A PROJECT REPORT

ON
WORKING CAPITAL MANAGEMENT OF

PARLE BISCUITS PVT. LTD.

For the partial fulfillment of the award of Master of Business Administration of

INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP DEVELOPMENT (PUNE)

SUBMITTED TO
Dr.H.G.ABHYANKAR

SUBMITTED BY
AMAR NANAWARE MBA(G) IVth sem ROLL NO-15 I.M.E.D (PUNE)

(Accredited By NAAC with A Grade)

BHARATI VIDYAPEETH UNIVERSITY, PUNE

INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP DEVELOPMENT

Paud Road, Erandawane, Pune.

CERTIFICATE

This is to certify that Mr. AMAR NANAWARE is a student of Master of Business Administration (MBA) programme of the university in this institute for the year 2010-2012. As a part of the university curriculum, the student has completed the project report titled WORKING CAPITAL MANAGMENT. The project report is prepared by the student under the guidance of Dr.H.G ABHYANKAR.

Dr. H.G Abhyankar (Programme Coordinator) Date:-10/03/2012

Dr.Nitin Nayak. (Director)

Place:-Pune

ACKNOWLEDGEMENT
Of the many, people who have been enormously helpful in the preparation of this Project of working capital management of PARLE BISCUITS PVT.LTD. , I am specially thankful of INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP DEVELOPMENT (PUNE) as they have permitted me to join such an auspicious organization to have my management training, and I want to convey my best heartily thankfulness to the staff at PARLE BISCUITS PVT.LTD. Bahadurgarh. As they have given me the opportunity to work under an organization which proves to be the best place to work. I wish to express my sincere gratitude to Mr. V.D Caswan, General Manager, Mrs. Santosh Narwal, head of the finance department; and Mr. Vikash Jain, finance executive for giving me suggestions every time I needed not only in making me having different experience at work but for motivating me also at the time I felt the work stress. I acknowledge the great assistance and support of entire team of professionals who allowed me to pursue this project, despite an already crowded and over loaded work schedule. I am thankful to all the staff members giving their remarkable contribution to their organization and special thanks for taking me with them and teach me the facts, which are most useful to contribute in building my career and providing a warm and friendly environment in which I worked. Finally, I would like to give very special recognition to other members who contributed in completing my training successfully at PARLE BISCUITS PVT.LTD. Bahadurgarh.

AMAR NANAWARE

DECLARATION

I, AMAR NANAWARE Student of M.B.A. program in INSTITUTE OF MANAGEMENT AND ENTREPRENEURSHIP DEVELOPMENT(PUNE) hereby declare that all the information, facts and figures produced in this report are based on my own experience and study during my WORKING CAPITAL MANAGEMENT OF PARLE BISCUITS PVT. LTD. I further declare that all the information and facts furnished in this project report are based on my intensive findings. They are Primary and supportive to the actual figures of audited statements.

AMAR NANAWARE
Student of M.B.A.(G) IVth Roll no-15 I.M.E.D (PUNE)

TABLE OF CONTENTS
Sr.No Topic INTRODUCTION
1.1 1.2 Industry Overview Company Profile 6 TO 15

Page No

2 2.1 2.2 2.3 2.4 2.5 3 4 5

Research Methodology
Title of the project Objective of project Duration of project Research Methodology Limitation of project 16 TO 20

Conceptual Discussion Analysis and interpretation SWOT Analysis Conclusion Recommendation Bibliography

21 TO 42 43 TO 51 52 T0 55

6 7 8

56 TO 58 59 61

INTRODUCTION

INDUSTRY OVERVIEW
Bakery industry in India is the largest of the food industries with annual turnover of about Rs.3000 crores. During the five and a half decades of post-independent India, the biscuit industry in the country has achieved a position of pre-eminence as the third largest producer of Biscuits in the world, after the USA and China. The biscuit industry in India comprises of organized and unorganized. Bread and biscuits from the major baked foods accounting for over 80% of total bakery products produced in the country. The quantities of bread and biscuits produced are more or less the same. However, value of biscuit is more than bread. The biscuits are becoming quite popular in rural areas as well. Nearly 55% of the biscuits are consumed by rural sectors. The FBMI (Federation of Biscuit Manufactures of India) represents the organized biscuit industry consisting of small scale, medium and large biscuit manufacturers located in all zones and all States of the country. As the apex body of the biscuit industry, the Federation strives to serve its members in particular and the biscuit industry in general. The FBMI, its members and leadership, have played a pivotal role in the unprecedented growth, development and reach into all parts of the huge domestic market in India, as in exports of biscuits.

1. Biscuit industry in India in the organized sector produces around 60% of the total
production, the balance 40% being contributed by the unorganized bakeries. The industry consists of two large-scale manufacturers, around 50 medium scale brands and small-

scale units ranging up to 2500 units in the country, as at 2006-07. The unorganized sector is estimated to have approximately 30,000 small & tiny bakeries across the country. 2. The annual turnover of the organized sector of the biscuit manufacturers (as at 2008-. 2009 is Rs. 4,350 crores. 3. In terms of volume biscuit production by the organized segment in 2008-09 is estimated at 1.30 million tones. The major Brands of biscuits are - Britannia, Parle, Priya Gold, Elite, Cremica, Dukes, Anupam, Horlicks, Craze, Nezone, besides various regional/State brands. 4. Biscuit can he broadly categorized into the following segments: (Based on productions of 2009-10) Glucose 44% Marie 13% Cream 10% Crackers 13% Milk 12% Others 8%. 5. Though India is considered as the third largest producer of Biscuits after USA and China, the per capita consumption of biscuits in our country is only 2.1 Kg., compared to more than 10 kg in the USA, UK and West European countries and above 4.25 kg in south cast Asian countries, Le. Singapore, Hong Kong, Thailand, Indonesia etc. China has a per capita consumption of 1.90 kg, while in the case of Japan it is estimated a7.5 kg.

COMPANY PROFILE HISTORY QUALITY, HEALTH AND GREAT TASTE

A long time ago, when the British ruled India, a small factory was set up in the suburbs of Mumbai city, to manufacture sweets and toffees. The year was 1929 and the market was dominated by famous international brands that were imported freely. Despite the odds and unequal competition, this company called Parle Products, survived and succeeded, by adhering to high quality and improvising from time to time. A decade later, in 1939, Parle Products began manufacturing biscuits, in addition to sweets and toffees. Having already established a reputation for quality, the Parle brand name grew in strength with this diversification. Parle Glucose and Parle Monaco were the first brands of biscuits to be introduced, which later went on to become leading names for great taste and quality. Biscuits were very much a luxury food in India, when Parle began production in 1939. Apart from Glucose and Monaco biscuits, Parle did offer a wide variety of brands. However, during the Second World War, all domestic biscuit production was diverted to assist the Indian soldiers in India and the Far East. Apart from this, the shortage of wheat in those days, made Parle decide to concentrate on the more popular brands, so that people could enjoy the price benefits. Sugarcane directly purchase by the farmers. Thankfully, today, there is no dearth of ingredients and the demand for more premium brands is on the rise. That is why; we now have a wide range of biscuits and mouthwatering confectionaries to offer.

CURRENT SCENARIO PARLE BISCUITS LIMITED is a subsidiary to PARLE PRODUCTS LIMITED, MUMBAI, which is a closely held company run by the CHAUHANS. Today Parle enjoys a 40 % share of the total biscuit market and a 15% share of the total confectionary market, in India. The success and survival of PARLE is its adherence to quality and diversification in its ore area. The strong and extensive distribution network assures the availability of Parle biscuits even in remote regions. Most of its offerings are in the low and mid price range making it affordable to the masses. Parle understands the psyche of the Indian consumer and provides them valuefor-money. In this way, by concentrating on consumer tastes and preferences and emphasizing research and development, the Parle brand grows from strength to strength. Plants of Parle Biscuits Private Ltd are at: 1. Bahadurgarh (Haryana) 2. Neemrana (Rajasthan) 3. Rudrapur(Uttaranchal) 4. Sitargang 5. Khopoli 6. Nasik

10

Plants of Parle Products Private Ltd. are at: 1. Banglore 2. Mumbai 3. Bhuj The production, marketing and distribution of the biscuits are controlled by the Business Development Department, Mumbai office with assistance from the regional sales offices at New Delhi (kalkajee), kolkata, Bangalore and Mumbai. To reduce freight rates and increase productions, Parle has tie-ups with contract manufacturing units supervised by a Parle officer. These units are provided with the processing charges for manufacturing biscuits, which are transferred to depots established at strategic locations. The factory at Mumbai manufactures biscuits and confectioneries while another factory at Bahadurgarh (Haryana) manufactures biscuits. Apart from this, Parle has manufacturing facilities at Neemrana (Rajasthan) and Bangalore. The factories at Bahadurgarh and Neemrana are the largest such manufacturing facilities in India. Parle products also have 23 manufacturing units for biscuits and 9 manufacturing units for confectioneries, on contract.

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ORGANISATIONAL STRUCTURE

General Manager
Assistant Manager Excise & Taxation Senior Excise Officer Excise Assistants

Financial Divisional Manager Assistant Manager Finance Finance executive officer Officers

Assistant Manager Commercial

Manager I.T

Divisional Factory Manager

Material Manager Store Store officer

Office Manager

Assistant Manager I.T Programmer

School coordinator

Asstt.s

Dy. Chief Engr. Senior Engr.

Assistant Printing Manager Office Asstt. Officer

HACCP Loader

PQS Coordinator

Dy. Production Manager

Store Officer

HACCP Team

Shift Incharge

Q.A Officer

Executive HRD

Electronic / Service Mechanical Engr. Shift Engr. Foreman

Shift A Asstt. Officer

Shift B Asstt. Officer

Shift C Asstt. Officer

Team mates
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VARIOUS PRODUCTS OF PARLE

Monaco Bites

Kismi Bar

Fun Centre

Mango Bite

Hide & Seek

Melody

Jeffs

Magix

Krackjack

Orange Candy

Marie Choice

Poppins

Monaco

Rol-a-Cola

Parle-G

Toffees

Sixer

Milk Shakti

Nimkin

Parle Cream

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THE CUSTOMER CONFIDENCE

The Parle name conjures up fond memories across the length and breadth of the country. After all, since 1929, the people of India have been growing up on Parle biscuits & sweets. Today, the Parle brands have found their way into the hearts and homes of the people all over India & abroad. Parle Biscuits & Confectioneries, continue to spread happiness & joy among people of all ages. The consumer is the focus of all the activities of Parle. Maximizing value to consumers and forging enduring customer relationships are the core endeavors at Parle. Our efforts are driven towards maximizing customers satisfaction and this is in synergy with our quality pledge. Parle Products Limited will strive to provide consistently nutritious & quality food products to meet consumers satisfaction by using quality materials and by adopting appropriate processes. To facilitate the above we will strive to continuously train our employees and to provide them an open and participative environment.

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MAINDEPARTMENTS OF COMPANY

FINANCE AND ACCOUNTS

HR AND

PURCHASE

PERSONNEL

Departments of Company
STORES QUALITY ASSURANCE

EXCISE AND DESPATCH

PRODUCTION

AND PRINTING

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RESEARCH METHODOLOGY

16

TITLE OF THE PROJECT

WORKING CAPITAL MANAGEMENT OF PARLE BISCUITS PVT. LTD., BAHADURGARH

OBJECTIVE OF PROJECT
1) To properly maintain and manage the working capital so that it may not result Unnecessary blocking of scarce resources of the firm. 2) To study the cash conversion cycle and therefore the amount of capital tied up in Net current assets. 3) To study the reorder levels, minimum level of inventories, & FIFO method being followed. 4) To know the credit policy followed in Parle. 5) To know about the distribution channel, circulation of cash, & salaries and wages being paid to employees.

DURATION OF THE PROJECT

45 DAYS

17

RESEARCH METHODOLOGY

TYPE OF RESEARCH Research is a careful investigation or enquiring specially through search of new facts in any branch of knowledge.

Research methodology is a way to systematically solve the research problem generally adopted by a researcher in studying his research problem along with the logic behind them.

There are mainly three types of research design a) Exploratory b) Descriptive c) Casual This is an exploratory research. Exploratory research is done when we are not aware of the problem clearly, find it out, and suggest possible solution. This research required exploring into many aspects of the performance of the employees in the organization after training them and thus finding out the effectiveness of the training. SAMPLING TECHNIQUE Usually, the population is too large for the researcher to attempt to survey all its members. A small but carefully chosen sample can be used to represent the population. The sample reflects the characteristics of the population from which it is drawn. Sampling technique, which has been chosen in this research work, is stratified sampling.

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SAMPLE SIZE Sample size has been taken as 140.

DATA COLLECTION & ANALYSIS

DATA SOURCES Data or facts are the raw materials with which a result functions. Data is the foundation of all the researches. Data can be classified into two Primary data Secondary data In this research work primary data has been collected by schedule survey. Schedule survey is the systematic way of gathering data from the respondents through a questionnaire. It involves the questioning of respondents to secure the desired information using data collection instrument called questionnaire. A questionnaire is a formal list of questions to be answered in the survey. The questions may be asked verbally in writing responses and may be given in either form.

Secondary sources has been collected through In-house documents Company website Published articles Magazines Past records

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LIMITATION OF THE PROJECT

The workers were not very keen in giving suggestions. The workers were not willing to come up with their true feelings as they felt that As survey was conducted during working hours, it was difficult to trace workers. The study is based on the generalization of the data collected from the sample Being a trainee, I felt the lack of authority at times to gather some vital There was a lack of willingness to fill the questionnaire as they considered it The management at the division showed its helplessness, as policy decisions were

it is just the wastage of time.

representations. information. merely a gimmick. subject matter of the head office.

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CONCEPTUAL DISCUSSION

21

WORKING CAPITAL
Working capital is defined as the excess of current assets over current liabilities. All organizations have to carry working capital in one form or the other. The efficient management of working capital is important from the point of view of both liquidity and profitability. Poor management of working capital means that the funds are unnecessarily tied up in idle assets hence reducing liquidity and reducing the ability to invest in productive assets such as plant and machinery so affecting the profitability. A successful sales program is necessary for earning profits by any business enterprise. Sales dont convert into cash instantly. There is a time lag between the sale of goods and receipt of cash. Therefore, there is a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore, sufficient working capital is necessary to sustain sales activity. The amount of working capital considered adequate may vary from one company to another depending on the type of business, composition of current assets, inventory turnover rate and credit terms.

Advantages

Gives a company the ability to meet its current liabilities. Expand its volume of business. Take advantage of financial opportunities as they arise.

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Disadvantages

Lack of sufficient working capital and inability to liquidate current assets are frequent causes of business failure.

NEED/ USES of Working Capital

1. Working capital is needed for the purchase of raw material. 2. Payment of Various day-to-day expenses. 3. Financial management aims at maximizing the wealth of shareholders .To achieve this objective; it is necessary to earn adequate profit.

Working capital is also known as circulating capital, fluctuating capital and revolving capital .The magnitude and composition keep on changing continuously in the course of business.

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Assessment of Working Capital

Working capital is the money available to fund a companys day-to-day activity. Essentially, its the cash plus assets that can quickly be converted to cash, that is readily available and not committed elsewhere. Many businesses fail not because they fail to make profits, but because they have insufficient working capital. Its essential that current assets are always ahead of current liabilities. The formula for working capital is: Current Assets Current Liabilities Current Assets include (Cash, Inventory, and Accounts Receivable) and any assets that are expected to be turned into cash within one year. Current liabilities are the (Debts, Salaries, Interest Payment, and Accounts Payable) that a business expects to pay within one year. WORKING CAPITAL= CURRENT ASSETS- CURRENT LIABILITIES YEAR CURRENT ASSETS (in lacs) 26,686.68 CURRENT LIABILITIES (in lacs) 20,090.52 WORKING CAPITAL (in lacs) 6,596.16

2007-2008

2008-2009 2009-2010

28,602.82 29305.90

23,308.81 25469.83

5,294.01 3836.07

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Interpretation:
We have seen that the WORKING CAPITAL of PARLE has been continuously decreasing, this is a good sign, because from last two years the company has adopted the policy of advanced DD system which lead to easy availability of cash & thereby making all the payments at the spot itself.

Measuring Working Capital Productivity

A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The Working Capital Productivity is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the Working Capital Productivity the better it is because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. If sales increase more rapidly than the funds needed to generate them, it shows that a business is being well managed and operating productivelyso it will be more attractive to investors. Its also an indication of good overall financial performance. It is calculated by dividing sales by working capital (current assets minus current liabilities) typically every quarter. The formula is: WORKING CAPITAL PRODUCTIVITY = SALES / WORKING CAPITAL

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YEAR

SALES (in lacs)

WORKING CAPITAL (in lacs) 6,596.16 5,294.01 3836.07

WORKING CAPITAL PRODUCTIVITY 19.38 30.16 55.67

2007-2008 2008-2009 2009-2010

127,829.07 159,674.65 213553.25

INTERPRETATION:
The working capital productivity of company is increasing this show that the company is generating many sales compared to the money it uses to fund the sales. The higher the result the better it is. This shows that the cost incurred by the company to sell off its products is very low as compared to the profits earned; therefore, working capital management is the strength of the company, which is leading to increased efficiency and effectiveness in the day-to-day operations of the firm.

Working Capital Management

Working Capital Management is the process of planning and controlling the level and mix of the current assets of the firm as well as financing these assets. Specifically, working capital management requires financial managers to decide what quantities of cash, other liquid assets, accounts receivable, and inventories the firm will hold at any point in time .In addition ,financial managers must decide how there current assets are to be financed. Financing choices include the mix of current as well as long term liabilities. Fixed Capital should generally be financed with long-term sources of funds; working

26

capital can be appropriately financed with either long-term funds, or short-term funds or some combination of the two. The aim of working capital management is to minimize cash conversion cycle and therefore the amount of capital tied up in Net Current Assets.

Management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the Current Assets (generally cash and Cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

COMPONENTS
Main components of working capital are as follows: 1.CASH MANAGEMENT: It is concerned with the management of: i) ii) iii) Cash Flows into and out of the firm Cash Flows with in the firm Cash balances held by the firm at a point of time by financing deficit or investing surplus cash.

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2. INVENTORY MANAGEMENT:
Inventories represent a substantial amount of a firms current assets. Management of inventories should be efficiently carried out so that this investment doesnt become too large, as it would result in blocked capital which could put to productive use elsewhere. On the other hand, having too small an inventory could result in loss of sale or loss of customer goodwill. An optimum level of inventory should therefore be maintained.

3. DEBTORS MANAGEMENT:
Identify the appropriate credit policy i.e. credit terms, which will attract customers such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue.

For the concept of Managing working capital we need three parameters:DSO+DIH-DPO=DWC days DSO DIH DPO Days Sales Outstanding Days Inventory Held Days Payables Outstanding

DSO indicates the amount of capital tied up in Trade Account Receivable, expressed in days. DIH indicates time span during which inventories remain in the Company expressed in days.

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DPO means indicate time span required by a company for setting its trade accounts payable expressed in days.

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature1) It is concerned with the formulation of policies with regard to profitability, liquidity and risk. 2) It is concerned with the decisions about the composition and level of current assets. 3) It is concerned with the decisions about the composition and level of current liabilities. Policies regarding to Profitability Liquidity and Risk

Composition of Level of Current Assets

Composition of Level of Current Liabilities

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TYPES OF WORKING CAPITAL

On the basis of Concept

i) Gross Working Capital ii) Net Working Capital

On the basis of Need

i) Permanent Working Capital ii) Variable Working Capital

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

1) ON THE BASIS OF CONCEPT On the basis of this concept working capital is of 2 types.

A) Gross working capital Gross working capital is represented by the Total Current Assets. Gross working capital = Total current asset B) Net working capital Net working capital is the excess of current assets over Current Liabilities

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Net working capital = Current assets Current liabilities

2) ON THE BASIS OF NEED

On the basis of need working capital is also of 2 types. A) Permanent working capital

However, to carry on day-to-day operations of the business without any obstacles, a certain minimum level of raw material, Work-in-Progress, finished goods and cash must be maintained on a continuous basis. The amount needed to maintain Current Assets on this minimum level is called permanent or regular working capital.

B) Variable working capital The excess the amount of working capital over permanent working capital is known as variable working capital. It may also be subdivided into two parts.

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

seasonal demands during busy periods occurring at stated intervals.

b) Special working capital - Such capital is required to meet out the extraordinary needs for contingencies. Events like strike, fire, unexpected competition, rising price tendencies, or initiating a big advertisement campaign require such capital.

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COMPONENTS OF WORKING CAPITAL

1. RECEIVABLES MANAGEMENT
The term receivable is defined as debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business. When a firm makes an ordinary sale of goods or services and does not receive payment, the firm grants trade credit accounts receivable, which could be collected in the future. Receivables Management is also called trade credit management. Slow payment has a crippling effect on business, in particular on small businesses that can least afford it. If you do not manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help to manage debtors: 1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones. 5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 6. Establish credit limits for each customer and stick to them.

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RECEVIABLE MANAGEMENT OF PARLE

Position of Debtors 1400 1200 1000 800 600 400 200 0 2008 2009 YEAR 2010 VALUE

Debtors

INTERPRETATION: As the Debtors in the year, 2007-2008 was Rs.1217.16 but in the year 2008-2009 it was decreased to Rs. 821.90 and in the year 2009-10 it was decreased to Rs. 324.75 this shows that the receivable management of PARLE is good. This is because the company has

33

started taking advance payments for the goods that are to be delivered due to which the amount lost in debtors is reduced.

2. INVENTORY MANAGEMENT
Inventories constitute the principal item in the working capital of the majority of trading and industrial companies. In inventory, we include raw materials, finished goods, work-inprogress, supplies and other accessories. To maintain the continuity in the operations of business enterprises, a minimum stock of inventory is required.

Management of inventory is designed to regulate the volume of investment in goods on hand, the types of goods carried in stock to meet the needs of production, and sales while at the same time, the investment in them is to be kept at a reasonable level. The following equation expresses how a company's inventory is determined: Beginning Inventory + Net Purchases Sold inventory = Ending Inventory In other words, take what the company has in the beginning, add what they have purchased, subtract what they have sold and the result is what they have remaining.

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CONCEPT The term inventory management is used in two ways- Unit Control and Value Control. Production and purchase officials use this word in term of unit control whereas in accounting this word is used in term of value control. Investment in inventory is one the largest asset item of business enterprises particularly those engaged in manufacturing.

The proper management and control of the capital invested in the inventory should be the prime responsibility of accounting department because resources invested in inventory are not earning a return for the company. Rather, on the other hand, they are costing the firm money both in terms of capital costs being incurred and loss of opportunity income that is being foregone.

Possessing a high amount of inventory for long periods is not usually good for a business, because there are inventory storage, obsolescence and spoilage costs. However, possessing not enough inventories is not good either, because the business runs the risk of missing potential sales and potential market share as well.

Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.

OBJECTIVES The basic managerial objectives of inventory control are two1) The avoidance of over-investment or under-investment in inventories.

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2)

To provide the right quantity of standard raw material to the production department

at the right time. 3) To maintain inventory of sufficient size for the operations to go on uninterruptedly, but the size should match with the optimum financial involvement. 4) Pricing of the inventories on suitable basis.

TECHNIQUES OF INVENTORY CONTROL

1) 2) 3) 4) 5) The Selective Inventory Control or ABC System of Inventory Control Maximum Stock Limit Minimum Stock Limit Re-ordering Level Economic Order Quantity.

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

NAME OF THE COMMODITY

Stores and spares

YEAR
2007-08 2008-09 2009-10 2007-08 2008-09 2009-10 2007-08 2008-09 2009-10 2007-08 2008-09 2009-10

AMOUNT (In Rs/-)

82,91,000 57, 29,000 1,15,33,000 10, 21, 52,000 8,11,54,000 12, 41, 96,000 5,82,08,000 7,08,06,000 11,19,52,000 11,61,33,000 9,46,87,000 36,01,60,000

Raw Materials

Packing Material

Finished Goods

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Inventory Position 7000 6000 5000 4000 3000 2000 1000 0 2008 2009 YEAR 2010 Inventory VALUE

INTERPRETATION:
As the inventories in the year, 2007-2008 was 2859.33 and in the year 2008-2009, it was decreased to 2524.98. This means that the demand of the product in the year 2007-2008 was more than the year 2008-2009 due to which the length of cash commercial cycle is reduced. In the year 2009-2010, the inventories increased. Increase in inventories is not good for the company as it leads to the locking up of the working capital for a long time to become a finished product. If there is excess inventory then it, phonies unbalanced work load and more market forecasts. It generates excess labour cost, fuel cost, space cost and the most important is the material obsolence.

3. CASH MANAGEMENT
Cash is the most important current asset for the smooth operations of the business. Now-adays liquidity and solvency maintenance has become the main task of financial executives.

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Moreover, cash management assumes more importance than current assets because cash is the most significant and the least productive asset that a firm holds. Cash balance is an unproductive balance also. Idle cash produces nothing. Therefore, the aim of cash management may be said to maintain adequate cash position at one hand and to use excess cash in some profitable way on the other hand.

MOTIVES OF HOLDING CASH

Motives refer to rationale behind holding cash in hand or at bank. The great economist Prof. JOHN. M. KEYNES calls all these as 1) Transaction Motive An important reason for maintaining cash balance is the transaction motive. This refers to the holding of cash to meet routine cash requirements to finance the transactions which a firm carriers on in the ordinary course of business. For example, cash payments have to be made for purchases, wages, operating expenses, financial charges like interest, taxes, dividends, and so on. 2) Precautionary Motive

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Precautionary motive of holding cash implies the need to hold cash to meet unpredictable obligations. Thus precautionary cash balance serves to provide a cushion to meet unexpected contingencies

Floods, strikes and failure of important customers Bills may be presented for settlement earlier that expected. Unexpected slow down in collection of accounts receivables. Cancellation of some orders for goods as the customer is not satisfied. Sharp increase in cost of raw materials.

3) Speculative Motive
Speculative motive represents a positive and aggressive approach. Firms aim to exploit profitable opportunities and keep cash in reserve to do so. The speculative motive helps to take advantage of An opportunity to purchase raw materials at a reduced price on payment of immediate cash. A chance to speculate on interest rate movements by buying securities when interest rates are expected to decline. Delay purchases of raw materials on the anticipation of decline in prices. Make purchase at favorable prices.

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It refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business.

FACTORS DETERMINING LEVEL OF CASH

Maintenance of the optimum level of cash is the main problem around which the financial managers do the exercise of cash management. Level of cash holding differs from industry to industry, organization to organization but the factors determining its level are common to all, which can be summarized as follows-

1) Credit Policy Credit policy is a very critical problem. It affects productivity and liquidity of the business considerably. If credit policy is liberal cash level will be higher and vice versa.

2) Distribution Channel

Distribution channel refers to the number of middlemen in the process of distribution of product. If the distribution channel is long and the credit policy liberal, the level of cash may be higher.

3) Nature of the product

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Nature of goods produced by the organization to a great extent exercises influence on cash reserve. If the produce comes in necessity class, the level of cash holding will differ in comparison to luxury necessity.

4) Size and area of operation Area of operation refers to the geographical area in which the organization is operating. If the organization is working on a large scale, it is quite possible that organization would have to keep higher cash balance. On the contrary, limited area of operations will require less cash balance.

5) Duration of Production Cycle It refers to the time period taken by the raw material to become finished product/marketable produce. In case of long production cycle, the level of cash holding is likely to be high and vice-versa. 6)Policy followed by the Organization as to disbursement of Salaries, Bonus, Dividend etc.

If salaries are being distributed after 15 days the organization would have to manage a high level of cash reserve, while the weekly payment of wages and salaries will require still more funds. On the contrary, monthly payments will reduce the need of funds.

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CASH MANAGEMENT IN PARLE BISCUITS PVT. LTD.

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

Average daily collection of the Parle Biscuits Pvt. Ltd. is 4 crores.

1. Salaries and Wages are distributed in Parle Biscuits Pvt. Ltd on monthly basis 25,00,000-30,00,000 salaries and wages are distributed in one month. Like this, all other daily transactions are completed by daily collection. 2. Parle Biscuits Pvt. Ltd. does not have any credit policy. It deals in cash. Thats why it doesnt have any cash problem.

3. Distribution channel of Parle Biscuits Pvt. Ltd. is very strong having 50 C&F Agents (Depots), are there to fulfill the demand of more than 4,000 whole sellers in open market. Parle Biscuits Pvt. Ltd. Also, have a direct sales system from their mother/CMU plant to whole seller, which covers around 30% production of the months. Company takes advance DD from their whole seller and after that material is supplied to them. 4. Biscuits come in FMCG product. Therefore, circulation of cash is smooth & fast. 5. Production cycle is short. That is why Parle Biscuits Pvt. Ltd has enough cash.

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ANALYSIS AND INTERPRETITION

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RATIO ANALYSIS
It is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. Ratio helps to summaries the large quantities of financial data and to make qualitative judgment about the firms financial performance. The point to note is that a ratio indicates a quantitative relationship, which can be turn, used to make a qualitative judgment. Here are some of the calculated ratios of the financial year of Parle Biscuits Pvt. Ltd. .

Current Ratio:

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It is the most common & popular measure of studying the liquidity of a firm. The current ratio throws light on the firms ability to pay its current liabilities out of its current assets. Current Assets Current Liabilities

Current Ratio=

The Current Ratio of PBPL is calculated in next page:

CURRENT LIABILITIE S

2008-09 (in lacs)

23308.81

2009-10 (in lacs)

25469.83

CURRENT 2008-09 ASSETS (in lacs)

28602.82

2009-10 (in lacs)

29305.90

Current Ratios:2008-09: - 1.22:1 2009-10: - 1.15:1 INTERPRETATION:-

The higher Current ratio, the larger the amount of rupees available per rupee of current liabilities, the more the firms ability to meet current obligations and the greater the safety of funds to short-term creditors. By analyzing above ratio, we can say that the firm was in better positioning the year 2008-09 as compared to 2009-10.

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Quick Ratio
It is also called Acid test ratio or Liquidity ratio. This ratio establishes the relationship between quick / liquid current assets and the current liabilities. Current Assets-inventories

Quick Ratio =

Current Liabilities

The Quick Ratio of PBPL is calculated in next page:

Current Liabilities

2009 (in lacs)

23308.81

2010 (in lacs)

25469.83

Quick Assets

2009 (in lacs)

26077.84

2010 (in lacs)

23221.97

Quick Ratio:2009:- 1.12:1 2010:- 0.91:1 INTERPRETATION:By analyzing the above data we can say that the firm was in better condition in 2009 as compared to 2010.

INVENTORY TURNOVER RATIO

This ratio is also known as the Stock Turnover Ratio. It establishes the relationship between the cost of goods sold during a given period and the average amount of inventory during that period. It can be expressed as:

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ITR = Cost of Goods sold Average inventory Average inventory = opening stock+ closing stock 2 Cost of goods sold = opening stock + purchases closing stock.

SIGNIFICANCE: It indicates how rapidly the inventory is turning into receivables through sales. It measures the liquidity of the inventory. It is always beneficial for a business enterprises to achieve maximum sale by relating the minimum possible stock i.e. stock should be held for as short time as possible if profit is to be maximized. A high turnover ratio indicates efficient stock control, sound sale policies etc. A low stock turnover is never desirable because it reveals the accumulation of too much stock. The Inventory Turnover Ratio of PBPL is calculated below:

2008-09 (in lacs)

Opening stock Closing stock Purchases 2562.85 1047.82 1162

2009-10 (in lacs)

1047.82 947.80 1272

Inventory Turnover Ratio: 2008-09:- 1.48 Times 2009-10:- 1.38 Times

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INTERPRETATION:
This ratio reveals the number of times finished goods is turned over during a given accounting period in relation to sales. It also indicates whether investment in inventory is within proper limit or not. Therefore, a high inventory turnover ratio is better than low ratio. A high ratio reflects efficient business activities and is an indication of under

investment in inventory. The Inventory Turnover Ratio is also an index of profitability as a high ratio indicates more profits. In the year 2008-09, the ratio was 1.48, whereas in the year 2009-10the ratio is 1.38.So we can say that the company was in better position in 2008-09 as compared to 2009-10.

RECEIVABLE TURNOVER RATIO

The Receivable Turnover Ratio attempts to throw light on the collection and credit policies of the firm. This Ratio indicates the number of times the receivables are turned over in a year in relation to sales .It shows how quickly Debtors are converted into cash. A higher Debtors Turnover Ratio shows the efficiency in collection from Debtors i.e. Debtors are being collected more promptly. On the other hand, lower ratio indicates inefficiency of management in collection of payment against credit sales in time or payments by debtors are delayed. Evaluation of the Receivable Turnover Ratio can be made better and meaningful in terms of Average Collection Period, which is calculated as follows: Average Collection Period = Debtors x 365 Sales The Average Collection Period of PBPL is calculated below:

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2009
Debtors*365 Sales Average Collection Period (in days) 2009:- 4 days 2010:- 1 day 821.90*365 70,000

2010
324.75*365 94,000

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Working Capital Statement 2009 For the year ending 31 st march, 2005 PARTICULARS Rs.in Lacs Rs.in Lacs

CURRENT ASSETS, LOANS AND ADVANCES Inventories a) Stores and Spare parts b) Packing Materials c) Raw Material d) Process Stock e) Finished Goods Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances TOTAL (A) CURRENT LIABILITIES AND PROVISIONS Liabilities Provisions TOTAL (B) NET CURRENT ASSETS OR NET WORKING CAPITAL (A -B) 3 ,415.16 19,893.65 23,308.81 57.29 708.06 811.54 0.27 946.87

2524.03 821.90 2091.61 566.67 22 ,597.66 28,601.87

5293.06

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Working Capital Statement For the year ending 31st march, 2010 PARTICULARS Rs. in Lacs Rs. in Lacs

CURRENT ASSETS, LOANS AND ADVANCES Inventoriesa) Stores and Spare parts b) Packing Materials c) Raw Material d) Process Stock e) Finished Goods

115.33 1,119.52 1,241.96 3.72 3,601.60

6,082.13

Sundry Debtors Cash and Bank Balances Other Current Assets Loans and Advances TOTAL (A)

324.75 2,569.07 544.14 19,785.81 29,305.90

CURRENT LIABILITIES AND PROVISIONS Liabilities Provisions TOTAL (B) NET CURRENT ASSETS OR NET WORKING CAPITAL (A-B) 5,355.42 20,114.41 25,469.83

3,836.06

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SWOT ANALYSIS

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Internal Analysis

External Analysis

The SWOT analysis summarizes the internal factors of the firm as a list of its strengths and weaknesses and the opportunities and threats it faces from its external environment.

Internal Analysis:
The internal analysis is a comprehensive evaluation of the internal environment's strengths and weaknesses.

Company culture:
Parle parivar- a family oriented work culture which provides flexibility and discretion in ones key resource area; lack of written down policies.

Company image:
A biscuit and confectionery major in the Indian market, Parle has seeped into the hearts of the masses be the rural folk or the urban class.

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Organizational structure:
The organization follows a flat structure with less hierarchal levels. The heads of the different departments report to the General Manager through direct communication. The working atmosphere is not stressful with enough work-flexibility given to staff and managers.

Position on the experience curve:

More than 60 yrs of experience in the biscuit manufacturing industry, it has not bothered to raise the price of its flagship brand for the past six years and has always tried to provide its offerings at nearly 33 per cent discount to competitive brands.

Operational efficiency:
Highly efficient production units, 7 factories of its own and 23 contract-manufacturing units for biscuits. The Bahadurgarh factory prides itself of having the longest oven in Asia; automated printing and packing section.

Production capacity:
Bahadurgarh and Neemrana factories have the largest manufacturing capacity for biscuits. The production capacity per day of Parle Biscuits Bahadurgarh is 200 Ton.

Brand Awareness:
Highly aware product and brand profile (esp. Parle-G, krackjack and Monaco due to a strong and efficient marketing team. The other biscuits in the Parle Products basket include Monaco, Krackjack, and Marie; Hide n Seek, Cheeslings, Jeffs, Sixer and Fun Centre. But consumers need to be made aware that are from the house of Parle.

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Competitors:
The competitive scenario at the national level is more of a disguised duopoly than a real one. A closer look at the State-level markets show the presence of strong regional players such as Bakeman's, PriyaGold, Shalimar, Windsor and Champion other than the national players , Britannia and ITC sun feast. This has held the prices in check for a long time.

New technology:
Both Parle and Britannia are now trying to differentiate their brands to reflect their superior quality through superior packaging. Being a national player, Parle can afford to concentrate on continuous technological up gradation. .

Social changes:
More and more marketing budgets are being spent on below-the-line promotions and less on brand building. The freebie driven purchase behavior may lead to long-term damage of the brand.

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CONCLUSIONS

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It would be desirable to review the various aspects of the present study. So prior to winding up this study, an attempt is made here under to summarize its major findings: 1. As Parle is a cash surplus company, they do not have any cash problem this is because the company has adopted the policy of advance DD system due to which the Debtors of company has decreased this is a good sign for the company. .2. The operating cycle of the company is completed with in a week that is why the need of working capital is less. 3. The financing of working capital is done through internal sources because of high profitability and availability of cash 4. The raw material that the company uses and the output it produces meets the international standards this is because the company stores or uses the raw material after proper quality check. 5. As the company follows the FIFO system which means that the material which are received first are issued first which helps in the reduction of wastage, increases the profit, and helps in the efficient utilization of resources. So in the end that the future of PBPL is very bright and secured as being seen from its sale figure. Again, it is a profit motive company has no need of Working Capital and not to go into public because it has sufficient funds to invest. Moreover, PARLE has great scope to develop in the future more because it manufactures such type of biscuits that suit to everybody taste from dull to naughty children to old people.

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BALANCE SHEET As at 31st march, 2010

Particulars SOURCES OF FUNDS Shareholders funds a)Share capital b) Reserves and Surplus TOTAL APPLICATION OF FUNDS Fixed Assets a) Gross Block b) Less-Depreciation c) Net Block d) Capital Work in Progress e) Expenditure during Construction period Investments

Rs. in Lacs

Rs.in Lacs

49.50 57,131.60 57181.10

21,116.91 6,801.77 14,315.77 859.06 15,174.20 31,075.45

Current assets, Loans and Advances a) Inventories b) Sundry Debtors c) Cash and Bank Balances d) Other Current Assets e) Loans and Advances

6,083.93 324.75 2,569.07 544.14 19,785.81 29,305.90

Less- Current Liabilities and Provisions a) Liabilities b) Provisions

5,355.42 20,114.41 25,469.83

Net Current Assets 3,836.07 TOTAL 1,07,266.82

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RECOMMENDATIONS

The need for working capital or Current Assets can not be over emphasized. The short-term management of funds also plays an important role in managing the business profitability. All the decisions regarding Credit Policy , Collection Policy, Inventory , Debtors Management , Cash Planning come under the scope of Working Capital Management .Some of the recommendations that can be drawn from the study done to improve the Working Capital position of PBPL are:-

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1. The company must increase its current ratio to 2:1, as it is an Ideal Ratio. It means that Current Assets of a business should, at least, be twice its current liabilities. 2. All the materials of the mixture, which is used in making biscuits, can be stored maximum only for 3 days because store of plant is designed like this that more than 3 days storage cant be maintained in it. Therefore, the company has to increase its storage capacity. 3. Inventories should be minimized by using various factors of production efficiently. 4. The task before PBPL is to further consolidate its position as market leader and with the strengths, it has built, PBPL can look at future with confidence.

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BIBLIOGRAPHY

1. BOOKS
Financial Management by RAVI M. KISHORE Working Capital Management by V.K.BHALLA Financial Management by I M PANDEY

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 Research Methodology by C.R. KOTHARI Financial Management by M.R AGRAWAL

2. INTERNET SITES
www.parleproducts.com www.answers.com www.britania.com www.itc.com

3. LITERATURE OF PBPL
Company HR Manual Magazines of PARLE Company reports & documents Annual report of PBPL PARLE News Letter

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