CHAPTER-1 AN INTRODUCTION VERKA MILK PLANT INTRODUCTION . Towards Fulfillment of the national objective of making India self sufficient in Milk Production, a step was taken in 1963 and Milk Plant, Verka (Amritsar) was established with a modest beginning of processing of 60000 LPD, with 5.0 MT per day drying capacity & 10000 litres Liquid Milk Supply under the control of Punjab Government. This was the first Composite Milk Plant in Northern India. As this plant has been established at Verka Village on the out skirt of Amritsar City. Therefore the brand name of all the products were named as Verka which is internationally famous brand name for Milk Products. In 1966, its control was transferred to the Punjab Dairy Development Corporation Limited and then further transferred to Milkfed Punjab under Cooperative Sector in 1983. The Amritsar District Coop. Milk Producers Union Limited was established and registered on 28.2.1979 and started functioning on 01.7.1988. The product ranged from bottling/pouch milk, ghee Milk Powder, Curd, Flavored Milk (PIO), Paneer, Milk cake. The capacity of Plant was expanded to 1.0 Lac (LPD) in 1998. To facilitate the producers and Cope-up with quality standard. The Milk Shed Area of this Union has been provided with seven milk Chilling Centres namely MCC Mehta, Patti, Lopoke, Bhathal Sehja Singh, Khadoor Sahib, Fatehgarh Churian, Bhikhiwind. In Addition, this Union has also installed 37 BMC and 79 AMC at different MPCS. Now a days, MPCS and 200 Big Farmers are pouring milk to this plant . At present milk procurement is about Kgs p/day. Milk Union is providing A.I facilities to 382 societies through 98 Cluster Centres and 2 Single A.I Centres. Verka balanced cattle feed is supplied to the farmers as per their demand. Milk producers are provided different types of training to enhance milk procurement production and procurement of clean milk through seminars organized at village level. Milk Producers are also getting the benefit of animal health and Human health services through support to training and employment programe. (STEP. This Plant has also been certified as ISO 9001:2000 and HACCP-15000 by the Bureau of Indian Standards on dated 24-01-2004, for overall quality improvement of products and services on line of Total Quality Management. VISION, OBJECTIVES ISO/HACCP & QUALITY POLICY VISION & OBJECTIVES : To provide a remunerative milk price to the milk producers at their door steps to avoid exploitation in the hands of middlemen. To provide technical inputs like breed improvement program & animal health of milk animals, supply of balanced cattle feed , Mineral Mixture, Urea Mollases licks and good quality fodder seeds as per the demand of the milk producers. Implementation of clean milk production program to produce good quality milk right from udder to dairy dock. ISO 9001 & IS 15000 (HACCP) CERTIFICATION & QUALITY POLICY: The phase of liberalization and the new technological policies and upgradations of technology has further intensified the competition in the market . Consequently Milk Plant, Verka felt its necessity to give its emphasis on the adoption of system procedures which will satisfy consumers with respect to assured quality and safe milk & milk products to maintain a long term relationship with the consumers. In this regard as a mark of having achieved requisite quality standards Milk Plant, Verka has already obtained ISO 9001:2000 Quality System Certification integrated with IS: 15000-1998 (HACCP) certification from the Bureau of Indian Standards on 2nd April 2003. Under this programm our quality policy is as under:- QUALITY POLICY The Amritsar District Cooperative Milk Producers Union limited, Milk Plant Verka , Amritsar Committed to manufacture and supply of quality milk & milk products and timely delivery that satisfy the current and future customer needs and their expectations. Aim at continual improvement through Quality Management System , integrated with HACCP to ensure the safety of our products by involving our Employees , Suppliers and Customers. HISTORY OF MILK PLANT VERKA The foundation stone of the plant was laid down by SARDAR PARTAP SINGH KIARON in 1959, The Chief Minister of Punjab. The U.S.A to government of India gifted the machinery installed for upliftment and welfare of people. Milk plant started functioning in the year 1963 the Punjab government under the Verka Milk Plant is a cooperative sector with a share capital of the State government exceeding Rs.1crore, 3lacs. More other concerns are Ludhiana, Mohali, Patiala, Gurdaspur, Sangrur, Ferozpur, Bathinda, Faridkot etc. and head office is situated at Chandigarh. There are 12 milk producing unions in several districts under The Punjab State Milk Producers Federation Limited (Milkfed) . Milk Plant Verka, Amritsar is the first Milk Plant of Punjab in the organized sector. Milk Plant Verka situated just on the Batala road near bye pass which is about 8km from Amritsar town. The aim of the union is to purchase of good raw milk form its members. Its procurement , processing and affecting of such goods in such a way which can improve the social and economic status of farmers. Milk Plant Verka collects milk through milk producers co-operative societies on the Anand Pattern of the dairy co-operative sector. At present, about 738 societies are supplying milk to this plant. The milk producers co-operative societies are paid remunerative prices of their produce through the year keeping in view market trends. The handling capacity of this plant was 60,000 liters per day since 196396. Now the handling capacity of this plant is 1,20000 liter per day with the assistance of Rs.1.40 crores from the Punjab Government. The Amritsar District Co-Operative Milk Producers Union Ltd.at a glance. 1. State : Punjab 2. District and nearest : Amritsar 3. Address : Milk Plant,Verka P.O. Verka Batala road Amritsar-143501 4. Type of organization : Co-operative 5. Product s brand, name : Verka 6. Marked by : The Punjab State Co-operative Milk Producers Federation ltd. Amritsar. 7. Date of starting : 23.3.1963 8. Expansion of the plant : 1997 9. Milk intake capacity :150000liters/day 10. Pasteurization capacity : 20,000 liter/day BOARD OF DIRECTORS The election of Board of Directors was conducted on 11-8-2010. Board of Directors consists the following members. 1) S. Kanwaljit Singh Chairman 2) S. Gurmukh Singh Director 3) S. Ranjit Singh Director 4) S. Resham Singh Director 5) S. Harhbajan Singh Director 6) S. Sarabdyal Singh Kang Director 7) S. Shamsher Singh Director 8) S. Sardool Singh Director 9) S. Milkha Singh Director 10) S. Dharmbir Singh Director 11) Smt Randhir Kaur Director 12) Sh V.K Singh IAS, Managing Director, Milkfed Punjab, Chandigarh 13) Managing Director, Milkfed Punjab, Chandigarh Nomiee Punjab Govt. 14) Joint Registrar Coop. Jalandhar Division Jalandhar, Nominee RCS. 15) State Director, National Dairy Development Board. 16) Deputy Registrar Coop. Socs, Nominee Punjab Govt. 17) Deputy Director, Dairy Development, Amritsar 18) S. Narinder Singh General Manager(CEO), Milk Union, Amritsar Ex-officio Member Secretary. ORGANISATIONAL STRUCTURE OF MILK UNION AMRITSAR Board of Directors of Milkfed Chairman of Milkfed Board of Diretors of MU ASR Managing Director of Milkfed Chariman of M.U ASR General Manager Incharge Proc, Incharge Prod Incharge Q.C Incharge Mktg Purchase / Store Dy Mgr Pur Asstt/ Store Keeper Security Inspector Incharge Admn Acctts Dy Mgr Engg Dy Mgr Dy Mgr Dy Mgr Prod Dy Mgr FSR Security Jr Admn Asstt AccounForeman QC man Proc MPS Packing Supv Chemist tant Acctts Sales man Milkbar Attnd Clerk Mali /Sweeper Jr Stenographer Clerk Bill Clerks MPA/ AIA Operators , CCC,Clerk Lab Asstt Store Attnd Clerks Mech/ Elec/ Boiler/ Trans/ Ref DHCC DHCC Lab Attnd DHCC DHCC DHCC DHCC LOCATION AND TOPOGRAPHICAL CONDITION Milk Plant Verka is situated on Batala Road near bye pass Verka dairy chowk which is about 8 km from the main Amritsar bus terminus. The name VERKA is formed from the name of the village. The holy city Amritsar is one of the most important business centre of Punjab. The Amritsar city has good market for milk and its products. Though this city has a natural beauty but it has a extreme weather. The maximum summer temperature is 42c and minimum winter temperature is about -1c. Heavy rainfall is in the month of July-August. AIMS OF THE UNION 1. The aim of the union is to purchase of goods form members, it procurement processing and affective marketing of such goods in such a way which can improve the social and economic status of the farmers. 2. To take the ownership of the fixed and working assets and to fix its value and to self it. 3. To organize new milk procurement societies formation and their development. 4. To purchase and manufacture equipment, buildings, machinery and other metal tools. 5. To insure the production of milk. 6. To insure the fixed and working assets, of the union. 7. To make arrangement for auditing of the related societies and to fix the auditing fees. 8. To provide technical assistance, veterinary service and artificial insemination for increasing the milk production. CADRES OF THE ORGANIZATION There are two cadres in the organization viz. 1. Common cadres 2. Non common cadres In the common cadres, the Managing Director of Milk Union and all the officers are included and their pay scale starting Rs. 7220- 18000. In the common cadres, all the skilled staff is working on their duties at their duties at the Milk Union Verka Amritsar. In the non- common cadres, all the office staff, Engg. Staff and main factory staff are working on the pay scale Rs. 3120- 5100 and up to Rs. 5000- 9200. FACILITIES AVAILABLE TO THE WORKERS EMPLOYMENT INJURY BENEFIT:This should cover the following contingencies resulting from accident or disease during employment: y Morbid condition- Inability to work following a morbid condition, leading to suspension of earning. y Total or partial loss of earning capacity which may become permanent; y Death of the breadwinner in the family, as a result of which family is deprived of financial support. Medical card and periodical payment corresponding to an individual s need should be available. FAMILY BENEFIT:This should cover responsibility for the maintenance of children during an entire period of contingency. Periodical payment, provision of food, housing, clothing, holidays or domestic help in respect of children should be provided to needy family. MATERNITY BENEFIT: This benefit should cover pregnancy, confinement and their consequences resulting in the suspension of earnings. Provision should be for medical care, including pre-natal confinement, post-natal care and hospitalization if necessary. Periodical payment limited to 12 weeks should be made during the period of suspension of earning. INVALIDISM BENEFIT:This benefit, in the form of periodical payments should cover the needs of workers was suffer from any disability arising out of sickness or accident and who are unable to engage in any gain full activity. This benefit should continue till invalidism would become payable. SURVIVOR S BENEFIT:This should cover periodical payments to the family following the death of its breadwinner and should continue the entire period of contingency. The ILO has suggested various methods of organizing, establishing and financing various social security schemes. For the benefit of the less developed countries, it has fixed the level of benefits fairly low, so that the schemes may be practicable. There are various sections in this plant. a) Market Section b) Procurement Section c) Engineering Section d) Production Section e) Security Section f) Storage Section g) Administrative Section h) Accounts Section i) Quality Control Section j) Refrigeration Section Various forms of Milk products are being produced in this plant among them are I. Packet Milk II. Powder Milk III. Butter IV. Ghee V. Ice-cream VI. Milk cake VII. Mango Raseela VIII. Sweet Milk Bottle IX. Lassi etc. CHAPTER-1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT WORKING CAPITAL MANAGEMENT Working capital refers to the excess of current assets over current liabilities. Management of working capital is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. In other words, it refers to all aspects of administration of both current assets and liabilities. The basic current assets are cash, marketable securities, accounts receivable and inventory. The basic current liabilities are accounts payable, bills payable, bank overdraft, outstanding expenses. The goal of working capital management is to manage the firm s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. The reason behind this is if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. PRINCIPLES OF WORKING CAPITAL MANAGEMENT The following are the main principles of a sound working capital management policy: y PRINCIPLE OF RISK VARIATION Risk in this context, refers to inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current assets with less dependence on short-term borrowing increases liquidity reduces risk and thereby decreases the opportunity for a loss. To the contrary, less investment in current assets with greater dependence on short-term borrowings increases risk, reduces liquidity as well as profitability. Thus there is a definite and inverse relationship between the degree of risk and profitability. A conservative management prefers to minimize the risk maintaining a higher level of current assets or working capital while a liberal management assumes greater risk by reducing working capital. However the goal of management should be to establish a suitable tradeoff between profitability and risk. y PRINCIPLE OF COST OF CAPITAL Cost of raising capital is different for different sources of raising working capital finance. It is generally dependent on the degree of risk involved in raising capital from a particular source. Higher the risk, higher is the cost and lower the risk, lower is the cost. A sound working capital management should always try to achieve a proper balance between these two. y PRINCIPLE OF EQUITY POSITION This states that the amount of working capital invested in each component should be adequately justified by a firm s equity position. Every rupee invested in the current asset should contribute to the net worth of the firm. Thus this principal is concerned with planning the total investment in current assets. The level of current assets may be measure with the of two ratios: CURRENT ASSETS AS A PERCENTAGE OF TOTAL ASSETS. CURRENT ASSETS AS A PERCENTAGE OF TOTAL SALES. While deciding about the composition of the current assets, the financial manager may consider the relevant industrial average. y PRINCIPLE OF MATURITY OF PAYMENT. This principle states that a firm should make every effort to relate maturities of payment to its flow internally generated funds. It is concerned with planning the sources of finance for working capital. Maturity pattern of various current obligations is an important factor in risk assumptions and risk assessments. Generally, shorter the maturity schedule of current liabilities in relation to expected cash inflows the greater is the inability to meet its obligations in time. KINDS OF WORKING CAPITA 1. ON THE BASIS OF CONCEPT y GROSS WORKING CAPITAL:-The term GROSS WORKING CAPITAL also referred to as working capital, means the total current assets. y NET WORKING CAPITAL:-The term NET WORKING CAPITAL can be defined in two ways: mostly Net working capital refers to the difference between the current assets and current liabilities. And second definition of Net working capital is that portion of current assets which is financed with longterm funds. 2. ON THE BASIS OF TIME y PERMANENT OR FIXED WORKING CAPITAL:-Permanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is continuously required by the enterprise to carry out its normal business operations. A company maintains minimum level of raw materials, finished goods and cash balances.Amount of capital blocked in these assets is called as permanent or fixed working capital. y TEMPORARY OR VARIABLE WORKING CAPITAL:-Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some contingencies NEED FOR WORKING CAPITAL The objective of financial decision making to maximize the shareholders wealth, it is necessary to generate sufficient profits. The extent to which profits can be earned will depend upon the volume of sales of a firm. However, sales do not convert into cash immediately there is a time lag between the sale of a goods and the receipt of cash. Therefore, a need of 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. is why a sufficient amount of working capital is needed in the firm. Technically, this is referred to as the operating or cash cycle. The operating cycle can be said to be the heart of the need for working capital. The continuing flow from cash to suppliers, to inventory, to accounts receivables, and then back into cash is operating cycle. FINANCING OF WORKING CAPITAL Permanent working capital should be financed in such a manner that the enterprise may have its uninterrupted use for a sufficiently long period. Important sources are: SHARES: Issue of shares is the most important source for raising the long-term capital. Raising of permanent capital through the issue of shares has certain advantages like there is no fixed burden on the resources of the company and, moreover, no charge is created on the assets of the company. DEBENTURES: A debenture is an instrument issued by the company acknowledging its debt to its holder. Debentures carry a fixed rate of interest, which is a legal charge against revenue of the company. The debentures are generally given floating charge on the assets of the company. The firm issuing debentures also enjoy a number of benefits such as trading on equity, retention of control, tax benefit, etc. PUBLIC DEPOSITS: Public deposits are the fixed deposits accepted by a business enterprise directly from the public. The source of raising finance became popular because of the imperfect development of banking system in the country. This mode of financing has a large number of advantages such as very simple and convenient source of finance, taxation benefits, trading on equity, and inexpensive source of finance. RETAINED EARNINGS: It refers to reinvestment by a concern of its surplus earnings in its business. It is an internal source of finance and it often referred to as self-financing or ploughing back of profits. It is most suitable for an established firm for its expansion, modernization, replacement, etc. But excessive resort to ploughing back of profits may lead to monopolies, misuse of funds, over capitalization, manipulation in the value of the shares, etc. LOANS FROM FINANCIAL INSTITUTIONS: Financial institutions such as Commercial Banks, Life Insurance Corporation, State Financial Corporation of India, Industrial Development Bank of India, etc. also provide short term, medium term and long term loans. Temporary/Variable working capital is financed through; COMMERCIAL BANKS: Commercial banks are the most important source of short-term capital. They provide a wide variety of loans tailored to meet the specific requirements of a concern. TRADE CREDIT: The trade credit arrangement of a concern with its suppliers in an important source of short-term finances. The use of trade credit depends upon the buyer s need for it and the willingness of the sources of supply to extend it. ADVANCES: A company can meet its short-term working capital requirements by getting advances from their customers and agents against orders. This source of finance is especially suitable for those industries, which have long production cycles. COMMERCIAL PAPERS: Commercial papers are unsecured promissory notes sold by the issuers to investors through agents against like Merchant bankers and security houses. Commercial papers provide an avenue for short-term borrowings to highly rated corporate borrowings at cheaper rates of interest as compared to bank borrowings. The rating of the company by any rating agency is a pre-requisite for issuing commercial papers. In a nutshell, working capital is the lifeblood and controlling nerve center of the business. No business can be successfully run without an adequate amount of working capital. Whether a particular business is managing its working capital properly or not can be judged by analyzing the liquidity position of that unit and the concerned information( like debtors analysis, creditors analysis etc). WORKING CAPITAL ANALYSIS As we know that the working capital is a means to run the business smoothly and profitably add not an end. Thus, concept of working capital has its own importance in a business. A business has a positive working capital i.e. the excess of current assets over current liabilities, but sometimes the uses of working capital may be more than the sources resulting into a negative value of working capital. This negative balance is offset soon by gains in the following periods. A study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in the business. This involves the need of working capital analysis. The analysis of working capital can be conducted through Number of devices, such as: Ratio Analysis Cash Flow Analysis Cash Budgeting Trend analysis RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis. There are four steps involved in the ratio analysis:i. Selection of relevant data from the financial statements depending upon the objective of the analysis. ii. Calculation of appropriate ratios from the above data. iii. Comparison of the calculated ratios with the ratios of the same firm in the past. iv. Interpretation of the ratios. CLASSIFICATION OF RATIOS Ratios may be classified on the different basis:(1)TRADITIONAL CLASSIFICATION:- This is traditional method of classifying the ratios, under category ratios are classified as:- y BALANCE SHEET RATIOS:- These are those ratios which are derived from the two variables appearing in balance sheet. For Example:- Current Ratio, DebtEquity Ratio etc. y PROFITS & LOSS ACCOUNT RATIOS:- This ratio sometimes is also known as operating ratios which are derived from the variables appearing in the manufacturing and trading and profit & loss account. For Example:- inventory turnover ratio, gross profit ratio etc. y INTER- STATEMENT RATIOS:- These are also known as combined or mixed ratios which establish relationship between variables picked up from both the statements i.e. balance sheet and final account. For Example: - ROCE etc. (2)FUNCTIONAL CLASSIFICATION: - Under this classification ratios may be grouped in accordance with the type of test they are supposed to perform. Thus, ratios may be grouped as: y LIQUIDITY RATIO: - These ratios are meant for the testing short term financial position of a business. These are designed to meet the ability of the business to meet its short term obligations. For Example: - current ratio etc. y SOLVENCY RATIO: - These are meant for testing long term financial soundness of any unit. For Example: - Debt Equity ratio etc. y EFFICIENCY RATIO: - These are meant to study the efficiency with which resources of the unit have been used, For Example: - Inventory turnover ratio etc. y PROFITABILITY RATIO: - It measures the working results of the unit during the accounting period. Profits are compared with the sales level and investment level. For Example: - Gross profit ratio etc. (3)IMPORTANCE WISE CLASSIFICATION: - Importance ratios are termed as primary and others as secondary ratios. Classified as: - y PRIMARY RATIOS: - The principal motivating force for any business unit is profit. Success is measured by the quantum of profit earned in relation to capital employed thus it has been termed as primary ratio. y SECONDARY RATIOS: - Primary ratio i.e. return on investment can be supported by secondary ratios such as sales to operating profit; sales to fixed assets; sales to current assets etc. The following ratios are to be calculated to ascertain the short term financial position of the company: - 1. Liquidity Ratio y Current Ratio y Liquid Ratio/Quick Ratio y Cash Ratio 2. Efficiency Ratio y Stock Turnover Ratio/Inventory Turnover Ratio y Debtor/Receivables Turnover Ratio y Creditors/Payables Turnover Ratio y Working Capital Turnover Ratio. CASH FLOW ANALYSIS Cash Flow is essentially the movement of money into and out of your business; it s the cycle of cash inflows and cash outflows that determine your business solvency. Cash Flow Analysis is the study of the cycle of your business cash inflows and outflows, with the purpose of maintaining an adequate cash flow for your business, and to provide the basis for cash flow management. Cash flow analysis involves examining the components of your business that affect cash flow, such as accounts receivable, inventory, account payable, and credit terms. By performing a cash flow analysis on these separate components, you ll be able to more easily identify cash flow problems and find ways to improve your cash flow. The(total) net cash flow of a company over a period(typically a quarter or full year) is equal to the change in cash balance over this period: positive if the cash balance increases (more cash becomes available), negative if the cash balance decreases. The total net cash flow is the sum of cash flows that are classified in three areas. y Operational cash flows: Cash received or expended as a result of the company's internal business activities. It includes cash earnings plus changes to working capital. Over the medium term this must be net positive if the company is to remain solvent. y Investment cash flows: Cash received from the sale of longlife assets, or spent on capital expenditure (investments, acquisitions and long-life assets). y Financing cash flows: Cash received from the issue of debt and equity, or paid out as dividends, share repurchases or debt repayments. Operating Cash Flows: - In financial accounting, operating cash flow (OCF), cash flow provided by operations or cash flow operating activities, refers to the amount of cash a company generates from the revenues it brings in, securities. The International Financial Reporting Standards defines operating cash flow as cash generated from operations less taxation and interest paid, investment income received and less dividends paid gives rise to operating cash flows. To calculate cash generated from operations, one must calculate cash generated from customers and cash paid to suppliers. The difference between the two reflects cash generated from operations. Cash generated from customers y Revenue as reported y -increase(decrease) in trade receivables y Investment income (disclosed separately) y Other income that is non cash and non sales related Cash paid to suppliers y Costs of sales y +other expenses as reported less y -increase(decrease) in trade payables y -non- cash items such as depreciation, provisioning, impairments, bad debt, etc. y -financing expenses INVESTMENT CASH FLOW:- Investing activities are the acquisition and disposal of long term assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Receipts from:o Disposal of fixed assets. o Disposal of share , warrants etc. o Repayment of advances and loans FINANCING CASH FLOWS:-Financing activities are those that result in changes in the size and composition of owner s capital. The separate disclosure of cash flows arising from financial activities is important because it is useful in predicting claims on future cash flows by provider of funds to enterprise. CASH MANAGEMENT Cash is one of the current assets of the business. It is needed at all the times to keep the business going. A business concern should always keep sufficient cash for meeting its obligations. Any shortage of cash will hamper the operations of a concern and any excess of it will be unproductive. MOTIVES FOR HOLDING CASH The firm needs for cash may be attributed to the following needs: The Transaction motive: y Maintaining cash for the purpose of meeting cash needs arising in the ordinary course of doing business. y Includes regular payments like wages, utilities, acquisition of fixed assets and inventories y Note that the amount of cash needed for transaction requirements depends on the nature of business and varies from industry to industry. The Precautionary motive: y Maintaining of cash balance as buffer for UNEXPECTED needs that may arise. y Either holding in cash or marketable securities that can be liquidated easily The Speculative motive: y Holding cash for potential profit making situation like purchasing raw materials in bulk in anticipation of a fall in price. The starting point for avoiding a cash crisis is to develop a cash flow projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual,3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to gain an understanding about where all the money went. CASH MANAGEMENT TECHNIQUES y Proper cash management is important for your business Without proper cash flow management techniques you could find yourself running short of cash just when you need it the most. That could leave you unable to pay suppliers, develop the marketing plan you need or even pay your employees. Fortunately there are a number of techniques companies can use to maximize cash flow and keep the business running smoothly. y Accounts Receivable The money customers owe you plays a big role in your monthly cash flow, so it is important to develop a solid technique for tracking who owes your firm money, how much they owe and when the payment was due. Make sure your accounts receivable staff is taking a proactive approach to collecting on those unpaid bills, and ask for a weekly report showing the total amount outstanding, along with an explanation of why those payments have not been received. Building an accounts receivable database is one of the best ways to keep track of what you are owed. Once the tables have been created and the database has been designed, all your accounts receivable clerks need to do is press a button to open a query showing the details of each outstanding invoice. Track Expenses y Whether you are running a business or a household, it is important to get a handle on expenses. Many business owners are so busy with day-to-day operations that they lose sight of the big picture. Getting a handle on the expenses associated with running your business is one of the best ways to manage--and maximize--your cash. Start by building a detailed report of every expense for the past month. Break each expense down into its appropriate category, i.e. rent, utilities, office supplies, etc., then analyze each category and look for ways to cut back. For instance, companies can save money on office supplies by contracting with a specific vendor and negotiating lower prices, rather than running to the office supply store down the street. Credit Lines y Establishing a credit line with your lender is one way to manage cash flow and avoid shortfalls. Many companies set up a line of credit to cover those times when sales fall short or expenses run high. Companies can also use short term loans to provide the extra liquidity and cash management they need during the down months. THE CASH FLOW CYCLE Your company engages in various activities in the production of revenue, continuously generating and spending cash. These activities affect its cash position at any point. The cash flow cycle, in its simplest form, revolves around the company¶s trading cycle. The process involves purchasing inventory, converting that inventory to cash or accounts receivable via sales, collecting those accounts receivable, and paying suppliers who extended trade credit. Purchasing inventory and carrying accounts receivable are uses of cash. If the company doesn¶t have a sufficient cash reserve, these assets must be funded from other sources. The primary source is credit granted by suppliers, known as trade credit. All things being equal, the faster you collect your accounts receivable, and the slower you pay your suppliers, the better your cash flow. Unfortunately, the level of trade credit is rarely sufficient to cover both the company's trading cycle and your normal operating expenses. As a result, additional financing is needed. One source is bank financing through a line of credit. Sales growth usually requires an expansion of accounts receivable and inventory levels. Often new fixed assets are needed as well. Both create the need for additional long-term financing. This financing will be in the form of long-term bank loans, commercial mortgages, or leases. However financed, the level and timing of repayment impacts your need for cash at particular points in time. CASH BUDGET Cash budget is a detailed plan showing how cash resources will be acquired and used over some specific time period. Cash budget is composed of four major sections. y The receipts section. y The disbursements section y The cash excess or deficiency section y The financing section The cash receipts section consists of a listing of all of the cash inflows, except for financing, expected during the budgeting period. Generally, the major source of receipts will be from sales. The disbursement section consists of all cash payment that are planned for the budgeted period. These payments will include raw materials purchases, direct labor payments, manufacturing overhead costs, and so on as contained in their respective budgets. In addition, other cash disbursements such as equipment purchase, dividends, and other cash withdrawals by owners are listed If there is a cash deficiency during any period, the company will need to borrow funds. If there is cash excess during any budgeted period, funds borrowed in previous periods can be repaid or the excess funds can be invested. The financing section deals the borrowings and repayments projected to take place during the budget period. It also include interest payments that will be due on money borrowed. Generally speaking, the cash budget should be broken down into time periods that are as short as feasible. Considerable fluctuations in cash balances may be hidden by looking at a longer time period. While a monthly cash budget is most common, many firms budget cash on a weekly or even daily basis. CHAPTER-3 RESEARCH METHODOLOGY 3.1 OBJECTIVES OF THE STUDY y To study the various components of financial statements of Verka Milk Plant and analyze them to identify the financial strength of the company. y To study the effect of current assets and current liabilities on the profitability and liquidity position of the Verka Milk Plant. y To know firm s ability to meet its operating expenses and short term liabilities. RESEARCH METHODOLOGY Research can be defined as the systematic and objective process of gathering, recording and analyzing data for aid in making decisions. The purpose of research is to discover answers through the applications of the scientific procedures. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet. RESEARCH DESIGN A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose. The research design indicates the type of research methodology used for the study. My study is descriptive in nature. The main goal of this type of research is to describe the data and characteristics about what is being studied. The idea behind this type of research is to study frequencies, averages and other statistical calculations. Although this research is highly accurate, it does not gather the causes behind a situation. Descriptive research is mainly done when researcher has to use facts or information already available and analyze these to make critical evaluation of the material. SOURCES OF DATA In the project secondary data is collected. Secondary data is the one which have already been collected by someone else and been passed through the statistical processes. The source of secondary data is the annual reports. STATISTICAL TOOLS TOOLS FOR THE ANALYSIS: - In my study the analysis of the financial position is done by taking different tools into consideration which are as follows:Ratio Analysis Trend Analysis Percentage Analysis TOOLS FOR PRESENTATION: - The statistical tools for the presentation of the analyzed data is shown by using the following tools Graphs Bar Charts Pie Charts Tables LIMITATIONS OF THE STUDY The information was to a limited extent. Financial resources were limited. The study is based on secondary data hence all the assumptions and inaccuracies which are in their research are also in our study. It is hard to get in depth and full information from resources. Staff is reluctant to give the required information due to their busy schedule. The scope of study was limited to the extent of information available. CHAPTER-2 REVIEW OF LITERATURE Hill and Sartoris (1992) suggested reducing time value costs(the opportunity cost of the float), credit losses due to the inability to collect payments, transaction costs of moving cash within and between other countries, and losses on foreign exchange conversions. The objective function identified by Hill and Sartoris suggests several areas of research in international working capital management, including those covered in the current survey: foreign exchange risk management activities, international cash management operations, and international cash collection and credit management practices. Filbeck and Krueger (2005) highlighted the importance of efficient working capital management by analyzing the working capital management policies of 32 non-financial industries in the US. According to their findings, significant differences exist among industries in working capital practices overtime. Moreover, these working capital practices, themselves, change significantly within industries overtime. In the Pakistani context, Rehman (2006) investigated the impact of working capital management on profitability of 94 Pakistani firms listed on Islamabad s Stock Exchange (ISE) for the period 1999-2004. He studied the impact of the difference variables of working capital management, including average collection period, inventory turnover in days, average payments period and Cash Conversion Cycle (CCC) on the net operating profitability of the firms. He concluded that there is a strong negative relationship between working capital ratios and profitability of the firms. Furthermore, managers can create a positive value for the shareholders by reducing the CCC up to an optimal level. Chiou and Cheng (2006) analyzed the determinants of working capital management from a different angle their study examined how working capital management influenced by different variables, such as business indicators, industry effect, operating cash flows, growth opportunity for a firm, firm performance, and size of the firm. The study provided consistent result of leverage and operating cash flow for both net liquid balance and working capital requirements; However variables such as business indicators, industry effect, growth opportunities, firm performance, and the size of the firm were unable to produce consistent results for net liquid balance and working capital requirements of firms. Padachi , (2006) suggested that the management of working capital is important to the financial health of businesses of all sizes. The amounts invested in working capital are often high in proportion to the total assets employed and so it is vital these amounts are used in an efficient and effective way. Afza Nazir (2007) investigated the relationship between the aggressive and conservative working capital policies for 17 industrial groups and a large sample of 263 public limited companies listed on Karachi Stock Exchange (KSE) using cross sectional data for the period 1998-2003. Using analysis of variance and least significant difference test, the study found significant differences among their working capital invested across different industries. Finally, ordinary least regression analysis found a negative relationship between the profitability measures of firms and the degree of aggressiveness of working capital investment and financing policies. CHAPTER-4 DATA ANALYSIS AND INTERPETATION A financial statement is a systematic collection of data according to some logical and consistent accounting procedures. Its purpose is to convey an idea about some important financial aspects of a business firm. It may show a position at a moment of time as in the case of the balance sheet, or may reveal a series of activities over a given period of time as in the case of income statement. Various interested parties like management, creditors, investors, government and others to form judgment about the operative performance and financial position of the firm use the information contained in these financial statements. The users of financial statements can get better insight about financial strengths and weakness of the firm if they properly analyze the information given in these statements. The process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of balance sheet and profit and loss account is called financial analysis. Such analysis is the starting point for making affective plans.