toilet soap
market. The company’s aggressive pricing strategy has been the key behind its
performance. Launches Such as Nirma have paid off because consumers have
seen the brand as offering good value for money. The company has managed
healthy top line growth in the market.
29
MBA PROGRAMME JOCIL
Nirma has gained major market share just a couple of years after its entry.
It tries to made brands such as Nirma available at least 10 percent lower than its
nearest competitors. The company offers its brands Nirma Lime, Nirma
premier, Nirma. The company faces competition from HLL, Wipro, and Godrej.
The Nirma was succeeded within a short period due to its aggressive
pricing strategy.
Godrej Consumer Care:
With at least three entirely new launches under its belt, Godrej
consumer care has improved its market share in the personal wash market. The
company’s recent restructuring exercise, offer which the consumer products
business was diverted from the Godrej industries and vested with Godrej
consumer care, has also helped pep up profitability performance.
Fair Glow, the fairness soap from Godrej Consumer Care, which
claims to enhance fairness, has been a success too. As a relatively small player
in the business, the company has managed a robust sale.
Market Share of Different Companies:
30
Hull60%Karnataka Soaps
7%
Godrej6%
Nirma5%
Others12%
Henkel4%
Wipro6%
MBA PROGRAMME JOCIL
Brand associations:
Every soap manufacturer is following brand associations to their product,
which boosts promotion of the soap in the market. Thesewill attract the
customers towards the product and make them to buy. These brand associations
can separate the product from other competitive products.
Brand positioning:
31
MBA PROGRAMME JOCIL
Wind Energy Generators (WEG)
During the year 2 x 1.65 Mw WEG Sets generated 78.96 lakhs units as
against 83.55 lakhs units in the previous year. The low generation is attributed
to the extended rainy season during the year in which period wind velocity was
low for power generation. The increase in rate for wind power supply to
TamiNadu Electricity Board (TNEB) from 2.70 to 2.75 has not come into effect
from 1-4-2007 as was earlier expected. It is now proposed by TNEB to
implement the increased rate from the date of entering into new Energy
Purchase Agreement (EPA) which contains a clause for binding the power
producer for a period of 20 years. Since the matter regarding procurement price
by TNEB is before the Hon’ble Supreme Court on the appeal filed by the
TNERC on the petition filed by Indian Wind Power Association inn which the 32
Brand Positioning
Santoor Younger looking skin
Lux Skin care, glamour
Nirma Value
Lliril Freshness
Hamam Purity
Rexona Skin care, silky soft skin
Dettol Germy check, 100%bath
Margo Skin protection
Fair glow Fairness soap
MBA PROGRAMME JOCIL
company is a member, it is felt better to wait for the time being before entering
into the new EPA.
It is widely expected that the demand for non conventional energy will
increase in future due to widening gap between generation and demand coupled
with fuel shortages. Since the policy of the Government is also favourable for
promotion of non conventional energy like wind energy and since the wind
projects are found to be economically feasible after considering the CDM
revenues, the Company set up one more WEG of 1.500 Mw in March 2007 at
Kasturirangapuram Village, Tirunelveli Distirct, TaminalNadu. The plant was
commissioned on 19-03-2008 and sonce then the
WEG generated 25344 kwh u to 31-03-2008 and the same was exported
to TNEB.
The data related to this project is follows
Wind energy generator (1x1.5MW):
Land - 18, 00,000
Plant & Michinary - 9, 12, 00,817
1500Mw wind turbine
Generators
Total investment -
Sales revenue
(1 x 40, 00,000 x 2.72) - 1, 08, 80,000
Expenditure - 5, 50,000
9, 30, 00,817
33
MBA PROGRAMME JOCIL
Insurance - 2, 00,000
General expenditure - 50,000
Depreciation - 48, 51,360
Taxation - up to 15 years tax holidays
After tax holidays 33.99% tax will charge including with 10% surcharge s&
education ces 3%.At first year the current charge power unit is Rs. 2.72 and we
estimate that the price will increase 5% for every year. The depreciation is
provided according to IT act in WDV method per year.
COMPANY PROFILE
HISTORY OF JOCIL LIMITED:
The company was incorporated on 20th February, 1978 as per the
certificate of incorporation NO.2260 granted by the register of companies. A.P.
Hyderabad under the name of “APOCIL” [Andhra Pradesh Oil and Chemical
Industries Limited]. This was a joint venture with Andhra Pradesh Industrial
Development Corporation (APIDC) and was promoted by Andhra Sugars Ltd,
Tanuku.
But later in MAY, 1982 A.P. Industrial Development Corporation
withdrew it participation and the company’s name was changed to
34
MBA PROGRAMME JOCIL
JAYALAKSHMI COTTON AND OIL INDUSTRIES LIMITED. The
company was registered with director general of technology development New
Delhi.
The company name changed from JAYALAKSHMI COTTONN AND
OIL INDUSTRIES LIMITED to “JAYALAKSHMI OIL AND CHEMICAL
INDUSTRIES LIMITED” (JOCIL) on17th September 1992.
LOCATION OF THE COMPANY:
JOCIL Ltd is located at Dokiparru in Medikonduru Mandal of Guntur
District in the state of Andhra Pradesh. The area was declared as backward one
by the Government of Andhra Pradesh. It is well connected by both rail and
road transportation. It is only 45 km from Vijayawada, which is industrially
located.
Profile of Jocil Limited:
Type of the Company - Small Scale Unit
Nature of the Unit - Manufacturing
ORGANISATIONAL STRUCTURE OWNERSHIP AND MANAGEMENT
BOARD OF DIRECTORS:
Dr. Mullapudi Harischandra Prasad Chairman
J. Murali Mohan Managing Director
P. Narendranath Chowdary Director
35
MBA PROGRAMME JOCIL
Mullapudi Thimmaraja Director
Y.Narayanarao Chowdary Director
V.S. Raju Director
K. Srinivasa Rao Director
K. Gopala Krishna Director
Subbarao V. Tipirneni Director
SENIOR EXECUTIVES:
P.Kesavulu Reddy President & Secretary
BANKERS:
Andhra Bank Guntur
State Bank of India Guntur
AUDITORS:
Brahmayya & Co., Guntur
COST AUDITORS:
Narasimha Murthy & Co., Hyderabad.
REGISTERED OFFICE & FACTORY:
JOCIL LIMITED,
Dokiparru, GUNTUR – 522 438.
Board of Directors:
36
MBA PROGRAMME JOCIL
The Board of Directors of the company consists of 9 directors comprising of promoter directors, additional directors and outside directors. Normally, the chairman would be elected from the promoter directors. The board of directors will meet once in three months to review the working results, operations, financial and administrative matters and any other policy matters of the company. The Managing Directors about the progress of the company.
Managing Director:
Managing Director is the chief executive of the organization and looks
after the day to day operations of the company. He is the top person in the
hierarchical system of organization. He does business operations with the
assistance of all the departmental heads. He is the pivotal of the organization.
President & Secretary:
He is in charge of administrative and finance departments. He looks after
all the matters relating to general administration, secretarial, central excise,
purchases, accounts, and stores, personal and all other matters relevant for
smooth operation of the company. He coordinates matters with all the
departmental heads and takes policy decisions in the absence of the Managing
Director.
General Manager-Production:
He is the head of the production department. He looks after the fatty
acid plant & glycerin plant. He controls the over all production activities. A
team of engineers, supervisors and helpers assists him.
General Manager - Development:
He is in charge of quality control, laboratory and also research and
developmental activities. He is responsible for maintaining the standards of raw
material in processing of finished products.
37
MBA PROGRAMME JOCIL
General Manager-Engineering:
He is the custodian of the entire plants and machinery. He looks
after the smooth running of various plants and maintenance of work. He also
takes the help of assistant engineers, supervisors, fitters and helpers etc.
Senior Manager-Power Plant and Instrumentation:
He is in charge of power house and responsible for all electrical
installation in the company. With the help of engineers, supervisors and
electricians he looks after the matters like power supply, operation of diesel
generation sets etc.
Senior Manager-Soap:
Production Manager looks after the production of toilet soap and is
assisted by various supervisory & other members.
Asst. General Manager (Marketing):
Marketing Manager is in charge of the marketing department. He
coordinates matters with all the departmental heads in regard to production and
sale of finished products of the company. He shoulders the responsibility in
clearing of the stock of finished products. ll possible steps will be taken by him
to satisfy the customers as regards to quality, price and prompt supply of the
product. He is assisted by the sales officer, sales supervisor and other office
staff.
Finance Manager:
38
MBA PROGRAMME JOCIL
Finance Manager looks after all the works relating to audit banks, commercial tax matters and takes care of the accounting systems in the company. He will attend to the works of income tax returns filling and clearance of income tax assessment orders given by the department. He will further attend to the works of submission of working capital limits.
Organization Structure of Jocil Ltd.
President & Secretary
Board of Director Directors
Managing Director
Marketing AGM
President
& secretary
GM Engg. Manager (Production)
GM (Development
)
Sr. Manager (Electrical)
Finance Manager
Asst. Executive
Sr. Accounts Officer
Asst. Accounts
Stores Executive
Senior Manager
Clerk
Purchase Executive
Senior
Asst.
Costing
Office Asst.
Labour
Officer
Asst. Time Keepers
Security
Officer
Security Guards
ClerksOfficer
39
MBA PROGRAMME JOCIL
Marketing Manager
STAFF AND WORKERS PARTICULARS
Superintenden Marketing Marketing Executive
Supervisor
Asst. Clerk Asst. ClerkSales
Asst. Sales Supervisor
40
MBA PROGRAMME JOCIL
41
S.No. Particulars No. of Employees
1 Administration 23
2 Accounts 13
3 Marketing 5
4 EDP 5
5 Time office 5
6 Stores 11
7 Security 5
8 Transport 7
9 Production 13
10 Labour 21
11 ETP 5
12 Maintenance 5
13 Soap plant 61
14 Electrical 33
15 Power plant 89
16 Civil 5
17 Fatty acid plant 50
18 Hydrogenation plant 38
19 Flaker 5
20 Cell room 3
21 Oxygen plant 5
22 DM plant 5
23 FBC Boiler 8
24 Workshop 46
Total 466
MBA PROGRAMME JOCIL
Number of Workers employed in the Firm:
At present more than 550 employees are working in the company.
Recruitment in JOCIL is mainly though internal sources. Promotion is mainly
based on seniority. It has good industrial relations with its workers. The
company provides retirement benefits in the form of provident fund,
superannuating and gratuity. Contributions to the provident fund are made at
prescribed rates to the Provident Fund Commissioner and absorbed in the profit
and loss account liability in respect of Superannuating benefits extended to
certain employees is Contributed by the Company of life Insurance Corporation
of India against a master policy at 13% of the basic salary of such employees.
The company has taken a group gratuity insurance policy with Life Insurance
Corporation of India to secure gratuity liability.
Job Contract:
The idle capacity in the company plant is utilized for the manufacturing
of the company brand toilet soaps. At present Liril cool of HLL is being
manufactured by JOCIL and job contract or principle-to-principle basis. This
type of job contract is helping JOCIL to utilize the plant capacity fully.
OBJECTIVES OF JOCIL LIMITED
The main objective of the company is to manufacture Fatty acids and Toilet
soaps.
The company received letter of indent from department of industrial
development. Ministry of Industries and Government of India, Delhi.
Enhancing the annual licensed capacity of fatty acids, glycerin and toilet soap.
The company has implemented this letter by increasing installation capacity of
fatty acids plant from 6,205 M.T. per annum to 15,510 M.T. with effect from
42
MBA PROGRAMME JOCIL
February 1991 this enhanced capacity came into operation. Later the company
enhanced the capacity to 37,500 M.T. in March 1995.
Functions of Jocil Limited:
`To produce, manufacture, refine, process import, sell and generally to
deal in all kinds of fatty acids and soaps and in connection there with the
construction of factories and workshop.
To fabricate manufacture and deal in all kinds of fatty acids plants.
To manufacture various brands of soaps under contract basis for HLL.
The company organizes annual general body meeting where it submits all
the four quarterly reports regarding the actual performance with standard
performance and predicts the courses of variances.
Performance and Achievements of Jocil Limited:
Jocil is a leading manufacturer of all kinds of Fatty Acids. This also
manufactures soaps.
Jocil supplies different grades of Stearic Acid and other fatty acids to
other manufacturing companies of pharmaceuticals, chemicals, plastic
etc.
Jocil supplies Fatty Acids to meet their specific requirement of Stearic
Acid, Oleic Acid etc.
Jocil manufactures soaps on contract basis to HLL
Jocil supplies soap noodles of Margo brand to M/s Calcutta Chemicals
Company.
Jocil’s production of quality goods is due to the following factors:
a. Usage of good quality raw materials like rice bran oils, coconut oils,
cotton seed oils etc.
43
MBA PROGRAMME JOCIL
b. The processing and purification of fatty acids is done by using latest
technology.
c. The technology and requirement of Jocil has been imported from C.M.B.,
Italy.
d. Maintenance of quality control by experienced and committed operating
personnel.
e. Toilet Soaps and Glycerin are manufactured as per BISC (formerly
known as ISI) standards.
f. It uses high quality chemicals for the purification and process Is the
g. fatty acids.
INDUSTRIAL LICENCING:
As the value of fixed assets envisaged in the project is less than Rs. 3.3
crores the Industrial license is not required for setting of this project. The
company has been registered with Directorate General of Technical
Development (DFTD), Government of India, New Delhi bearing No.
DGTD/HQ/D-S-S/R-4733/C-26(N)/SE/79 with their letter dated 21-5-1979 and
31-3-1990 for the manufacture of
1 Processed Fatty Acids / Industrial Fatty Acids 9,000
2 Glycerin 900
3 Toilet Soaps 5,000
SHAREHOLDERS PATTERN:
31-03-1997
Promoters 55.02%
(The Andhra Sugars Limited, Holding Company)
44
MBA PROGRAMME JOCIL
Public &Bodies Corporate
30.63%
Institutions (ICICI & ISEC) 14.35%
Face Value of share Rs. 10/- each
INITIAL INVESTMENT:
The Company has set up Rs.3.3 crores Fatty Acid and Soap Project
on turn key basis through M/s. Ballestra (India) Limited, Bombay, with
technology and equipment of C.M.B., Italy.
OUT LOOK
Fatty Acid and Soap
The production of fatty acids, soap noodles and glycerin has come
down during the year due to lack of demand from customers to whom we have
been manufacturing products on job work. As a result the capacity utilization of
fatty acid plant and glycerin plant was low. However, the demand for
manufacture of soap oodles and toilet soap on job work has improved from
January 2008 and therefore overall capacity utilization of soap plant during the
year is better than last year. Barring unforeseen business conditions the present
position in fatty acid and soap industry is expected to continue for some more
time.
The area based exemptions from payment of excise duty has been
affecting the industries in non-exempt areas very severely. However, the
decision of the Government
To reduce the general rate of excise duty from 16% to 14%; 45
MBA PROGRAMME JOCIL
To limit excise duty exemption in exempted areas to units undertaking
manufacturing activity only thereby excluding units taking up peripheral
activities;
To restrict excise duty exemption in the exempted areas only to the extent
of value addition undertaken in the manufacture of goods, subject to the
rates fixed or actual duty paid which ever is lower;
Helped control misuse of the facility and reduce wide disparities in excise
duty liability to some extent but the difference will still be a considerable
amount to overcome.
Further, the inverted customs duty structure on soap noodles
continues and the industry is at a great disadvantage for competing with
imports. Palm Fatty Acid Distillate, the Major raw material for soap noodles is
attracting 15% customs duty while toilet soap noodles; the finished product is
attracting only 10% customs duty.
Biomass Power Plant
The availability of field residues like cotton stalks, chilli stalks etc.,
has been coming down drastically due to installation of more plants close by
requiring the same fuels. The Company has established biomass collection
centers near the fields to improve procurement. However, due to shortage of
labour the quantity procured is not to expectations. The power purchase price
of AP Transco is not in pace with the rising fuel cost and AP Transco’s
restriction to purchase 2.4 Mw is resulting in low capacity utilization and high
cost of generation.
46
MBA PROGRAMME JOCIL
The suit filed by the Company for purchase of entire surplus power after
meeting captive consumption and for payment of retained amounts for supply
over 2.4 Mw is pending before the Appellate Tribunal for Electricity, New
Delhi.
The suit filed by the Biomass Energy Developer’s Association (BEDA)
on behalf of its members for increase in power purchase rate by AP Transco
was allowed by the Appellate Tribunal for Electricity, New Delhi. But AP
Transco and APERC have both gone on appeal to the Supreme Court and hence
the issue remains pending for final decision.
Wind Energy Generators (WEG)
During the year 2 x 1.65 Mw WEG Sets generated 78.96 lakhs units as
against 83.55 lakhs units in the previous year. The low generation is attributed
to the extended rainy season during the year in which period wind velocity was
low for power generation. The increase in rate for wind power supply to
TamiNadu Electricity Board (TNEB) from 2.70 to 2.75 has not come into effect
from 1-4-2007 as was earlier expected. It is now proposed by TNEB to
implement the increased rate from the date of entering into new Energy
Purchase Agreement (EPA) which contains a clause for binding the power
producer for a period of 20 years. Since the matter regarding procurement price
by TNEB is before the Hon’ble Supreme Court on the appeal filed by the
TNERC on the petition filed by Indian Wind Power Association inn which the
company is a member, it is felt better to wait for the time being before entering
into the new EPA.
It is widely expected that the demand for non conventional energy will
increase in future due to widening gap between generation and demand coupled
with fuel shortages. Since the policy of the Government is also favorable for
47
MBA PROGRAMME JOCIL
promotion of non conventional energy like wind energy and since the wind
projects are found to be economically feasible after considering the CDM
revenues, the Company set up one more WEG of 1.500 Mw in March 2008 at
Kasturirangapuram Village, Tirunelveli Distirct, TaminalNadu. The plant was
commissioned on 19-03-2008 and since then the WEG generated 25344 kwh u
to 31-03-2008 and the same was exported to TNEB.
New Business Opportunities
The Company is exploring new business opportunities to
expand/diversify the activities in the areas of business having growth potential
by effective utilization of internal generations and for this purpose various
alternatives are being explored.
CONVERSATION OF ENENRGY & ENVIRONMENTAL SAFETY:
During the year the following actions were taken for conservation of energy and
environmental safety.
Power consumption in distillation plants has been reduced by replacing
the over design pumps.
Power consumption for Air Compressors has been reduced by installing
receivers and pipe line modifications of pipe lines.
Fire additives are being used in 30 TPH AFBC Boiler for improving
efficiency.
Sodium Vapour Lamps have been replaced in power plant, boilers and
thermic fluid heaters with Compact Fluorescent Lamps.
Conventional air conditioners are being supplemented with chilled water
air handling unit in fractionation plant control room to reduce power
consumption.
48
MBA PROGRAMME JOCIL
Power quality analyzers are being utilized to contain energy losses and for
preventive maintenance.
JOCIL LIMITED ACCOUNTING POLICIES:
General
The Accounts are prepared on historical cost convention and in
accordance with generally accepted Accounting policies.
Fixed Assets
Fixed Assets are stated at historical cost less accumulated depreciation.
Cost of acquisition of fixed assets is inclusive of directly attributable cost of
bringing the assets to their working condition for the intended use and interest
on borrowings till the date of commissioning of the assets. CENVAT/VAT
credit availed, if any, on fixed assets is not included in the cost of such fixed
assets capitalized.
Depreciation
Depreciation is written off in accordance with the provisions of
Schedule XIV of the Companies Act, 1956 as follows:
Under Straight line method in respect of plant and Machinery of Wind
Mill division.
Under Written down value method on the remaining assets of the
company.
Intangible assets
Intangible assets are stated at cost of acquisition less accumulated
amortization. The intangible assets, being Computer Software is amortized over
a period of 5 years on Straight Line Method.
49
MBA PROGRAMME JOCIL
Investments
Long term investments are stated at cost and income thereon are
accounted for on accrual. Provision towards decline in the value of long term
investments in made only when such decline is other than temporary.
Inventories
Finished goods are valued at lower of cost or net realizable value.
Cost of Work-in-progress and Finished goods includes appropriate
portion of overheads etc., and excise duty wherever applicable.
Raw materials, Stores and spares are valued at cost using weighted
average method.
Work-in-Progress, raw materials, stores, spares, material in transit, are
valued at cost except where the net realizable value of the finished goods
they are used in isles than the cost of finished goods and in such an event,
if the replacement cost of such materials etc., is less than their book
values, they are valued at replacement cost.
By-products and scrap are valued at net realizable value.
Dedicated machinery spares which can be used only in connection with
an item of fixed assets and whose use is expected to be irregular are
amortized over the estimated useful life of the principal assets.
Sales
Sales are inclusive of Excise Duty, packing Charges and net of rebates
and Sales Tax. Sales tax collected from customers and remitted to the 50
MBA PROGRAMME JOCIL
authorities is not reflected in the Profit and Loss account and on completion of
the sales tax assessments, the net liability, if any, payable by the company, is
charged to the Profit and Loss account.
Power consumed in other units is accounted at the rate fixed for
payment for sale to A.P.Transco.
Taxes on Income
Current tax is determined as per the provisions of Income Tax, 1961 in
respect of taxable income for the year.
Deferred tax liability is recognized, subject to the consideration of
prudence on timing differences, being the difference between taxable incomes
and accounting income that originate in one period and are capable of reversal
in one or more subsequent periods.
Deferred tax assets account of brought forward losses and unabsorbed
depreciation as per Income Tax laws are recognized only when there is virtual
certainty supported by convincing evidence that such assets will be realized.
Deferred tax assets arising on other temporary differences are recognized only if
there is a reasonable certainty of realization
Segment reporting
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company with the additional policies for segment
reporting. Inter segment revenue has been accounted for based on the market
related prices.
Revenue and expenses have been identified to segments on the basis of their
relationship to the operating activities of the segment. Revenue and expenses
51
MBA PROGRAMME JOCIL
which relate to the enterprise as a whole and are not allocable to segments on a
reasonable basis have been included under “Unallocated expenses”.
Retirement benefits
The Company provides retirement benefits in the form of Provident
fund, Superannuation and Gratuity etc.
Contribution to Provident Fund, a defined Contribution schemed, is
made at the prescribed rates to the Provident Fund Commissioner and is charged
to the Profit and Loss account. There is no other obligation other than the
contribution payable.
Gratuity, a defined Benefit scheme is covered by a Group Gratuity cum
Life Assurance policy with LIC. Annual contribution to the fund as determined
by LIC is expensed in the year of contribution. The short fall between the
accumulated funds available with LIC and liability as determined on the basis of
actuarial valuation is provided for as at the year end. The actuarial valuation is
done as per the Projected Unit Credit method. Actuarial gains / losses are
immediately taken to Profit and Loss account.
Contribution to Superannuation Fund, a defined contribution scheme, is
made to the LIC as per arrangement with them.
Research and Development Expenditure
Revenue expenditure is charged to Profit & Loss Account and
Capital Expenditure is added to the cost of Fixed Assets in the year in which it
is incurred.
Foreign exchange transportations
Transactions in foreign currency are initially accounted at the
exchange rate prevailing on the date of transaction, and adjusted appropriately,
52
MBA PROGRAMME JOCIL
with difference in the rate of exchange arising on actual receipt/payment during
the year.
At each Balance Sheet date
Foreign currency monetary items are reported using the rate of exchange
on that date.
Foreign currency non-monetary items are reported using the exchange
rate at which they were initially recognized.
Impairment of assets
internally, indications of the impairment if any, to the carrying amount of its fixed and other assets. If any indication does exist, the recoverable amount is estimated at the higher of the realizable value and value in use, as considered appropriate. If the recoverable amount is less than the carrying amount, an impairment loss is recognized.
Reversal of impairment losses recognized in prior years is recorded
when there and indication that the impairment losses recognized for the asset no
longer exists or has decreased. However, the increase in carrying amount of an
asset due to reversal of an impairment loss is recognized to the extent it does not
exceed the carrying amount that would have been determined (net of
depreciation) had impairment loss been recognized for the asset in prior years.
Contingent Liabilities
Contingent Liabilities are not recognized in the accounts, but are
disclosed after careful evaluation of the concerned facts and legal issues
involved.
Dividends
Provision is made in the Accounts for the Dividends payable by the
Company recommended by the Board of Directors, pending approval of the
53
MBA PROGRAMME JOCIL
Shareholders at Annual General Meeting. Tax on distributable Profits is
provided for in the year which such distributable Profits relate.
Products of JOCIL Ltd:
Stearic Acid of 11 acids
Distilled Hydro-generated rice bran fatty acid
Distilled Rice Bran Fatty Acid
Oleic Acid
Soap Noodles
Finished soap
Industrial Oxygen
Power (KWH)
Jotex
Jostric Special-Fostric
Jocil-9
Jocil-11
Jomel, rubber grade
Rubber grade (economy)
Jocil has set up a modern plant for the manufacturing of fatty acids,
toilet soaps and refined glycerin. The major equipments were imported with
latest technology. The products manufactures are of international standards to
suit different industrial users.
The by-products in the production of fatty acids are
Glycerin of two-types
Chemically pure grade
Industrial white grade
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MBA PROGRAMME JOCIL
TDP (Tones Per Day):
Fatty acid - 200 metric tones
Glycerin - 4.5 metric tones
Soap products - 150 metric tones
Industrial oxygen - 2100 Cubic meters
Fatty Acids, refined Glycerin and other Fatty Acids Pitches fall
under the category of industrial goods whereas soaps come under the category
of consumers goods.
Fatty acids are manufactured from vegetable oils and fats. There
are different types of fatty acids for different industrial applications. The
following are the different kinds of fatty acids which can be manufacture in
JOCIL.
Crude Fatty Acids of Vegetable Acids & Fats.
Distilled Fatty Acids of Vegetable Acids & Fats.
Hydrogenated Fatty Acids of Vegetable Acids & fats.
Out of the above type of Fatty Acids. JOCIL is manufacturing the
following fatty acid which is a major portion of their sales.
Stearic Acid
Oleic Acid
Distilled & Hydrogenated Fatty acids.
FATTY ACID:
Process Description
1. Pre Treatment:
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MBA PROGRAMME JOCIL
The raw oils/fats are given pre treatment with sulphuric acid in the
presence of water to remove impurities like gums, resins and suspended
particles. These oils are washed free of mineral acidity and then taken for
further process.
2. Fat-Splitting:
Pre treated oils/ fats are sent to high pressure and high temperature
autoclaves for fat splitting. This is a hydrolysis process. Oils/fats are split in
presence of water under high temperature and pressure. The triglycerides arte
spilt into crude fatty acids and glycerin in the form of sweet water. The crude
fatty acids are then separated from sweet water in splitting tanks. The crude
fatty acids are then sent to distillation plant.
3.Fatty acid distillation
Crude fatty acids are distilled under high vacum at a high temperature under controlled conditions. The distilled fatty acids are condensed leaving behind residue which mainly consist of un desired impurities like un split fat, colour, and odour, un soap matter, metal impurities etc. the distilled fatty acids are then sent to hydrogenation plant for the manufacture of stearic acid.
4.Hydrogenation:
Distilled fatty acids are taken in hydrogenation autoclave which is
operated under high pressure and high temperature. Activated nickel catalyst is
used for hydrogenation reaction high pressure hydrogen gas is continuously
bubbled inn the autoclave to reduce the iodine value of distilled fatty acids to
the desired level. Stearic acids with different iodine
Values are manufactured to suit the different industrial application. As soon as
the reaction is over the material is filtered to remove nickel catalyst and then
sent to flaking section.
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MBA PROGRAMME JOCIL
5.Flaking:
Stearic acid produced in the hydrogenation plant is converted into
flakes in a rotating drum flake which is cooled with chilled water. The flakes
collected through a screw conveyor are packed in gunny bags with inner
polymers.
Distilled Fatty Acids:
The Fatty Acids of different oils are tailor made products to suit different
industrial user’s specifications.
At present JOCIL is manufacturing distilled hydrogenated rice bran
fatty acids, distilled cotton seed oils fatty acids, distilled coconut fatty acids.
They plan to manufacture some more varieties of fatty acids in future.
Distilled Hydrogenated Rice Bran Fatty Acids and distilled palm oil
fatty acids are acids are also being manufactured for consumption in soap plant
for the manufacture of Toilet Soaps.
Fatty Acid Pitches:
Fatty Acid pitches are obtained during distillation of crude fatty acids.
These products are supplied to laundry soaps, grease, foundry chemicals uses.
Jotex: Jotex is used in pharmaceuticals, chemicals auxiliary’s plastics,
like PVC compounds, cosmetics, metallic stearates etc.
Jostric: Jostric is used in metallic stearates metal polishes, lubricants etc.
Jocil-9: Jocil-9 is mostly use in rubber cements, paints and metal
polishes etc.
Jocil-11: It is used in PVC stabilizers, chemicals.
Rubber Grade (Economy): Rubber grade is used in rubber industry &
trade rubber. 57
MBA PROGRAMME JOCIL
Jomel: Jomel is used in rubber, cement, paints.
Jostric special: It is used in chemical industry.
Refined Glycerin:
There varieties of refined glycerin are produced namely.
Chemically pure grade (C.P)
Industrial White (I.W)
Pale Straw (P.S)
Glycerin is used in pharmaceuticals, cosmetics, explosives, paints stroke
ink, chemicals, tooth paste etc.
Oleic Acid:
Only one variety of Oleic Acid namely “Commercial Grade’ is
manufacture by JOCIL. It is used in fertilizers, cutting oils, liquid soaps and
other chemicals manufactures.
Stearic Acid:
In the stearic acid, different grades are produced with standard
specifications for different industrial consumers.
The following are the different grades of Stearic acids consumed by
different industries in manufacturing their own industrial products.
VARIOUS GRADES OF STEARIC ACIDS
JOTEX GRADE-JOTEX
SPECIAL GRADE
Used in drugs, pharmaceuticals,
cosmetics, chemicals & plastics
JOSTRIC SPECIAL GRADE Chemicals, Calcium carbonate
JOSTRIC GRADE Metal polish, Grease, Metallic polish
PVC Stabilizers and Chemicals 58
MBA PROGRAMME JOCIL
JOSTRIC 9Metal polish, Grease, Metallic polish
PVC Stabilizers and Chemicals
JOSTRIC 11 PVC
JOMEL Rubber, Cement and Paints
RUBBER GRADE Rubber, Metallic polish
Soap Manufacturing:
Different types of distilled fatty acids and hydrogenated fatty acids
are mixed to obtain a desired quality of toilet soaps. Generally features of toilet
soaps should be good lather, good perfume, stability use.
Process of Soap Manufacturing:
Fatty Acids
Soapanification
Neat Soap
Spray drying (to reduce moisture to desired level)
Soap noodles
Amalgamation (addition of colour, perfume)
Mixing (homogenization)
Extrusion (taking of sop bars)
Soap bars 59
MBA PROGRAMME JOCIL
Cutting
Stamping
Packing
Finished soap
ANALYSIS OF WORKING CAPITAL IN JOCIL LTD
Working Capital plays the most important role in managing any business. It
refers to the part of firm’s capital. Capital is required for financing short term
or current assets such as Cash, Marketable Securities, debts and Inventories.
Working Capital is life blood of a business. The management of working
capital in a business is carried on in these areas.
CASH MANAGEMENT IN JOCIL LIMITED:
Cash management means usage of cash in several ways. Usage of cash
includes expenses and commission and the amount spent by the company for
running into profits. Cash management in Jocil is done by preparing a cash
budget availing the information from the pay order books, which will in turn
help to eliminate over keeping of cash. To reduce the delay of clearing the
cheques, Jocil Provides the facility of electronic fund transfer. The cash
management in Jocil helps to estimate the cash requirements and other day-to-
day payments.
INVENTORY MANAGEMENT IN JOCIL LIMITED:
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MBA PROGRAMME JOCIL
Inventory management is done in intermittent system. The goods are
manufactured specially to fulfill orders made by the customers. Here the
production facilities are flexible enough to handle a wide variety of products
and varied sized.
It manufactures products like Toilet Soap, Mixed Fatty Acids; other soaps
Product etc., on intermittent basis. It also manufactures Stearic Acid which
occupies 60% of overall production on order basis only.
The customers supply raw materials for production of products on job
work contract. In such cases there is no need for the company to finance for
raw materials. The inventory management in Jocil Limited is done effectively.
RECEIVABLES MANAGEMENT IN JOCIL LIMITED:
The collection procedure for the receivables has been classified in two ways.
1. Bills Discounting Procedure
2. Bills Collection Procedure
Bills Discounting Procedure:
After dispatch of goods, a bill is drawn in the name of the debtor. After
acceptance by the debtor, the bill is discounted instantly with the bank and the
debtor is requested to send the amount on due date and it will be credited to
OCC account held by the company with Andhra Bank, Gunter after adjusting
the charges. If the bill is cleared beyond the due date the debtors are charged
16% interest per annum for the delayed period.
Bills Collection Procedure:
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MBA PROGRAMME JOCIL
In this procedure the documents are sent to the banker of the party who is
required to present the documents to the party on payment. If the party fails to
retire the documents within a grace period of seven days, he is subjected to an
interest rate of 16% p.a. after collection of the amount, reports.
In the words of Anthony, “financial statements, essentially, are interim
reports, presented annually and reflect a division of the life of an enterprise in to
more or less arbitrary accounting period – more frequently a year”.
Statement of Changes in Working Capital during the period
2006-2007
Particulars 2006 2007 Increase in Working Capital
Decrease in Working Capital
Current Assets
Cash on hand 6,03,109 12,06,318 6,03,209
Cash at bank 67,97,011 4,25,73,957 3,57,76,946
Sundry debtors 11,37,30,833 13,61,88,751 2,24,57,918
Closing stock 18,88,86,937 13,14,05,030 5,74,81,907
Other current assets 32,10,95,175 30,95,89,967 1,15,05,208
Total (A) 63,11,13,065 62,09,64,023 5,88,38,073 6,89,87,115
Current Liabilities
Current Liabilities 3,63,87,091 5,29,90,750 1,66,03,659
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MBA PROGRAMME JOCIL
Provisions 17,44,11,546 11,77,05,280 5,67,06,266
Working Capital from banks
2,37,36,244 20,72,957 2,16,63,287
Total (B) 23,45,34,881 17,27,68,987 7,83,69,553 1,66,03,659
Net Working Capital (A-B)
39,65,78,184 44,81,95,036 13,72,07,626 8,55,90,774
Increase in Working Capital
5,16,16,852
Total 13,72,07,626 13,72,07,626
Interpretation:
During the period 2006 to 2007, there was an increase in the Working Capital of the Company.
Statement of Changes in Working Capital during the period
2007-2008
Particulars 2007 2008 Increase in Working Capital
Decrease in Working Capital
Current Assets
Cash on hand 12,06,318 11,29,951 76,367
Cash at bank 4,25,73,957 2,44,64,397 1,81,09,560
Sundry debtors 13,61,88,751 15,10,96,317 1,49,07,566
Closing stock 13,14,05,030 10,52,91,435 2,61,13,595
Other Current assets 30,95,89,967 22,31,33,878 8,64,56,089
Total (A) 62,09,64,023 50,51,15,978 1,49,07,566 13,07,55,611
Current Liabilities 5,29,90,750
Current liabilities 11,77,05,280 5,15,67,655 14,23,095
Provisions 20,72,957 11,72,94,657 4,10,623
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MBA PROGRAMME JOCIL
Working Capital from banks
17,27,68,987 1,92,92,894 1,72,19,937
Total (B) 44,81,95,036 18,81,55,206 18,33,718 1,72,19,937
Net Working Capital (A-B)
31,69,60,772 1,67,41,284 14,79,75,548
Decrease in Working Capital
13,12,34,264
Total 14,79,75,548 14,79,75,548
Interpretation:
During the period 2007to 2008, there was an increase in the working capital of the Company.
Statement of Changes in Working Capital during the period
2008-2009
Particulars 2008 2009 Increase in Working Capital
Decrease in Working Capital
Current Assets
Inventories 10,52,91,435 13,39,45,023 2,86,53,588
Sundry Debtors 15,10,96,317 15,22,91,708 11,95,391
Cash + Bank balances 2,55,94,348 12,10,34,896 9,54,40,548
Others current Assets 57,986 13,89,848 13,31,862
Loans + Advances 22,30,75,892 23,61,87,286 1,31,11,394
Total (A) 50,51,15,978 64,48,48,761 13,97,32,783
Current Liabilities
Current Liabilities 5,15,67,655 8,98,41,079 3,82,73,424
Provisions 11,72,94,657 11,29,88,519 43,06,138
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MBA PROGRAMME JOCIL
Working Capital from banks
1,92,92,894 1,52,87,300 40,05,594
Total (B) 18,81,55,206 21,81,16,898 83,11,732 3,82,73,424
Networking Capital (A-B)
31,69,60,772 42,67,31,863 10,97,71,090
Increase Working Capital
14,80,44,515
Total 14,80,44,515 14,80,44,514
Interpretation:
There was some change in current assets which leads to all the increase
stages where it shows the higher utilization of working capital.
Increase of current liabilities the utilization has come down. However, during
the year 2008 & 2009there was decreasing in utilization of working capital.
Particulars 2009 2010 Increase in working Capital
Decrease in Working Capital
Current assets
Inventories 133,945,023 138,918,033 4,973,010
Sundry Debtors 152,291,708 206,245,483 53,953,775
Cash and bank balance 121,034,896 64,796,749 56,238,147
Other current assets 1,389,848 1,536,064 146,216
Loans and advances 236,187,286 213,370,249 22,817,037
Total (A) 644,848,761 624,866,578 59,073,001 79,055,184
Current Liabilities
Current Liabilities 89,841,079 64,484,799 25,356,280
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MBA PROGRAMME JOCIL
Provisions 112,988,519 125,994,772 13,006,253
Working Capital from banks
15,287,300 7,964,793 7,322,507.00
Total (B) 218,116,898 198,444,364 13006253 32,678,787
Net Working Capital (A-B)
426,731,863 426,422,214 46066748 46,376,397
Decrease Working Capital 309649
Total 46376397 46,376,397
Statement of Changes in Working Capital during the period
2009-2010
Interpretation:
During the period 2009to 2010, there was a decrease in the Working Capital of the Company.
Statement of Working Capital during the period
2010-2011
Particulars 2010 2011 Increase in Working Capital
Decrease in Working Capital
Current assets
Inventories 13,89,18,033 16,89,68,061 3,00,50,028
Sundry debtors 20,62,45,483 22,87,71,563 2,25,26,080
Cash and bank balance 6,47,96,749 23,91,49,881 17,43,53,132
Other Current assets 15,36,064 18,78,444 3,42,380
Loans and advances 21,33,70,249 21,54,32,118 20,61,869
Total (A) 62,48,66,578 85,42,00,067 229,333,489
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MBA PROGRAMME JOCIL
Current Liabilities
Current Liabilities 6,44,84,799 11,79,36,595 5,34,51,796
Provisions 12,59,94,772 18,38,19,408 5,78,24,636
Working Capital from banks
79,64,793 2,82,41,585 2,02,76,792
Total (B) 19,84,44,364 32,99,97,588 11,12,76,432 2,02,76,792
Net Working Capital (A-B)
42,64,22,214 52,42,02,479 11,80,57,057 2,02,76,792
Increase in Working Capital
9,77,80,265
Total 11,80,57,057 11,80,57,057
Interpretation:
During the period 2010to 2011, there was an increase in the Working Capital of the Company.
Statement of Changes in Working Capital of Jocil Limited (Rs. in lakhs)
Year Current Assets
(Rs.)
Current Liabilities
(Rs.)
Working Capital Changes in Working Capital
31-3-2007 62,09,64,023 17,27,68,987 44,81,95,036 5,16,16,852
31-3-2008 50,51,15,978 18,81,55,206 31,69,60,772 13,12,34,264
31-3-2009 64,48,48,761 21,81,16,898 42,67,31,863 10,97,71,091
31-3-2010 62,48,66,578 19,84,44,364 42,64,22,214 3,09,649
31-3-2011 85,42,00,067 32,99,97,588 52,42,02,479 9,77,80,265
Average 64,99,99,081 22,14,96,609 42,85,02,473 7,81,42,424
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MBA PROGRAMME JOCIL
Interpretation:
There were some changes in the Working Capital statement. During the
year 2007, it shows low utilization of Working Capital and during the years
2008 and 2009, the utilization has increased. However, during the year
2010utilization has very come down. 2011 was again an increase in utilization
of Working Capital low.
RATION OF WORKING CAPITAL IN JOCIL LTD:
LIQUIDTY RATIO
Current Ration:
The Current Ratio is a measure of firm’s short/term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability.
Current Ration = Current Assets
Current Liabilities
Current Ratio in Jocil ltd
(Rs. in lakhs)
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MBA PROGRAMME JOCIL
Year Current Assets Current Liabilities Ratio
2006-2007 62,09,64,023 17,27,68,987 3.59
2007-2008 50,51,15,978 18,81,55,206 2.68
2009-2009 64,48,48,761 21,81,16,898 2.95
2009-2010 62,48,66,578 19,04,79,571 3.28
2010-2011 85,42,00,067 30,17,56,003 2.83
Interpretation:
A Current Ratio of 2:1 or more is considered satisfactory. This rule is
based on the logic that in a worse situation, even if the value of current assets
Ratio
0
0.5
1
1.5
2
2.5
3
3.5
4
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
Ratio
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MBA PROGRAMME JOCIL
becomes half, the firm will be able to meet its obligations. The Current Ratio
represents a margin of safety for creditors. It measures only total rupees worth
of current assets and current liabilities and does not measure the quality of
assets and current liabilities and does not measure the quality of assets.
However, it is measure of the firm’s liquidity. From the above table, it is
evident that Current Ratio of Jocil is more than 2.50, which indicates its
creditors are having a very high margin safety.
Quick Ratio:
Quick Ratio establishes a relationship between quick or liquid assets and
current liabilities. An asset is liquid if it can be converted into cash
immediately or reasonably soon without a loss of value. Cash is the most liquid
asset.
Quick Ratio = Quick Assets
Current Liabilities
Quick Ratio in Jocil Ltd
(Rs in lakhs)
Year Quick Assets Current Liabilities Ratio
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MBA PROGRAMME JOCIL
2006-07 49,30,56,255 17,27,68,987 2.85
2007-08 39,98,24,545 18,81,55,206 2.12
2008-09 38,87,30,521 20,28,29,598 1.92
2009-10 38,16,38,171 19,04,79,571 2.00
2010-11 53,03,61,167 30,17,56,003 1.76
Interpretation:
Generally a Quick Ratio of 1:1 is considered to represent a satisfactory
current financial condition. From the above table, it is evident that Jocil Quick
Ratio is more than 2.00 in all yeas except in the years 2008-09, and 2010-11
Ratio
0
0.5
1
1.5
2
2.5
3
2005-06 2006-07 2007-08 2008-09 2009-10
Ratio
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MBA PROGRAMME JOCIL
which indicates it can very well meet its current obligations without any funds
crunch.
Stock Turnover Ratio:
This ratio indicates the efficiency of the firm in producing and selling its
product. The average of opening and closing balances of inventory. In a
manufacturing company, inventory of finished goods is used to calculate this
ratio.
Stock Turnover Ratio = Cost of Goods Sold
Average Inventory
Stock Turnover Ratio in Jocil Ltd (Rs in lakhs)
Year Cost of Goods sold (Rs.)
Opening Inventory (Rs.)
Closing Inventory (Rs.)
Average Inventory
Ratio
2006-07 57,65,55,039 4,99,06,963 3,34,64,972 4,16,85,968 13.83
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MBA PROGRAMME JOCIL
2007-08 61,02,59,100 3,34,64,972 5,88,07,804 4,61,36,388 13.22
2008-09 73,98,04,529 5,88,07,804 7,79,59,405 6,83,83,604 10.82
2009-10 104,09,24,257 7,79,59,405 8,77,98,748 8,28,79,076 12.56
2010-11 172,64,33,594 8,77,98,748 10,75,76,033 9,76,87,390 17.67
Interpretation:
If the Turnover Ratio is high, it means that the Company can rotate its
turnover for more number of times. During the year 2010-11, this stood
at17.67.
Ratio
0
2
4
6
8
10
12
14
16
18
20
2005-06 2006-07 2007-08 2008-09 2009-10
Ratio
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MBA PROGRAMME JOCIL
Stock Conversion Period:
Stock Conversion Period shows the average time for clearing the stock
through sales. The formula is to divide the No. of days in a year with the Stock
Turnover Ratio.
Stock Conversion Period = 365 Days
Stock Turnover Ratio
Stock Conversion Period in Jocil Ltd
(RS IN Lakhs)
74
Year Days Stock Turnover Ratio Stock Conversion Period
2006-07 365 13.83 26
2007-08 365 13.22 28
2008-09 365 10.82 34
2009-10 365 12.56 29
2010-11 365 17.67 21
MBA PROGRAMME JOCIL
Interpretation:
If the Stock Conversion Period is low, it means that the Company can rotate
its stocks so fact and more number of times in a year. Further, during last two
years 2009-10, 2010-11 the Conversion Period has 1st decrease and next
increase due to holding higher inventory of finished goods.
Average Collection Period:
Average Collection Period tells us how and in what time the debtors are
collected. The Debtors Turnover Ratio tells about how many times the debtors
are to that of sales. These two are reciprocities at each other.
Average Collection Period = 365 Days
Stock Conversion Period
0
5
10
15
20
25
30
35
40
2005-06
2006-07
2007-08
2008-09
2009-10
Stock ConversionPeriod
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MBA PROGRAMME JOCIL
Debtors Turnover Ratio
Average Collection Period in Jocil Ltd (Rs. in Lakhs)
Year Days Debtors Turnover Ratio
Average Collection Period (Days)
2006-07 365 6.82 54
2007-08 365 5.71 64
2008-09 365 6.23 59
2009-10 365 7.12 51
2010-11 365 9.84 37
Average Collection Period (Days)
0
10
20
30
40
50
60
70
2005-06
2006-07
2007-08
2008-09
2009-10
Average CollectionPeriod (Days)
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MBA PROGRAMME JOCIL
Interpretation:
Generally, the higher the value of debtor’s turnover, the more efficient is the
management of credit. From the above table, it is evident that the Average
Collection Period of debtors was increase during the year 2007-08. The
Average Collection Period was low in the year 2008-09 due to maintenance of
debtors at a lower level compared to hike in turnover. However it was decrease
to 37 days during the 2010-11.
Working Capital turnover Ratio:
A firm may also likes to relate net current assets to sales. Net current
assets are thing but the difference between current assets and current liabilities.
The result of this ratio indicates how many times the working capital has rotated
for generating the sales.
Working Capital Turnover Ratio = Sales
Net Current Assets
Working Capital Turnover Ratio in Jocil Ltd
(Rs. in Lakhs)
Year Sales (Rs.) Current Asset (Rs.)
Current Liabilities (Rs.)
Net Current Assets (Rs.)
Ratio
2006-07 77,22,61,376
62,44,61,285 17,65,68,731 44,78,92,554 1.72
2007-08 73,02,58,572
50,51,15,978 16,88,62,312 33,62,53,666 2.17
2008-09 84,55,85,49 64,48,48,761 20,28,29,598 44,20,19,163 1.91
77
Ratio
0
0.5
1
1.5
2
2.5
3
3.5
4
2006-07 2007-08 2008-09 2009-10 2010-11
Ratio
MBA PROGRAMME JOCIL
4
2009-10 112,91,96,244
62,48,66,578 19,04,79,571 43,43,87,007 2.60
2010-11 193,41,67,617
85,42,00,067 30,17,56,003 55,24,44,064 3.50
Interpretation:
If Working Capital Turnover Ratio is high, it is better to the organization. In
the years 2010-11, 2009-10, 2007-08,the ratio was more than 2.00 times
working capital has rotated to that of sales. It shows an improvement in these
years. However, the ratio was below 2.00 times in the years 2006-07, 2008-09
as the level of current assets have gone up substantially due to which the ratio
has fallen down.
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MBA PROGRAMME JOCIL
FINDINGS & SUGGESTIONS
FINDINGS OF THE STUDY:
Schedule of changes in working capital showed increases in working
capital from 2006 to 2011.
Quick ratio is also increasing from 31-3-2006 and it is decreased as on
31-3-2008 to 31-3-11.
Current ratio of the company decrease into the 2006 to 2011.
The Debt Ratio and Debt Equity Ratio are less than 0.18 as against
normally permitted level of up to 2 in the manufacturing companies. It
indicates that the Company has repaid the term loans and is almost Debt
free.
Company is always maintaining high liquidity to meet daily operations.
And also maintaining good cash management. The excess in banks
always converted into fixed deposits.
The net profit ratio is increase 3.59 in 2008; again it is decrease to 1.83in
2010
Cash ratio showed decreasing balance between the periods 2011 working
capital of the company showed an increase balance.
SUGGESTIONS:
Working Capital turnover ratio should be high. To increase this ratio,
Jocil has to reduce its net working capital. Net working capital can be
reduced when inventory level is to minimum.
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MBA PROGRAMME JOCIL
At present the raw material holding period is 27 days. This can be
reduced to a maximum of 7 days, as the raw materials are available at
nearby places. When an order is placed they can have required
material within 2 to 3 days.
Inventory turnover ratio indicates the efficiency of the firm in
producing and selling its products.
As Jocil, this ratio is gradually increasing. In 2006, it is 12.97 whereas
in 2010, it was 17.69.
In order to increase this ratio, sales should be increased. To increase
the sales company has to concentrate in capturing the foreign markets.
This is easily possible as they are linked with multi-nationals and
reputed business houses.
Through them they can enter into the foreign market by sending some
samples of their products. Once they are able to attract foreign
customers they can utilize their licensed capacity which is 69500TPA.
At present it is utilizing only 37227 TPA.
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MBA PROGRAMME JOCIL
GLOSSARY
Gross Working Capital :
It is also known as current capital.
Net Working Capital :
It refers to the difference between current assets and current liabilities.
Permanent Working Capital :
The minimum level of current assets is referred to as permanent or fixed or long-term
working capital.
Temporary Working Capital :
The extra working capital, needed to support the changing production and sale activities
is called the temporary working capital or short-term working capital.
Operating Cycle :
Operating cycle is the time duration required to sales after the conversion of resources
into inventories into cash.
81