IILM INSTITUE OF INTEGRATED LEARNING AND

MANAGEMENT

GURGAON

PROJECT ON WORKING CAPITAL IN

PARLE BISCUIT PVT LIMITED

BAHADURGARH

PRIYANKA TYAGI

PGDM-3

SECTION-A
 ACKNOWLEDGEMENT

I acknowledge the support and guidance provided by the Dean and the staff of
my institute, IILM (Institute of Integrated Learning and Management)
Gurgaon, Haryana.

I wish to express my sincere gratitude to MR. S.S. SHIVRAIN, General Manager,

who gave me the opportunity to complete my summer project at PARLE
BISCUITS PRIVATE LIMITED, Bahadurgarh.
.
My gratitude also extends to the head of the finance department at Parle,
Mr.Jaideep Bhala (Fin & Accounts), Mr. Akhil Rastogi, Mr.Parminder Singh,
Mr. S.N. Verma, Mr. Vinod Agrawal, Mrs. Santosh Narwal, Mr. Ajay Singal,
Mr. Vijendra Singh, Mr. R.K.Monga (Excise), Mr. Rajiv Singh (I.T. Manager)
Mr. Vidya Dhar Kaswan (Purchase Officer) who cooperated and guided me
throughout the project.

My sincere thanks to all staff members of the Finance, HR, Excise, Systems and
Purchase departments who encouraged me and gave me valuable insights about
the company.

(PRIYANKA TYAGI)
 DECLARATION

I PRIYANKA TYAGI, the student of M.B.A. III Semester of IILM (INSTITUTE

FOR INTEGRATED LEARNING AND MANAGEMENT) hereby declare that the
Project Report on “WORKING CAPITAL MANAGEMENT in PARLE BISCUITS
PVT. LTD”. Is my original work and has not been submitted by any other person.

I also declare that I have done my work sincerely and

accurately even then if any mistake or error had kept in, I request to the readers
to point out these errors and guide me to remove theses errors in future.

(PRIYANKA TYAGI)
 PREFACE

Practical work experience is the integral part of individual learning.

An individual who is learning managerial concepts has to undergo this practical
experience for being a future executive.

Master of Business Administration is a two-year programme that

inserts management knowledge in an individual to make that individual
completely professional for which practical experience is must.

Parle Biscuits Pvt. Ltd. is the market leader in biscuit industry.

Bahadurgarh plant of PBPL offered me a project on Working Capital
Management to understand the current position through dates provided by them.
 TABLE OF CONTENTS

 OBJECTIVE OF THE PROJECT

 RESEARCH METHODOLOGY

 COMPANY PROFILE

 WORKING CAPITAL AT A GLANCE

 METHOD OF ASSESMENT OF WORKING CAPITAL

 THEORTICAL ASPECTS OF WORKING CAPITAL

MANAGEMANT

 WORKING CAPITAL MANAGEMENT

 RECEIVABLES MANAGEMENT

 INVENTROY MANAGEMENT

 CASH MANAGEMENT

 ANALYSIS OF WORKING CAPITAL MANAGEMENT

 RATIO ANALYSIS

 FUND FLOW ANALYSIS

 CASH FLOW ANALYSIS

FINANCING OF WORKING CAPITAL

FINDINGS AND CONCLUSIONS

 REFRENCES

BIBLIOGRAPHY

OBJECTIVE OF PROJECT

Right from the beginning and also in present scenario,

Confectionary has carved for itself a strong place in the international market with
around half of the global primary demand of confectionary products. This
scenario likely to continue into the 21st century. Now-a-days confectionary
products are also a means to economic power. Most of the nations including
developing countries like INDIA have placed adequate emphasis on self-reliance
technology in confectionary industry.

There has been a rapid and manifold increase in the activities of

Parle Biscuits Pvt. Ltd. since past. These have been directed towards achieving
of self-sufficiency in biscuit industry. In order to meet out the rising demand of
biscuits in the country co-coordinated and consolidated efforts are required in the
direction of exploration.

It is precisely in such a background, that the role of analysis of

working capital and its various components, so as to manage them effectively,
gets pronounced. The problems in managing Working Capital particularly in the
context of the risk-return trade off associated to very little scientific and rational
analysis. It is against this backdrop that the present study seeks to make an
attempt to critically analyze the effectiveness of Working Capital Management of
Parle Biscuits Pvt. Ltd. and offer suggestions for improvement wherever
necessary.

1) To determine the extent to which advance and modern techniques of Working

Capital Management are being applied in Parle Biscuits Pvt. Ltd.

2) To analyze the pattern and size of investment in current assets.

3) To analyze the pattern and size of investment in current liabilities.

4) To analyze the Working Capital and its structure and suggest optimum level
of Working Capital keeping in view of risks and imponderables associates
with exploration.
 5) To suggest measures to improve the current assets structure and to reduce
current liabilities of Parle Biscuits Pvt. Ltd.

RESEARCH METHODOLOGY

After knowing the job profile of every employee of finance

department in Bahadurgarh plant of PBPL. I choose the project of Working
Capital Management. I discussed the project with my instructor and coordinator
Mr. JAIDEEP BHALA Deputy Manager of Finance Department.

He approved the project. After that a simple course of action has

been followed for working on this project. All the data are gathered from the
respective annual report of Parle Biscuits Pvt. Ltd. All the figures are taken from
their balance sheet, profit & loss account of the respective years and other
internal documents.

My instructor Mr. JAIDEEP BHALA in understanding the facts and

figures provided a great help. Mr. BHALA made it possible for me to ask my
queries from that person who can answer these best rather than anybody else in
the company. Although is has been a difficult task but the availability of proper
data and timely guidance given by Mr. BHALA made it a little simpler to
complete this project.
In a lucid way I can summarize the steps of Research Methodology
as-

1) Collection
2) Organization
3) Presentation
4) Interpretation

METHODS OF DATA COLLECTION

1) COMMUNICATION METHOD
2) OBSERVATION METHOD
3) QUESTIONAIRE METOD

All the data has been collected from the primary sources.
 COMPANY PROFILE

INTRODUCTION

“QUALITY, HEALTH AND GREAT TASTE”….

The Parle story unfolded in the year 1929, with the establishment of its first
confectionery factory in the western suburbs of Mumbai, presently known as the
landmark region of “Ville Parle”. Thereafter in 1939 Parle started the manufacture
of biscuits which henceforth became its core activity. PARLE BISCUITS LIMITED
is a subsidiary to PARLE PRODUCTS LIMITED, MUMBAI, which is a closely
held company run by the CHAUHANS. The company commands a 40 percent
market share in the Rs.35 billion biscuit markets in India.
Parle-G; its first venture became an instant favorite amongst the masses, leading
the glucose category with a huge market share of 65%. It topped charts
worldwide by becoming the world’s largest biscuit selling brand as revealed
by the US-based Bakery Manufacturers' Association in 2002. The product
portfolio also comprises of krackjack, Monaco, hide ‘n’ seek and its variants.
The success and survival of Parle is its adherence to quality and
diversification in its core 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 value–for-money.
There are four factories of its own at Mumbai (head office), Bahadurgarh
(Haryana), Neemrana (Rajasthan), and in Bangalore. 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, Calcutta, 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 BISCUIT BASKET
Parle-G: The taste, energy and nourishment Parle - G offers, along with its
quality and value-for-money, contribute to making it an unchallenged success.
Apart from being India's largest selling biscuit, Parle - G is the winner of 8 Gold
and 11 Silver awards at the Monde Selection.

Krackjack: A little sweet - A little salty… That's what makes Krackjack very, very
delicious! This delightful biscuit is acclaimed in India and across the world for its
controversial sweet and salty taste.Krackjack has won 11 Gold, 3 Silver and 1
Bronze award at the 'Monde Selection'.

Monaco: This original 'O' shaped salted biscuit makes people exclaim 'Oh,
Monaco'. Whether plain or with toppings, Monaco is simply delicious. An ideal
party time delicacy one can create more scrumptious snacks by combining
Monaco with a choice of toppings. Light, crisp and fresh, it's no wonder that
Monaco is India's largest selling salted biscuit. Variants include onion, methi,
zeera and nimkin.

Marie Choice: “Solid Milk, Solid Taste" - this summarizes the qualities of this
delicious biscuit.

Hide & Seek: This cookie biscuit is made up of large quantity of chocolate chips.
Crunch into it or let it melt in the mouth to seek out the real taste of chocolate.
Fun Centre: Parle's Fun Centre range has the highest cream content amongst
biscuits in the category. Best of all, one gets a choice of delicious, creamy
flavors, such as, orange, elaichi (cardamom), and chocolate cream.

Cheeslings: The scrumptious, cheese-filled taste makes it difficult to stop with

just a few. The little fluffy biscuits, called Cheeslings is a unique, high-count
cheese biscuit. Cheeslings has won 1 'Trophy of the International High Quality', 2
'Gold with Palm Leaves', 1'Grand Gold', 14 Gold and 2 Silver at the Monde
Selection' awards.

Jeffs: rectangular shaped, salted biscuit, flavored with cumin seed (Zeera) for
that delicious, crunchy taste. The high-count of cumin seed makes Jeffs a more
scrumptious savory - an absolute must, for munching just about anytime.

Sixer: This six-sided, salted delight is one hard-to-resist savory. Whatever the
occasion, Sixer makes for a great salty snack. Be it a picnic, a party, or just any
snack time, Sixer gives that crunchy, munchy, delicious, salty taste that leaves
one wanting for more!
 THE QUALITY COMMITMENT
Parle Product Private Limited has 3 manufacturing plants –

VILE PARLE in Mumbai (Maharashtra)

BHUJ (Gujrat)
BANGLORE (Karnataka)

Apart these plants Parle Product Pvt. Ltd. maintain 20 contract base
manufacturing units in all over INDIA. These plants and CMU’s produce sweets
and confectionary products.

Parle Product Pvt. Ltd. has also a subsidiary company, which is Parle
Biscuit Pvt. Ltd. This subsidiary company produces only biscuits. It also has 2
manufacturing plants –

BAHADURGARH in Gurgaon (Haryana)

NEEMRANA in Alwar (Rajasthan)

Apart these two plants Parle Biscuit Pvt. Ltd. maintain 11 contract base
manufacturing units on different locations, which produce only biscuits.

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

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

All Parle products are manufactured under the most hygienic conditions. Great
care is exercised in the selection & quality control of raw materials; packaging
materials & rigid quality standards are ensured at every stage of the
manufacturing process. Every batch of biscuits & confectioneries are thoroughly
checked by expert staff, using the most modern equipment.
 THE MARKETING STRENGTH

The extensive distribution network built over the years is a major

strength for Parle Products. Parle biscuits and sweets are available to consumer
even in the most remote places and in the smallest of villages with a population
of just 500.

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

outlets directly or indirectly. A two hundred strong dedicated field force services
these wholesalers and retailers. Additionally there are 40 depots and C&F agents
supplying goods to the wide distribution network.

The Parle marketing philosophy emphasizes catering to the

masses.
We constantly endeavor at designing products that provide nutrition & fun to the
common man. Most Parle offerings are in the low & midrange price segments.
This is based on our cultivated understanding of the Indian consumer psyche.
The value for money positioning helps generate large sales volumes for the
products.

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

masses, leading the glucose category with a huge market share of 65%. It
topped charts worldwide by becoming the WORLD’S LARGEST BISCUIT
SELLING BRAND as revealed by the US-BASED BAKERY MANUFACTURES
ASSOCIATION in 2002.

The turnover of Parle Product Pvt. Ltd. is 1500 crores and the
turnover of Parle Biscuit Pvt. Ltd. is 750 crores.
 THE CUSTOMER CONFIDENCE

The Parle name conjures up fond memories across the length and
breadth of the country. After all, since 1929, the people of India have been
growing up on Parle biscuits & sweets.

Today, the Parle brands have found their way into the hearts and
homes of the people of all over India & abroad. Parle Biscuits & Confectioneries,
continue to spread happiness & joy among people of all ages.
The consumer is the focus of all the activities of Parle. Maximizing
value to consumers and forging enduring customer relationships are the core
endeavors at Parle.

Our efforts are driven towards maximizing customers’ satisfaction

and this is in synergy with our quality pledge. “Parle Products Limited will strive to
provide consistently nutritious & quality food products to meet consumers’
satisfaction by using quality materials and by adopting appropriate processes. To
facilitate strive to continuously train our employee and to provide them an open
and participative environment. “

EMERGING TRENDS OF THE BRAND

Since its inception in the 30’s, Parle biscuits have prided itself in offering quality
products that are affordable to the common man. The marketing mix has evolved
with the times…

THE PRODUCT
Parle biscuits have a range of variants in its product portfolio. The popular brands
Parle g, krackjack, Monaco and its variants (zeera, onion and methi) are
available in packets of various convenient sizes. New products like Hide & Seek
are a foray into the premium segment.

THE PRICING STRATEGY

This biscuit major has not bothered to raise the price of its flagship brand “Parle
g” for the past 6-8 years and has always tried to provide its offerings at nearly 33
per cent discount as compared to other competitive brands.

THE PROMOTION POLICY

The consumer is the focus of all activities at Parle. Maximizing value to
consumers and forging enduring customer relationships are the core endeavors
at Parle. Parle-G ‘My Dream Come True contest” – was one of its biggest
promotional ventures (2.5 crore) which gave contestants a chance to fulfill their
dreams. Discounts, gift offer schemes are other popular promotional offerings.
THE PLACE
A well-entrenched distribution system (the company covers 12-15 lakh outlets
across the country), with 39 depots at strategic points all over the country. From
the depots, the biscuits are sold to wholesalers and further to retailers.

THE PACKAGING
Biscuit packing has undergone a swift transformation. From the earlier waxed-
paper packing, Parle’s BOPP offering is not only stylish and enticing but also
increases the shelf life of the biscuits.
 PARLE BISCUITS PRIVATE LIMITED (BAHADURGARH)

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

The manufacturing at Bahadurgarh unit started in 1982 for Parle-G with a single
plant. It is planted in near about 16 acres of land.

Including General Manager 78 employees of Managerial and Officer Class

are working in this plant. Production is going on in this plant 24 hours in three
shifts. Number of permanent workers of thrice shifts is 680 and around 400
workers are there on contract basis.

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

Average Production capacity of Bahadurgarh unit per month is-

Parle-G 3500 Metric Tones

Krackjack 1600 Metric Tones
Monaco 800MetricTones

The plant works in coordination with the Mumbai office, Neemrana

(Rajasthan) Plant of PBPL, 11-contract base manufacturing units and 40 depots.
But the accounts are finalized of Neemrana plant and 11 CMU’S at
Bahadurgarh Plant.

Location of the 11 CMU’S is as follows-

5 at Kanpur
1 at Gorakhpur
1 at Patna
1 at Faizabad
1 at Raipur
1 at Varanasi
1 at Ajmer

DEPARTMENTS IN PLANT
FINANCE
HR & PERSONNEL
QUALITY ASSURANCE
PRODUCTION & PRINTING
EXCISE & DESPATCH
ENGINEERING
I.T.
PURCHASE
STORE
 The organization follows a flat structure with less hierarchal levels.
The heads of the different departments report to the General Manager through
direct communication. The working atmosphere is not stressful with enough
work-flexibility given to staff and managers.

The plant also has auditorium and viewing gallery, which is used
during the visit of school children. A retail shop at the Plant provides Parle
Products at M.R.P. rates.
 WORKING CAPITAL AT A GLANCE

 INTRODUCTION
 TYPES
 FEATURES
 DETERMINANTS
 COMPONENTS
 WORKING CAPITAL CYCLE

INTRODUCTION
A successful sales program is necessary for earning profits by any
business enterprise. Sales don’t convert into cash instantly. There is a time lag
between the sale of goods and receipt of cash.

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

assets to deal with the problem arising out of the lack of immediate realization of
cash against goods sold. Therefore sufficient working capital is necessary to
sustain sales activity.

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

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

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

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

materials, work-in progress, finished goods, stores and spares, accounts
receivables and cash balance.
 TYPES

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

on the basis of periodicity of its requirement.

1) ON THE BASIS OF CONCEPT

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

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

total Current assets.

Gross working capital = Total current assets

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

assets over current liabilities.

Net working capital = Current assets – Current liabilities

2) ON THE BASIS OF REQUIREMENT

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

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

should always be there in the fixes or minimum current assets like
inventory, accounts receivables or cash balance etc. to carry out business
smoothly. Such an amount cant be reduced if the firms wants to carry on
business operations without interruption.

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

over permanent working capital is known as variable working capital. It
may also be subdivided into two parts.

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

out the seasonal demands of busy periods occurring at stated
intervals.

b) Special working capital - Such capital is required to meet

out the extra-ordinary needs for contingencies. Events like strike,
fire, unexpected competition, rising price tendencies, or initiating a
big advertisement campaign require such capital.
 DETERMINANTS

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

on working capital requirements can’t be exaggerated. Rail, roads and other
public utility services have large fixes investment so they have the lower
requirements of current assets. Industrial and manufacturing enterprises, on
the other hand, generally require a large amount of working capital.

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

entire year, working capital requirements are greater, because the
inventories will be unnecessarily accumulated during of season period. But
if the production schedule favors a varying production plan as per the
seasonal requirements, working capital is required to a greater extent
during a specified season only. The production policies are affected by so
many factors availability of raw materials, labour, stocking facility etc &
therefore, whatever the productions policies are, the firm has to arrange its
working capital requirements accordingly.

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

industries where cost of proportion is a large proportion of total cost of the
goods produced, requirements of working capital will be comparatively
large.

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

between the commencement and end of the manufacturing process has an
important bearing upon the requirements of working capital. The
manufacturing cycle may be shorter for certain concerns & longer for
others- it depends on the type of the product to be manufactured, work to
be done through machine labour & hand labour, degree of rationalization of
manufacturing procedures through times, motion & fatigue studies etc.

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

be postponed for some time and can be made out of the sale proceeds of
the goods produced. In such a case, the requirements of working capital will
be reduced.

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

large amount of working capital will be required.

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

business. When the price level is up due to boom conditions, the inflationary
 conditions create demand for more working capital. During depression also
a heavy amount of working capital is needed due to the inventories being
locked unsold and book debts uncollected.

8) Requirement of cash - The working capital requirements of a

company are also influenced by the amount of cash required by it for
various purposes. The greater the requirement of cash, the higher will be
the working capital needs of the company.
9) Dividend policy of concern – If the management follows a
conservative dividend policy the needs of working capital can be met with
the retained earnings. The relationship between dividend policy and working
capital is well established and mostly companies declare dividend after a
careful study of their cash requirements.

10) Other Factors - Other factors, which affect the requirement of working
capital, are lack of co-operation in production and distribution policies,
transport and communication facilities, the fiscal and tariff policies of the
government etc.
 COMPONENTS

Main components of working capital are as follows:

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

capital. Holding cash involves cash in the sense that the present worth of
cash held for a year is less than the value of cash on today. During
inflationary situations as exist today the cost of holding includes the
deterioration in the value of the cash due to inflation. Cash, therefore,
results in enhanced liquidity, but lower profitability. Despite in the cost
involved it is pertinent to hold cash because it facilitates the attainment of
some important motives.

2) Marketable Securities – Though marketable securities provides a

such lower yield that the firm’s operation assets. They serve two useful
functions. Firstly, they act as a substitute for cash, and secondly, are used
as temporary investment. Where these securities are held in lieu of the cash
balance, they act as a substitute for transactional or precautionary
balances. Normally, these aren’t used as speculative balances, but only as
a guard against the possible shortage of bank credit.
Marketable securities (as temporary investment) may be held for one of the
following reasons:

• Seasonal or cyclical operations

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

• Immediately after the sale of long-term securities.

3) Account Receivable - Though accounts receivable are a vital

investment of any business organization, little analytical work as been done
to determine credit policies. Maintaining account receivable has its cost
implications in that the firm’s monetary resources are tied up. This is of
greater significance in the inflationary economy, because of the
depreciation in the value of money. Basically, this is a two-step account.
When goods are shipped, inventories are reduced and accounts receivable
is created. When payment is made, this account is reduced and the cash
level increases. Accounts receivables are, therefore a function of the
volume of credit sales and the average length of time between sales and
collections.

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

assets. Management of inventories should be efficiently carried out so that
this investment doesn’t become too large, as it would result in blocked
 capital which could put to productive use elsewhere. On the other hand,
having too small an inventory could result in loss of sale or loss of customer
goodwill. An optimum level of inventory should therefore be maintained

.
WORKING CAPITAL CYCLE

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

paying for materials entering into stock and receiving the cash from sale of
finished goods. In a manufacturing firm, the duration of time required to complete
the sequence of events is called operating cycle.

In case of a manufacturing company, the operating cycle is the

length of time necessary to complete the following cycle of events: -

1) Conversion of cash into raw materials

2) Conversion of raw materials into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into accounts receivable
5) Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period depending
upon the nature of the business & type of product etc. tne duration of the
operating cycle for the purpose of estimating working capital is equal to the sum
of duration allowed by the suppliers.
Working capital cycle can be expressed as:

R+W+F+D-C
Where R=Raw Material Storage Period= Avg. Stock of Raw Material
Avg. Cost of Production per day

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

Avg. Cost of Production per day

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

Avg. Cost of Goods Sold per day

D=Debtors Collection Period = Avg. Book Debts

Avg. Credit Sales per day

C=Credit Period Avail = Avg. Trade Creditors

Avg. Credit Purchases per day
 OPERATING CYCLE OF MANUFACTURING
BUSINESS

REALIZATION Accounts SALES

Receivables

Cash Finished
Goods

PURCHASE

PRODUCTION
PRODUCTION
PROCESS
Raw Materials Work-in-Process
PROCESS
 METHOD OF ASSESMENT OF WORKING CAPITAL

Operating cycle No. of days

Raw material = 916.53 = 7.9

114.84

Stock in Process = 10.12 = .088

114.84

Finished goods = 1054.1 = 9.13

115.36

Debt collection period = 4.22

(Calculating in ratios)
_______________

Total length of Operating Cycle = 21.34 Days

SALES per month 67829.07 = 5652.422 Rs.

12

Total EXPENSES 60450.77 = 5037.66 Rs.

Per month 12

WORKING CAPITAL REQUIRED = Total Length of X Monthly Expenses

Operating Cycle
__________________________________
30

= 21.34 X 5037.66
30

= 3583.45Rs.
Working Notes:

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

Opening Stock + Purchases – Closing Stock

2003-04:
Annual Consumption = 36047.27Rs

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

2004-05:
Annual Consumption = 38058.07Rs

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

2. Stock In Process --
Raw Material + Power + Labour + Repairs
+ Other Manufacturing Expenses + Depreciation
+ Opening Stock – Closing Stock

2003-04:
Cost of Production = 40125.5 Rs.

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

2004-05
Cost of Production = 41315.08 Rs.

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

3. Finished Goods --
Cost of Production + Opening Stock - Closing Stock

2003-04:
Cost of Goods Sold = 40275.31Rs.

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

2004-05:
Cost of Goods Sold = 41529.54Rs.

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

 THEORTICAL ASPECTS OF WORKING CAPITAL
MANAGEMANT
WORKING CAPITAL MANAGEMENT
NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

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

liquidity and risk.

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

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

Policies regarding
to
Profitability
Liquidity and Risk

Composition of
Composition of Level of Current
Level of Liabilities
Current Assets

DIMENSIONS OF WORKING CAPITAL

GOAL OF WORKING CAPITAL MANAGEMENT

 Working capital management is concerned with the problems
that arise in attempting to manage the current assets, the current liabilities
and the interrelationship that exists between them.

The term current assets refer to those assets which is the

ordinary course of business can be converted into cash within one year.
Major current assets are cash, marketable securities, accounts receivable
and inventory.

Current liabilities are those liabilities, which are intended, at

their inception, to be paid in the ordinary course of business within a year,
out of the current assets or earnings of the concern. Current liabilities are
accounts payable, bills payable, bank overdraft, and outstanding
expenses.

Working capital is that portion of firm’s assets which is

financed by long-term funds.

Interaction between current assets and current liabilities is the

main theme
of the theory of working capital management.

Goal of working capital management is to manage the

firm’s current assets and liabilities in such a way so that a
satisfactory level of working capital is maintained.

The second important segment of working capital

management is deciding the optimum level of investment in various current
assets. There are three important current assets cash, accounts
receivables and inventory
 RECEIVABLES MANAGEMENT

INTRODUCTION

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 doesn’t
receive payment, the firm grants trade credit accounts receivable, which could be
collected in the future.
Receivables Management is also called trade credit management.

OBJECTIVE

The objective of receivables management is “to promote

sales and profits until that point is reached where the return on investment in
further funding receivables is less than the cost of funds raised to finance that
additional credit”.

BENEFITS

Investments in receivables involve both benefits and costs. The

extension of trade credit has a major impact on sales, costs and profitability.
Other things being equal, a relatively liberal policy and, therefore, higher
investments in receivables, will produce larger sales. However, costs will be
higher with liberal policies than with more stringent measures.
Therefore, accounts receivables management should aim at a
trade-off between profit (benefit) and risk (cost).

CREDIT POLICIY

The credit policy of a firm provides the framework to determine:

1) Credit standards
2) Credit terms
3) Credit Analysis

Credit Standard

The term credit standards represent the basic criteria for the
extension of credit to those customers to whom goods could be sold on credit. If
a firm has more slow-paying customers, its investment in accounts receivables
will increase. The firm will also be exposed to higher risk of default.
Credit Terms

Credit terms specify duration of credit and terms of payment by

customers. Investment in accounts receivables will be high if customers are
allowed extended time period for making payments.

Credit Analysis

Credit analysis and investigation is an aspect of credit policies of a

firm. Two basic steps are involved in the credit investigation process:

Obtaining credit information

B. Analysis of credit information

It is on the basis of credit analysis that the decisions to grant credit

to a customers as well as the quantum of credit would be taken.
 CREDIT POLICY OF PARLE BISCUITS PVT. LTD.
Before coming to the credit policy it’s necessary to be aware with
the goods distribution policy of Parle Biscuits Pvt. Ltd.

For fulfilling the demand of it’s customer’s timely Parle Biscuits Pvt.
Ltd. maintains 40 DEPOTS in all over INDIA. Finished goods are transferred from
production plants to these depots. According to their transportation facilities
customers of Parle Biscuits Pvt. Ltd. ask their demand of different products to
depots.
Then it’s the responsibility of these depots to fulfill the demand of customers of
Parle Biscuits Pvt. Ltd.

Parle Biscuits Pvt. Ltd. doesn’t has credit policy it deals in cash. For
the collection of it’s payment PBPL deals with 5 banks which are as follows:

1) UTI
2) STANDARD CHARTERED
3) HDFC
4) BANK OF PUNJAB
5) CORPORATION BANK

After collecting the amount of sold goods it is deposited by the

depots in any of these bank.
Parle Biscuits Pvt. Ltd. divided its customers in 4 categories-

1) Cheque Parties – Cheque parties are those who send their blank
cheques to Depots before receiving the finished goods. Depots fill the selling
amount of the consignment in those cheques and then these cheques are
deposited by the depots in the account of PBPL in any of these 5 banks.

2) Demand Draft Parties – In such cities where anyone of these 5 banks

isn’t there customers of those come in this category.

Before receiving the finished goods customers send the draft of the
consignment amount to production plants directly. Then consignment is sent
to those customers by concerned depot.

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

provided are called credit parties. After 4 days these parties send cheque of
consignment amount to depot. And then procedure just like first category is
followed by depot.
4) Credit Demand Draft Parties - These are those parties to whom 4 days
credit facility is provided but they also don’t have facility of any of those 5
banks in their city.

After 4 days just like the second category these parties send the
draft of consignment amount directly to production plant.
 INVENTORY MANAGEMENT

INTRODUCTION

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-in-progress, 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 and 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.

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 aren’t 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.

OBJECTIVES

The basic managerial objectives of inventory control are two-

1) The avoidance of over-investment or under-investment in inventories.

2) To provide the right quantity of standard raw material to the production

department at the right time.
 TECHNIQUES OF INVENTORY CONTROL

1) The Selective Inventory Control or ABC System of Control

2) Maximum Stock Limit
3) Minimum Stock Limit
4) Re-ordering Level
5) Economic Order Quantity

ABC System of Control

The various inventory items are, according to this system, categorized into three
classes-
I. A
II. B
III. C

The item included in-group involve the largest investment.

Therefore, inventory control should be the most rigorous and intensive and the
most sophisticated inventory control techniques should be applied to these items.
The C group consists of items of inventory which involve relatively small
investments although the numbers of items is fairly large. These items deserve
minimum attention. The B group stands midway. It deserves less attention than A
but more than C. It can be controlled by employing less sophisticated techniques.

Maximum Stock Limit

This represents the quantity if inventory above which it should not

be allowed to be kept. The following formula may be applied to calculate the
maximum stock-

Maximum Stock = Reorder Level – Minimum Consumption during Minimum

Lead Time + Lot Size
Minimum Stock Limit

This represents the quantity below which stock should not be allowed to fall. The
main purpose of this level is to ensure that production isn’t held up due to storage
of any material.

Minimum Stock Limit = Re-order Level – Normal storage during Lead Time

Re- Ordering Level

It is the point at which if stock of the material in store reaches, the

storekeeper should initiate the purchase requisition for fresh supplies of the
material. This level is fixed somewhere between the maximum and minimum
levels in such a way that the difference of quantity of the material between the
reordering level and the minimum level will be sufficient to meet requirements of
production upto the time of fresh supply of the material.

The reorder point = Lead time in days * Average daily usage of inventory

Economic Order Quantity

It is the quantity of inventory, which can be reasonably ordered at a

time and purchased economically. It is also known as Standard Order Quantity or
Economic Lot Size. By definition “Economic Order Quantity is that size or order
at which the total cost of ordering and holding are the minimum.

In determining the economic order quantity the problem is one to

set a balance between two opposing costs, namely, namely ordering costs and
carrying costs. The ordering costs are basically the costs of getting an item into
the firm’s inventory.

Carrying costs, sometimes also known as holding costs are the

costs of possessing the materials. These costs are combinedly known as
“Associated Costs”.

Hence, the management tries to reconcile them and this

reconciliation point is economic order quantity.
 INVENTORY MANMAGEMENT IN PARLE BISCUITS
PVT. LTD.
For inventory management in Bahadurgarh plant of PBPL certain
things are considered which are completely practical-

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

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

• All the materials of the mixture, which is used in making biscuits, can be
stored maximum only for 3 days. Because store of plant is designed like this
that more than 3 days storage can’t be maintained in it.

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

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

• Re-order levels of inventories are maintained in the plant in wake of per day
consumption level of inventories and lead-time in days.

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

NAME OF THE COMMODITY YEAR AMOUNT (In

Rs/-)

Stores and spares 2003-04 82, 91,000

2004-05 57, 29,000

Raw Materials 2003-04 10, 21,52,000

2004-05 8,11,54,000

Packing Material 2003-04 5,82,08,000

2004-05 7,08,06,000

Finished Goods 2003-04 11,61,33,000

2004.5 9,46,87,000
 CASH MANAGEMENT

INTRODUCTION

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

The cash balances held in reserve for such random and unforeseen
fluctuations in cash flows are called as precautionary balances.
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.

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 - 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 reefers 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.

CASH MANAGEMENT IN PARLE BISCUITS PVT. LTD.

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

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

• Salaries and Wages are distributed in Parle Biscuits Pvt. Ltd on monthly
basis. 50,00,000-75,00,000 salaries and wages are distributed in one month.
Like this all other daily transactions are completed by daily collection.

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

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

• Authority for getting the benefit of any opportunity is given to Mumbai office of
Parle Biscuits Pvt. Ltd. That decides the policy regarding to any market
opportunity.

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

• Distribution channel of Parle Biscuits Pvt. Ltd. is very short only depots are
there as a middleman between plant & open market. That’s why there isn’t
any necessity of more cash.

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

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

ANALYSIS OF WORKING CAPITAL

MANAGEMENT
 In this chapter an analysis over the Working Capital of Parle
Biscuits Pvt. Ltd. has been done. But before going further let us have a look on
the current position of Working Capital.

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

(Amount in Lacs Rs/-)

% OF % OF
WORKING WORKING WORKING
YEAR SALES INVESTMENTS
CAPITAL CAPITAL CAPITAL TO
TO SALES INVETSMENTS
2003-
68000 33540.19 6596.16 9.70 19.67
04
2004-
70000 27390.76 5294.01 7.56 19.32
05

In year 2002-03 Working Capital of Parle Biscuits Pvt. Ltd. was

2500 lacs Rs/- while in the same period the sales was noticed 65,000 lacs Rs/-
then % of Working Capital to sale was 3.84 but in the next year 2003-04 sales
was 50,000 lacs Rs/- and Working Capital was 3,000 lacs Rs/-. So in year 2003-
04 % of Working Capital to sales was 6.

In year 2002-03 Investments were 20,000 lacs Rs/- so % of

Working Capital to Investments was 12.5 and in year 2003-04 Investments were
15,000 lacs Rs/- so % of Working Capital to Investments was 20.

RATIO ANALYSIS
 It is a powerful tool of financial analysis. A ratio is defined as “the
indicated quotient of two mathematical expressions” and as “the relationship
between two or more things”. Ratio helps to summaries the large quantities of
financial data and to make qualitative judgment about the firm’s financial
performance. The point to note is that a ratio indicates a quantitative relationship,
which can be turn, used to make a qualitative judgment.

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

All the ratios are calculated in Lacs Rs/- figures.

Net Working Capital Ratio

Net Working Capital
Capital Employed

2003-04 2004-05

Net Working Capital 6596.16 5294.01

Net Assets or Capital employed 29340.48 35093.56

Ratio .22: 1 .15: 1

The difference between Current Assets and Current Liabilities

excluding short-term borrowings is called Net Working Capital or Net Current
Assets. The position of Net Working Capital in the year 2003-04 is better as
compared with the year 2002-03. The important thing to say is that this
organization has healthy Current Assets.
 Current Ratio

Current Assets
Current Liabilities

2003-04 2004-05

Current Assets 26686.68 28602.82

Current Liabilities 20090.52 23308.81

Ratio 1.33: 1 1.23: 1

Current Assets include cash and those assets, which can be

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

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

satisfactory. The current ratio doesn’t represent margin of safety i.e. a “cushion”
of protection for creditors.
 Average Collection Ratio

Debtors*360
Sales

2003-04 2004-05

Debtors*360 1217.16*360 821.90*360

Sales 68000 70,000

Days 6.45 4.22

The average collection period shows the efficiency of debtors. It

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

Quick Ratio or Acid Test

Current Assets - Inventories
Current Liabilities

2003-04 2004-05

Current Assets-Inventories 26686.68-2869.33= 28602.82 -2524.98=

23817.35 26077.84

Current Liabilities 20090.52 23308.81

Ratio 1.18: 1 1.12: 1

Generally a quick ratio of 1:1 is considered to represent a

satisfactory position. But it can’t be said that a company having quick ratio of less
than 1:1 isn’t financially sound, Because it depends upon the nature of debtors. If
the debtors are slow paying the quick ratio of more than 1:1 can become harmful.
But if debtors are liquid like in this organization than even less than 1:1 can work
out to be satisfactory.

As debtors of this organization aren’t slow paying so that quick

ratio is satisfactory.

The above made calculation of various ratios has told us about the
various aspects of Working Capital of Parle Biscuits Pvt. Ltd. The system is well
under control an effective but still in some areas a little more concentration to be
needed.

FUND FLOW ANALYSIS

 The statement of change in financial position, prepared to
determine only the sources and uses of working capital between dates of the two
Balance Sheets is known as the Fund Flow Statement. Working Capital is
defined as the difference between Current Assets and Current Liabilities.
Working determines the liquidity of the firm.

The Working Capital flow or fund arises when the net effect of
transaction is to increase or decrease the amount of Working Capital. Normally, a
firm will have some transactions that will change Net Working Capital and some
that ill cause no change in Net Working Capital. The transaction will cause Net
Change of Working Capital only when one of the accounts affected is a current
account (Current Liability) and account is non-current account (Long-term Assets
or Long term Liability).

The concepts of Working Capital may be summarized as follows:

• The Net Working Capital increases or decreases when a transaction

involves a current account and a non-current asset account.

• The Net Working Capital remains unaffected when a transaction involves

only Current accounts.

• The Net Working Capital remains unaffected when a transaction involves

only non current accounts.

• Now let us examine the Working Capital flow of Parle Biscuits Pvt. Ltd.
through the statement of change in Working Capital.
 FINANCING OF WORKING CAPITAL
INTRODUCTION

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

arises mainly because the investment in Working Capital/Current Assets that is
raw materials, work/stock-in-progress, finished goods and receivables typically
fluctuates during the year.

The main sources of Working Capital financing are Trade Credit,

Bank Credit, RBI framework/regulation of bank credit/finance/advances,
Factoring, Commercial Papers and Internal Sources.

TRADE CREDIT

Trade Credit refers to the credit extended by the supplier of

goods and services in the normal course of transaction/business/sale of the firm.
According to trade practices, cash is not paid immediately for purchases but after
an agreed period of time. Thus, deferral of payment (trade credit) represents a
source of finance for credit purchases.

BANK CREDIT

Bank Credit is the primary institutional source of Working

Capital finance in India. In fact, it represents the most important source for
financing of Current Assets.

Working Capital finance is provided by banks in five ways:

1) Cash Credits/Overdrafts
2) Loans
3) Purchase/Discount Bills
4) Letter of Credit
5) Working Capital term loans
RESERVE BANK OF INDIA FRAMEWORK FOR /REGULATION OF
BANK CRDIT

In order to secure alignment of Bank Credit with planning

priorities and measures to direct Bank Credit to priority sectors and enforce a
measure of financial discipline among industrial borrowers.

However, the basic character of Bank financing of Industry,

namely over borrowing and domination of cash credit system did not materially
alter.

COMMERCIAL PAPERS

Commercial Paper is a short-term unsecured negotiable

instrument, consisting of usance promissory notes with a fixed maturity. It is
issued on a discount on face value basis but it can also be issued in interest
bearing form. A Commercial Paper when issued by a company directly to the
investor is called a Direct Paper. The companies announce current rates of
Commercial Papers of various maturities, and investors can select those
maturities, which closely approximate their holding period. When Commercial
Papers are issued by security dealers/dealers on behalf of their corporate
customers, they are called Dealer Paper. They buy at a price less than the
commission and sell at the highest possible level.

FACTORING

Factoring provides resources to finance receivables as well as

facilitates the collection of receivables. Although such services constitute a
critical segment of the financial services scenario in the developed countries,
they appeared in the Indian financial scene only in the early nineties as a result
of RBI initiatives. There are two bank-sponsored organizations, which provide
such services:

1) SBI Factors and Commercial Services Ltd.

2) Canbank Factors Ltd.

The first private sector factoring company, Foremost Factors Ltd,

started operations since the beginning of 1997.
 INTERNAL SOURCES

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

Internal Sources include profits, reserves etc.

FINANCING OF WORKING CAPITAL IN PARLE BISCUITS PVT.

LTD.

In Parle Biscuits Pvt. Ltd financing of Working Capital is

done through only internal sources. Profits and reserves of Parle Biscuits Pvt.
Ltd. are enough to fulfill the demand of it’s Working Capital.

Parle Biscuits Pvt. Ltd. doesn’t use any other source apart internal
for financing it’s Working Capital
 FINDINGS & CONCLUSIONS

The project is developed keeping in mind the security of Working

Capital of the company. Means that no one can enter in the confidential data of
the company and without permission the senior officer one can’t enter in the main
programme whether he is Manager, Employee or the Guest.

It is very difficult to make the project or the analysis in such a way

that can solve all the problems according to the requirements. In this project it is
being tried to give more and more facilities but in a short period of training time,
as much as possible has been done.

1) It is easy to understand and operate this project.

2) It provides the facility to update the records.

3) It is found that the various components of Gross Working Capital (Total

Current Assets) have shown a change in their respective sizes.

4) In relation to the above said statement we can say that the investment in
Current Assets by the organization has gone down during the year 2003-
04 as compared to the previous year 2002-03. Though, there has been as
increase in the Working Capital.
 BIBLIOGRAPHY

1) Management Accounting by D.C.Sharma & K.G.Gupta

2) Financial Management by M.Y.Khan & P.K.Jain

3) Managerial Accounting by S. N. Maheswari

4) Parle Biscuits Pvt. Ltd. annual report 2001-02

5) Parle Biscuits Pvt. Ltd. annual report 2002-03

6) Parle Biscuits Pvt. Ltd. annual report 2003-04