FINANCIAL MANAGEMENT

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ESTIMATION OF WORKING CAPITAL

REQUIREMENT

A CASE STUDY OF JAIN IRRIGATION

SYSTEMS LIMITED

Submitted By:
 SUMAIYA DALAL 68
 RAHUL MAHABARE 88
 HIMSHREE SHELAR 105
 PRASHANT SONI 108
 DEEPAK SUKPAL 109

A REPORT SUBMITTED TO THE UNIVERSITY/INSTITUTE IN PARTIAL

FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF POST
GRADUATE MASTERS IN FINANCIAL MANAGEMENT FOR THE ACADEMIC
YEAR 2010 TO 2013.

UNDER THE GUIDANCE OF PROF. L.N. CHOPDE

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CERTIFICATE

THIS IS TO CERTIFY THAT PROJECT TITLED ESTIMATION OF WORKING

CAPITAL REQUIREMENT WITH THE CASE STUDY OF JAIN IRRIGATION
SYSTEMS LIMITED IS BASED ON THE ORIGINAL STUDY CONDUCTED
BY

 SUMAIYA DALAL
 RAHUL MAHABARE
 HIMSHREE SHELAR
 PRASHANT SONI
 DEEPAK SUKPAL

UNDER MY GUIDANCE AND THIS HAD NOT FORMED A BASIS FOR THE
AWARD OF ANY OTHER DEGREE OF THIS INSTITUTE/UNIVERSITY.

PLACE:
DATE:

---------------
L. N. CHOPDE
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CERTIFICATE FROM THE ORGANIZATION

THIS IS TO CERTIFY THAT MS. SUMAIYA DALAL, MR. RAHUL

MAHABARE, MS. HIMSHREE SHELAR, MR. DEEPAK SUKPAL
AND MR. PRASHANT SONI HAVE SUCCESSFULLY COMPLETED A
STUDY ON ESTIMATION OF WORKING CAPITAL REQUIREMENT WITH
THE CASE STUDY OF JAIN IRRIGATION SYSTEMS LIMITED AND HAVE
SUBMITTED THE PROJECT REPORT ON THE SAME.

THE STUDY CONDUCTED WAS SATISFACTORY. WE WISH THEM ALL THE

BEST.

SIGN OF THE OFFICER

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ACKNOWLEDGEMENT

We express our sincere thanks to Professor L. N. Chopde, for his

constant encouragement and support throughout our course,
especially for the useful suggestions regarding this report. He has been
a perfect mentor and guide to give us immense knowledge and
understanding for the subject, Estimation of Working Capital
Requirement with the Case Study of Jain Irrigation Systems Limited.
The project has not only given intense knowledge about the subject
but also taught us, its practical implications.
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CONTENTS

1. Introduction………………………………………………………………6

2. Definition…………………………………………………………………..6

3. Components of working Capital ……………...……………………..6

4. Characteristics of Current Assets..……………………………………10

5. Need for Working Capital ………………………………….………….11

6. Operating Cycle …………………………………………………………11

7. Types of Working Capital ……………………………….……………...11

8. Reasons for Changes in Working Capital .…………………………..12

9. Determination of Working Capital…………………………………….13

10. Estimation of Working Capital Requirement………………………..15

11. Case study of Jain Irrigation Systems Limited

……………………….17

12. Conclusion..……………………………………………………………… 23

13. Bibliography………….…………………………………………………… 24
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INTRODUCTION:

A study of working capital is of major importance of internal and external analysis

because of its relationship with the current day to day operations of business. Funds,
collected from different sources are invested in the business for the acquisition of assets.
These assets are employed for earning revenue. The basic problem facing the finance
manager of an enterprise is to trade off between conflicting but equally important goals of
liquidity and profitability. The greater the liquid resources of the firm, the lesser will be
its profitability and vice verse. The firm has to maintain the working capital at such level
as may ensure satisfying earnings to the enterprise without jeopardizing its liquid
position. Thus, working capital management is concerned with the problems that arise in
attempting to discuss in details various tools and techniques which can be gainfully
employed to solve the problem of determining optimum level of working capital.

DEFINITION:

In order to maintain flow of revenue from operations, every firm needs certain amount of
current assets. For example, funds required either to pay for expenses or to meet
obligation for service received or goods purchased etc by a firm. These funds are known
as Working Capital.

Working Capital is defined as the excess of current assets over current liabilities and
provisions. That is, the amount of surplus of current assets which remain after deducting
current liabilities from total current assets which is equal to the amount invested in
working capital consisting of work in progress, raw materials and component stocks,
consumable items amounts owing by customers and cash at the or bank in hand.

According to shubin define working capital is the amount of funds necessary for the cost
of operating the enterprise. Working capital in a going concern is a revolving fund, it
consist of cash receipts from sales which are used to cover the cost of operation.

It is descriptive of that capital which is not fixed. But the more common user of working
capital is to consider it as the difference between the book value of the current assets and
the current liabilities.

In Accounting working capital is the different between the inflow and outflow of funds.
In other words, it is the net cash inflow. 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.

COMPONENTS OF WORKING CAPITAL:

The term working capital refers to the net working capital. Net working capital is the
excess of current assets over current liabilities. It can be expressed as:

Net Working Capital = Current Assets – Current Liabilities.

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Current assets refer to those assets which in the ordinary course of business can be or will
be, turned in to cash with in one year without under going a diminution in value and
without disrupting the operations of the firm. On the other hand, current liabilities are
those liabilities which are intended at their inception to be paid in the ordinary course of
business, with in a year, out of the current assets or earnings of the concern.

The components of current assets and current liabilities are listed below:

Current Assets Current Liabilities

Sundry Debtors Sundry Creditors
Bills Receivables Bills Payable
Cash and Bank Balances Advance Payments
Short Term Investments Short Term Borrowings
Inventories: Bank Overdraft
Raw Materials and Components Dividend Payable
Work in Progress Accured or Outstanding Expenses
Finished goods Provision for Taxation
Accured or Outstanding Income Dividend Unclaimed Acceptances.
Marketable Securities
Loan and advances extended for a short
period of time.

Receivables Management or Debtors

Receivables or debtors are the one of the most important parts of the current assets which
is created if the company sells the finished goods to the customer but not receive the cash
for the same immediately. Trade credit arises when firm sells its products and services on
credit and dose not receive cash immediately. It is essential marketing tool, acting as
bridge for the movement of goods through production and distribution stages to
customers. Trade credit creates receivables or book debts which the firm is expected to
collect in the near future. The receivables include three characteristics
1) It involve element of risk which should be carefully analysis.
2) It is based on economic value. To the buyer, the economic value in goods or services
passes immediately at the time of sale, while seller expects an equivalent value to be
received later on.
3) It implies futurity. The cash payment for goods or serves received by the buyer will be
made by him in a future period.

Objective of receivable management

The sales of goods on credit basis are an essential part of the modern competitive
economic system. The credit sales are generally made up on account in the sense that
there are formal acknowledgements of debt obligation through a financial instrument. As
a marketing tool, they are intended to promote sales and there by profit. However
extension of credit involves risk and cost, management should weigh the benefit as well
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as cost to determine the goal of receivable management. Thus the objective of receivable
management is to promote sales and profit until that point is reached where the return on
investment in further funding of receivables is less .than the cost of funds raised to
finance that additional credit

Average collection period

The average collection period measures the quality of debtors since it indicate the speed
of there collection. The shorter the average collection period, the better the quality of the
debtors since a short collection period implies the prompt payment by debtors. The
average collection period should be compared against the firm’s credit terms and policy
judges its credit and collection efficiency. The collection period ratio thus helps an
analyst in two respects.
1. In determining the collect ability of debtors and thus, the efficiency of collection
efforts.
2. In ascertaining the firm’s comparative strength and advantages related to its credit
policy and performance.
The debtor’s turnover ratio can be transformed in to the number of days of holding of
debtors.

Inventory Management

The term ‘inventory’ is used to designate the aggregate of those items of tangible assets
which are
1. Finished goods (‘saleable’)
2. Work-in-progress (‘convertible’)
3. Material and supplies (‘consumable’)
In financial view, inventory defined as the sum of the value of raw material and supplies,
including spares, semi-processed material or work in progress and finished goods. The
nature of inventory is largely depending upon the type of operation carried on. For
instance, in the case of a manufacturing concern, the inventory will generally comprise
all three groups mentioned above while in the case of a trading concern, it will simply be
by stock- in- trade or finished goods.

In company there should be an optimum level of investment for any asset, whether it is
plant, cash or inventories. Again inadequate disrupts production and causes losses in
sales. Efficient management of inventory should ultimately result in wealth maximization
of owner’s wealth. It implies that while the management should try to pursue financial
objective of turning inventory as quickly as possible, it should at the same time ensure
sufficient inventories to satisfy production and sales demand. The objectives of inventory
management consist of two counterbalancing parts:
1. To minimize the firms investment in inventory
2. To meet a demand for the product by efficiently organizing the firms production and
sales operation.
This two conflicting objective of inventory management can also be expressed in term of
cost and benefits associated with inventory. That the firm should minimize the
investment in inventory implies that maintaining an inventory cost, such that smaller the
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inventory, the better the view point .obviously, the financial manager should aim at a
level of inventory which will reconcile these conflicting elements. Some objective as
follow
1. To have stock available as and when they are required.
2. To utilize available storage space but prevents stock levels from exceeding space
available.
3. To maintain adequate accountability of inventories assets.
4. To provide, on item – by- item basis, for re-order point and order such quantity as
would ensure that the aggregate result confirm with the constraint and objective of
inventory control. To keep low investment in inventories carrying cost an obsolesce
losses to the
minimum.

Inventory components
The manufacturing firm’s inventory consist following components
I) Raw material
ii) Work- in-progress
iii) Finished goods
To analyze the level of raw material inventory and work in progress inventory held by the
firm on an average it is necessary to examine the efficiency with which the firm converts
raw material inventory and work in progress into finished goods.

Cash Management

Cash is common purchasing power or medium of exchange. As such, it forms the most
important component of working capital. The term cash with reference to cash
management is used in two senses, in narrow sense it is used broadly to cover cash and
generally accepted equivalent of cash such as cheques, draft and demand deposits in
banks. The broader view of cash also induce hear- cash assets, such as marketable sense
as marketable securities and time deposits in banks. The main characteristics of this
deposits that they can be really sold and convert in to cash in short term. They also
provide short term investment outlet for excess and are also useful for meeting planned
outflow of funds. We employ the term cash management in the broader sense.
Irrespective of the form in which it is held, a distinguishing feature of cash as assets is
that it was no earning power. Company have to always maintain the cash balance to
fulfill the dally requirement of expenses. There are four primary motive for maintain the
cash as follow.

Motive of holding cash

There are four motives for holding cash as follow
1. Transaction motive
2. Precautionary motive
3. Speculative motive
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Transaction Motive:
Cash balance is necessary to meet day-to-day transaction for carrying on with the
operation of firms. Ordinarily, these transactions include payment for material, wages,
expenses, dividends, taxation etc. there is a regular inflow of cash from operating
sources, thus in case of JISL there will be two-way flow of cash- receipts and payments.
But since they do not perfectly synchronize, a minimum cash balance is necessary to
uphold the operations for the firm if cash payments exceed receipts.
Always a major part of transaction balances is held in cash, a part may be held in the
form of marketable securities whose maturity conforms to the timing of anticipated
payments of certain items, such as taxation, dividend etc.

Precautionary Motive
Cash flows are somewhat unpredictable, with the degree of predictability varying among
firms and industries. Unexpected cash needs at short notice may also be the result of
following:
1. Uncontrollable circumstances such as strike and natural calamities.
2. Unexpected delay in collection of trade dues.
3. Cancellation of some order for goods due unsatisfactory quality.
4. Increase in cost of raw material, rise in wages, etc.
The higher the predictability of firm’s cash flows, the lower will be the necessity of
holding this balance and vice versa. The need for holding the precautionary cash balance
is also influenced by the firm’s capacity to have short term borrowed funds and also to
convert short term marketable securities into cash.

Speculative Motive:
Speculative cash balances may be defined as cash balances that are held to enable the
firm to take advantages of any bargain purchases that might arise. While the
precautionary motive is defensive in nature, the speculative motive is
aggressive in approach. However, as with precautionary balances, firms today are more
likely to rely on reserve borrowing power and on marketable securities portfolios than on
actual cash holdings for speculative purposes.

CHARACTERISTICS OF CURRENT ASSETS:

Important characteristic of current assets are:

1) Shorter life period.

2) Swift transformation into other assets form.
3) Easily convertible into cash.
4) Nature of repetitive and frequent.
5) Substantial portion of total investment.
6) Depends upon the changes in the level of business activities.
7) Indicator of the nature of financial planning.
8) Reveals the creditworthiness of the firm.
9) Current assets is identified as working capital.
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NEED FOR WORKING CAPITAL:

Working Capital is significant because of:

1) Adequate working capital is required to continue uninterrupted business
operations.
2) It is essential to run the day to day business activities.
3) Greater volume of working capital required to invest in current assets for the
success of sales activities.
4) To ensure the maximizing the wealth of the firm.
5) To enable to increase the rate of return on investment.
6) To meet the short term obligations of a business enterprise.
7) To increase the operational efficiency of a firm.
8) To utilize the maximum available resources.
9) To earn considerable profits.

OPERATING CYCLE:

Finished Work in
Goods Progress

Factory &
Sales Administrativ
e Overheads

Accounts Raw
Cash
Receivable Materials

TYPES OF WORKING CAPITAL:

1. Gross Working Capital: The term Gross Working Capital refers to the total of all
current assets. In other words, the firm’s investments in total current assets or circulating
assets. Current assets are the assets which can be converted into cash with in the
accounting year. It represents short term securities, sundry debtors, bills receivables,
stock, etc. The concept of working capital is very suited to company organization where
ownership is separated from management and control.
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2. Net working Capital: The net concept of working capital is qualitative, indicating the
firm’s ability to meet its operating expenses and current liability. The term Net Working
Capital refers to the difference between current assets and current liabilities.
Alternatively, it can be defined as the portion of a firm’s current assets which is financed
with long term funds. This concept is commonly used for proprietary firms. Net working
capital can be grouped into positive net working capital and negative net working capital.
It can be expressed as :

Net Working Capital = Current Assets – Current Liabilities.

Current Assets = Cash + Marketable Securities + Accounting Receivables + Notes and

Bills Receivables + Inventories.

Current Liabilities = Accounts Payable + Notes and Bills + Outstanding Expenses +

Short Term Loans.

3. Permanent Working Capital: The minimum amount of current assets which are kept by
a firm over the entire year to ensure uninterrupted course of operation. The minimum
level of current assets is referred to as permanent working capital. It is also termed as
Regular Working Capital or Core Working Capital or Fixed Working Capital. It may be
noted that this amount of fixed working capital varies from year to year, depending upon
the changes in production and sales as a result of seasonal changes.

4. Temporary Working Capital: Any amount over and above the permanent level of
working is Temporary or Fluctuating or Variable Working Capital. It also represents
additional current assets required to meet fluctuations during the operating year. As it
fluctuates according to the level of operation, it is termed as Fluctuating Working Capital.

5. Balance Sheet Working Capital: The balance sheet working capital is one which is
calculated from the items appearing in the Balance Sheet. Gross working capital, which is
represent by current assets which have to be ensure continuity of production. Net working
capital, which is represented by the excess of current assets over current liabilities. Both
gross and net working capital are the examples of the balance sheet working capital.

6. Cash Working Capital: The narrow concept of cash refers to working capital. A firm’s
cash working capital is required to make payments to its suppliers, to incur day to day
expenses and to pay salaries, wages, interest and dividends. The items of cash working
capital appearing in the profit and loss account. Cash working capital shows the impact of
various transactions on cash position of a firm.

REASONS FOR CHANGES IN WORKING CAPITAL:

The changes in the level of working capital occur for the following reasons:

1. Changes in the level of sales revenue.

2. Changes in the level of operating expenses.
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3. Policy changes initiated by management.
4. Technological changes.
5. Cyclical changes in the economy.
6. Changes in operating cycle.
7. Sources of change is seasonally in sales activity.
8. Changes in the fixing the level of inventory and receivables.

DETERMINATION OF WORKING CAPITAL:

A. Internal Factors:

1) Nature of Enterprise: The working capital requirement of a firm basically

influenced by the nature of its firm. For example, trading and financial firms
require a large amount of investment in working capital but a significantly smaller
amount of investment in fixed assets. But in the case of manufacturing concern
have to invest substantially in working capital and a normal amount in fixed
assets. In contrast public utilities have a very limited need for working capital,
while a merchandising department depends generally on inventory and receivable
need a large amount of working capital. Needs for working capital are thus
determinants by the nature of an enterprise or business.
2) Sale of Business: The size of the firm is also an important factor to requirement of
working capital. Because a smaller firm needs smaller amount of working capital
on the basis of its production activities and vise versa in the opposite case.
3) Manufacturing Cycle: Time span required for conversion of raw materials into
finished goods is to block period. The period in reality extends a little before and
after the work in progress. This cycle determine the need of working capital.
4) Firm’s Credit Policy: The level of working capital is also determined by credit
policy which relates to sales and purchases. The credit policy influences the
requirement of working capital in two ways (a) Through credit terms granted by
the firm to its customers / buyers of goods; (b) Credit terms available to the firm
from its creditors.
5) Access to Money Market: working capital requirement of a firms are conditioned
by the firms access to different sources of money market. Thus, firm with readily
available credit from the banks and trade credit facilities as liberal terms will be
able to get by with less working capital than a firm without such facilities.
6) Expansion and Growth of Business: It is obvious that, as business expands, it will
require more working capital in terms of sales or fixed assets. In the case of
growth and expansion, there will be an all round increase in investment. That is to
say, with the increase in fixed assets for increasing sales the requirement of
working capital will be expanded nor only for financing volume of raw materials
but also to finance maintenance of inventory stock and grant credit to customers.
7) Profit Margin and Dividend Policy: Magnitude of working capital in a firm
depend upon its profit margin and dividend policy. As a matter of fact, a high net
profit margin reduces the working capital requirements of the firm because it
contribute towards working capital pool. Similarly, distribution of high proportion
of profits in the form of cash dividend result in a drain on cash resources and thus
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reduces company’s working capital to that extend. Where the management
follows constructive dividend policy and retain larger portion of the net profits,
the company’s working capital position is strengthened.
8) Depreciation Policy: The depreciation policy influences the level of working
capital by affecting tax liability and retained earnings of the enterprise. Since
depreciation is tax deductible expense item, this will affect the firm’s tax liability
and retained earning and thus strengthen the firm’s working capital position.
9) Operating Efficiency of Firm: The operating efficiency of management is also an
important determinant of the level of working capital management can contribute
to a sound working capital position through operating efficiency. Efficiency of
operations accelerates the pace of the cash cycle and improves the working capital
turnover.
10) Co-ordinate Activities of Firm: In addition, absence of co-ordination in
production and distribution policies in a company results in a high demand for
working capital. Where production and distribution activities are co-ordinated,
pressure on working capital will be minimized.

B. External Factors

1) Business Cycle Fluctuation: This is another factor which determines the need
level. Barring exceptional cases, there are variations in the demand for goods
handled by any organization. Economic boom / recession have their influence on
the transaction and consequently on the quantum of working capital required.
2) Technological Development: Changes in technologies may lead to improvements
in processing raw materials, minimizing wastages, greater productivity, more
speed of production. All these improvements may enable the firm to reduce
investments in Inventory.
3) Seasonal Fluctuation: Seasonal fluctuation in sales affect the level of variable
working capital. Often the demand for products may be of a seasonal nature. Yet
inventories have got to be purchased during certain seasons only. The size of
working capital in one period may therefore, be bigger than that in another.
4) Environment Factors: Political stability in its wake bring in stability in money
market and trade world, things mostly go smooth. Risk ventures are possible with
enhanced need for working capital finance. Similarly, availability of local
infrastructural facilities, road, transport, storage and market etc influence business
and working capital need as well.
5) Taxation Policy: Taxes must be paid out of profits. Tax liability is unavoidable
and adequate provision should be made for it in working capital planning. If the
tax liability increases, it will impose an additional strain on working capital. The
finance manager must do tax planning in order to avail the benefits of all sorts of
tax concession and incentives.
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ESTIMATION OF WORKING CAPITAL REQUIREMENT:

The working capital requirements can be determined by the following three techniques:

1) Percentage of Sales Method: This is simple and traditional method. According to

percentage of sales method, the requirement of working capital can be determined on the
basis of sales, amount of working capital require and prior year’s experiences. In this
method, the working capital is calculated and expressed it as a percentage to sales. This
method is much useful in planning short term working capital requirements. However,
the basic criticism of this method is that it assumes a linear relationship between sales
and working capital. Therefore, this method is not universally accepted.

2) Estimation of Components of Working Capital Method: The second method is useful

in estimating working capital requirements on the basis of the components currents assets
and current liabilities. These components includes inventories, accounts receivables,
accounts payables, marketable investments, short term obligations, etc.

3) Operating Cycle (or) Cash Working Capital: According to this approach, the
requirements of working capital depend upon the operating cycle of the business.
The operating cycle begins with the acquisition of raw materials and ends with the
collection of receivables. It may be broadly classified into the following four stages viz.
i) Raw materials and stores storage stage.
ii) Work-in-progress stage.
iii) Finished goods inventory stage.
iv) Receivables collection stage.

The duration of the operating cycle for the purpose of estimating working capital
requirements is equivalent to the sum of the durations of each of these stages less the
credit period allowed by the suppliers of the firm.
Symbolically the duration of the working capital cycle can be put as follows: -

O=R+W+F+D-C
Where,
O=Duration of operating cycle;
R=Raw materials and stores storage period;
W=Work-in-progress period;
F=Finished stock storage period;
D=Debtors collection period;
C=Creditors payment period.

Each of the components of the operating cycle can be calculated as follows:-

R= Average stock of raw materials and stores

Average raw materials and stores consumptions per day
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W = Average work-in-progress inventory
Average cost of production per day

D= Average book debts

Average credit sales per day

C= Average trade creditors

Average credit purchases per day
After computing the period of one operating cycle, the total number of operating cycles
that can be computed during a year can be computed by dividing 365 days with number
of operating days in a cycle. The total expenditure in the year when year when divided by
the number of operating cycles in a year will give the average amount of the working
capital requirement.
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CASE STUDY OF JAIN IRRIGATION SYSTEMS LIMITED

Company Profile:

Each of their products is an outcome of an effort to conserve nature's precious resources

through substitution or value addition. This is the legacy of a deliberate and conscious
endeavor that stems from a deep-rooted concern for nature.

There is more to Jain Irrigation than irrigation. The Corporation has multi product
industrial profile and manufacturers of Drip and Sprinkler Irrigation Systems and
Components; PVC, Polyethylene (HDPE, MDPE) & Polypropylene Piping Systems;
Plastic Sheets (PVC & PC sheets); Dehydrated Onions and Vegetables; Processed Fruits;
Tissue Culture, Hybrid & Grafted Plants; Greenhouses, Poly and Shade Houses; Bio-
fertilizers; Solar Water Heating Systems and Solar Photovoltaic Appliances (Solar
lighting systems) and Bio-Energy sources. We render consultancy for complete or partial
project planning and implementation e.g. Watershed or Wasteland and / or Crop
Selection and Rotation.

Jain Irrigation has been named as one of the eight Indian companies expected to emerge
as challengers to the World’s leading companies by Standard and Poor recently in May
2007.

Rewards:

• Millions of satisfied farmers / customers.

• Scores of our major customers –
o India : Aditya Birla, APMIP, Bharti, BSNL, Coca-Cola, GGRC, Gujrat
Gas, Hindustan Levers, HFCL, Hutch, IGL, IVRCL, Larsen & Toubro,
Mahanagar Gas, Nestle, Power Grid, Tantia Constructions, BEFESA,
Ramky, Reliance, Tata, etc.

o Overseas : Alcatel, Amari Plastics Plc., Cargill, Coca-Cola, Friesland

Foods, GE, General Mills, Heinz, Innocent, Kerry, Langers Juices
Company Inc, Larsen & Toubro, Mars Incorporated, McCormik, Mitsui &
Co. Ltd., Nestle, Polytrim, Saarioinen, Schumacher, Sleaford, SVZ
Industrial Fruit & Vegetable, Taiyo, Unidelta, Vink, Worlee etc.

Achievements

Agriculture & Irrigation Division

• Pioneers of Micro Irrigation Systems in India.

• The only manufacturer of complete drip irrigation systems in the world.
• Globally second and the largest irrigation Company in India also a Total Agri-
Service Provider.
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• One-Stop High-Tech agricultural shop.
• Nurtures a sprawling 2000 acre Hi-Tech Agri Institute.
• The largest manufacturer of Tissue culture Banana Plants in India.
• Largest pool of Agricultural Scientists, Engineers & Technicians in Private
Sector.

Pipe Division

• The largest manufacturer of Plastic Pipes in India.

Plastic Sheet Division

• The largest manufacturer of PVC & PC sheets in India and globally amongst first
5 Companies.
• The only manufacturer producing widest range of Plastic Sheets (PC & PVC)
under one roof.

Food Processing Division

• The largest manufacturer of Mango pulp, puree and concentrate.

• Globally second largest manufacturer of dehydrated onion.

History

The Roots

Our journey began in 1887 when our forefathers left the deserts of Rajasthan, their home
state, in search of water and food and reached Wakod, at the foothills of the famous
Ajanta Caves. They started farming as a means of livelihood.

In 1963 selling kerosene in pushcart, the young law graduate, Bhavarlal Jain, founded the
family business in trading. The family partnership with a meager Rs. 7,000, accumulated
savings of three generations, as capital. Soon, agencies for two wheelers, auto vehicles
and automobile accessories were established in quick succession.

Story of Success

Trading : Inspired by a quote, "Agriculture : a profession with future" young Jain added
dealership of tractors, sprinkler systems, PVC pipes and other farm equipment. In order
to broad base the agri-business, agencies for farm inputs such as Fertilizers, Seeds,
Pesticides were also added. Sales grew from Rs. 1 million in 1963 to Rs. 110 millions in
1978, a phenomenal increase of 110 times. These formative years helped us build a
unique and lasting enterprise. This was achieved through consistent high standards of
performance and personal behavior on the one hand and a strong sense of commitment
for meeting targeted volumes and for payment of debts in time, on the other. Dealings
with national and international principals was a contributing factor towards building these
FINANCIAL MANAGEMENT
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attitudes. In time, we came to be recognized as a reputable, trustworthy and prestigious
house. This background augured well for an entry into industrial ventures.

Refined Papain : We took over a 14 year-old sick Banana Powder Plant in April 1978 at
a high auction price of Rs. 3 million while we only had Rs. 0.2 million as inevitable
surplus. The plant was quickly modified for the production of Papain from Papaya latex.
In December 1978, the founder traveled to New York in search of customers for Jain
Papain. The competition for purchase of raw materials at home and for sale of Papain
abroad was stiff and stifling. However, we developed purified Papain through ceaseless
in-house R&D and emerged as the `Number One’ supplier of the highest purity refined
Papain. Thus Papain put us on the international map.

PVC Pipes : In 1980, manufacturing of PVC Pipes commenced with a small annual
capacity of 300 MT's which was increased to over 35,600 MT's per annum by 1997,
making us the largest single producer of PVC Pipes in the country. A close-knit dealer
distribution network in the rural areas coupled with continuous automation and up
gradation of product facilities and in-house R&D for maximum capacity utilization has
kept us at the forefront. This further helped us to expand the range to Casing & Screen
Piping Systems thereby continuing to contribute to the growing export volumes.

Micro - Irrigation Systems : Beginning in 1989, we toiled and struggled to pioneer

Water-management through Micro Irrigation in India. We have successfully introduced
some hi-tech. concepts to Indian agriculture such as `Integrated System Approach’, One-
Stop-Shop for Farmer, `Infrastructure Status to Micro Irrigation & Farm as Industry.’ We
have come a long way.

Food Processing : In 1994 we set-up world class food processing facilities for
dehydration of onion, vegetable and production of fruit purees, concentrates and pulp.
These plants are ISO 9001 & HACCP certified and Meet International FDA statute
requirements. Combining the modern technologies of the west with the vast, mostly
untapped agriculture resources of India, using the local human resources and inculcating
the culture of excellence in quality and total customer service. We have set ourselves a
goal 'to become a major and reliable global supplier of food ingredients of finest quality.'

Today with over 3000 committed employees strength worldwide, we have established our
Leadership in diverse products like Micro & Sprinkler Irrigation, Agricultural Inputs,
Agro-Processed Products, Plastic Pipes & Sheets.
FINANCIAL MANAGEMENT
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Profit and Loss Account
(Rs. In Millions)

Particulars 31st March, 31st March, 31st March, 31st March, 31st March,
2006 2007 2008 2009 2010
Income:
Sales and Operating 10931.000 12084.864 16710.550 21789.450 27229.110
Income
Other Income -- 308.851 293.047 169.67 247.42
Increase in Stock -- 372.356 1028.144 17.550 1037.18
Total 10931.00 12766.071 18031.742 21976.670 28513.710

Expenditure:
Cost of Materials 7902.624 10808.378 12897.940 16905.380
Consumed, Purchases,
etc
Manufacturing Expenses 924.262 1395.139 1536.930 2209.960
Payments to and 462.436 657.989 809.590 1036.560
Provisions for Employees
Selling and Distribution 899.514 1184.554 1446.580 1744.700
Expenses
Administrative Expenses 311.820 390.715 537.180 681.160
Differences in Foreign -- -- 777.220 (711.080)
Exchange Rate (Net)
Total -- 10500.656 14436.775 18005.440 21866.680

Operating Profit 1552.700 2265.414 3594.967 3971.230 6647.030

Less: Interest & Finance 471.100 655.834 1134.050 1610.640 1942.970
Charges
Profit Before 1081.600 1609.580 2460.916 2360.590 4704.060
Depreciation, Taxation
and Prior Year
Expenses
Less: Amounts W/off 262.500 1.877 7.048 45.920 95.570
Less: Depreciation 313.637 398.349 472.850 685.920
Profit for the year 819.100 1294.065 2055.519 1841.820 3922.570
before Taxation
Less: Provision for 147.500 302.963 586.216 635.870 1219.340
Taxation
Less: Prior period items -- -- -- (4.170) 9.210
Profit after tax 671.600 991.102 1455.406 1201.78 2712.440
Earning Per Share (Rs.)
Basic 16.19 21.48 16.12 35.84
Diluted 16.19 21.41 16.03 35.77
FINANCIAL MANAGEMENT
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Estimation of Working Capital of Jain Irrigation Systems Limited

(Rs. In Millions)

Particulars 31st March, 31st March, 31st March, 31st March, 31st March,
2006 2007 2008 2009 2010
A) Current Assets
i) Inventories
Raw Materials 1,260.892 2,245.098 2,004.958 2,122.790
Stock in Progress 1.880 6.017 5.425 4.850
Finished Goods 1,031.777 2,068.676 2,151.457 3,215.790
Other Inventories 448.549 524.047 1,033.331 718.110
Total of Inventory 1,837.300 2,743.098 4,843.838 5,195.171 6,061.540
ii) Sundry Debtors 2,830.600 4,405.135 5,956.300 7,816.006 8,876.000
iii) Cash and Bank 2,261.900 356.687 732.735 879.145 4,378.130
Balance
iv) Other Assets 57.200 101.034 173.682 220.578 251.540
v) Loans and Advance 757.800 1,075.195 2,253.555 3,235.546 4,844.160
Total of A – Gross 7,744.800 8,681.149 13,960.110 17,346.447 24,411.370
Working Capital

B) Current Liabilities
i) Current Liabilities 3,078.900 4,320.335 5,250.847 6,878.566 7,722.680
ii) Provisions 301.800 259.456 516.251 785.828 1,605.710
Total of B 3,380.700 4,579.791 5,767.098 7,664.394 9,328.390
Net Working Capital 4,364.100 4,101.358 8,193.012 9,682.053 15,082.980
Working Capital 100 93.98 187.74 221.86 345.61
Indices
FINANCIAL MANAGEMENT
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Working Capital Indices 345.61

350
300
250 221.86
200 187.74

150
100 93.8
100
50
0
2006 2007 2008 2009 2010

Observations

It was observed that major source of working capital of Jain Irrigation Systems for five
years is as follow:

It was observed that in the year 2006-07 current assets increased by around 12% and
current liabilities increased by 35% which affect as working capital decrease by 7%.

In the year 2007-08 net working capital increased to Rs 8,193.012 millions from Rs.
4,101.358 millions the increase in working capital is close to 99%. While current assets
increased by 61% and current liabilities by 26%. It shows that management is using long
term funds to short term requirements. And it has risen to Rs. 15,082.980 millions in the
year 2010 because current assets gone up from Rs. 9,682.053 millions to Rs. 15,082.980
millions, current liabilities grown from Rs. 7,664.394 millions to Rs. 9,328.390 millions
This two together pushed up the net working capital to the present level. The rise in
working capital is a clear indication that the company is utilizing its long term resources
with efficiency.
FINANCIAL MANAGEMENT
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WORKING CAPITAL RATIO:

Particulars 31st March, 31st March, 31st March, 31st March, 31st March,
2006 2007 2008 2009 2010
i) Working Capital 2.50 2.94 2.02 2.25 1.81
Turnover Ratio =
Sales / Net Working
Capital

ii) Inventory Turnover 2.98 3.83 2.98 3.47 3.61

Ratio = Cost of Goods
Sold / Average Inventory

iii) Receivable 3.86 2.74 2.81 2.79 3.07

Turnover Ratio =
Sales / Accounts
Receivables

iv) Current Assets 1.41 1.39 1.20 1.26 1.12

Turnover Ratio =
Sales / Current Assets

v) Current Ratio = 2.29 1.90 2.42 2.26 2.62

Current Assets / Current
Liabilities

vi) Quick Ratio = 1.75 1.30 1.58 1.59 1.97

Current Assets –
Inventory / Current
Liabilities

CONCLUSION:

Working capital management is important aspect of financial management. The study of

working capital management of Jain Irrigation system ltd. has revealed that the current
ratio was as per the standard industrial practice but the liquidity position of the company
showed an increasing trend. The study has been conducted on working capital ratio
analysis, estimation of working capital components which helped the company to manage
its working capital efficiency and affectively.

Working capital of the company was increasing and showing positive working capital per
year. It shows good liquidity position.

Positive working capital indicates that company has the ability of payments of short
terms liabilities.
FINANCIAL MANAGEMENT
- 24 -

Working capital increased because of increment in the current assets is more than
increase in the current liabilities.

Company’s current assets were always more than requirement it affect on profitability of
the company.

BIBLIOGRAPHY:

http://www.jains.com/

Annual Reports 2010, 2009, 2008, 2007, 2006