A

Grand Project Report

On

Impact of Working Capital Management on

Profitability of

Fifth Year MBA (Finance)

Batch: 2014-15
Submitted by:
Bijal Desai (5159)
Sweety Patel (5187)
Bhoomi Shah (5197)
Submitted to:
K. S. School of Business
Management
Gujarat University,
Ahmedabad 380 009

Declaration
We hereby declare that the project report on Impact of Working Capital
Management on Profitability of GOKUL REFOILS AND SOLVENT LTD.
has been submitted in partial fulfillment as the requirement for the degree of
Master of Business Administration to K.S. School of Business Management.
This research project is our original work and not presented in any other university
or college for an award of degree or certificate.

Date: April 6, 2015

Sign:

Place: Ahmedabad

Bijal B. Desai
Sweety J. Patel
Bhoomi H. Shah

---------------------------------------------------------------------------------------------------This project has been submitted to K. S. School of Business Management with my

approval as a project guide.

Date: April 6, 2015

Sign:

Place: Ahmedabad
Mr. Ismail Bootwala
Professor,
K. S. School of Business
Management,
Gujarat University,
Ahmedabad.

Acknowledgement
Every project big or small is successful largely due to the efforts of a number of
wonderful people who have always given their valuable advice or lent a helping
hand. We sincerely appreciate the inspiration; support and guidance of all those
people who have been instrumental in making this project a success.
We, (Bijal, Sweety, Bhoomi) the students of K. S. School of Business
Management, are extremely grateful to GOKUL REFOILS AND
SOLVENT LIMITED GRSL for the confidence bestowed in us.
With warm regards, we would like to thank Mr. Bipin Thakkar, Whole
time Director of GRSL, for allowing us to carry a research on Impact of
Working Capital Management on Profitability of GRST.
We are also thankful to Mr. Manish Kella, Chief Finance Officer of GRSL,
for spending his valuable time with us and sharing information about GRSL
openly.
We are thankful to Dr. Savita Gandhi, Director of K. S. School of Business
Management, who has given us such a wonderful opportunity to explore our
potential.
We express our gratitude to our Project Guide - Mr. Ismail Bootwala, for
providing us continuous guidance and inspiration throughout the Project.
We would also like to thank Mr. Maulik Desai, Ms. Hiral Parikh, Ms. Nili
Shah (Professors of K. S. School of Business Management) for their kind
help and support in our project work.
Last but not the least all the people, who directly or indirectly helped us, deserved
our sincere thanks for their co-operation and support.

Executive Summary
The main purpose of this Research is to empirically test the Impact of Working
Capital Management on Profitability of Gokul Refoils and Solvent Ltd
(GRSL).
Here, Return On Investment (ROI) is used as a measure of Profitability.
While, Raw Material Conversion Period (RMCP), Work-in-Progress
Conversion Period (WIPCP), Inventory Conversion period (ICP), Finished
Goods Conversion Period (FGCP), Debtors Collection Period (DCP),
Creditors Payment Period (CCP), Cash Conversion cycle (CCC) are used as
criteria for knowing about Working Capital Management.
To be familiar with current Working Capital Policy of GRSL, the interview
of its CFO has been taken. Pearsons Correlation method is used to
identify the Relationship between Working Capital criterion and ROI. A
model is developed to predict ROI by Working Capital criterion, Multiple
Regression method is used. For such analysis, last six years Annual
Reports of GRSL have been used.
The Research finds that in GRSL, the Debtors Collection period and Cash
Conversion Cycle are having a negative relationship with ROI, while
Inventory Conversion period and Creditors Payment Period are having a
positive relationship with ROI.
Based on our findings, it can be concluded that GRSL can increase its ROI by
reducing Debtors Collection period and increasing Creditors Payment Period. It
can also increase its ROI by maintaining a reasonable level of stock to avoid stock
out situation and by reducing Cash conversion cycle for optimum utilization of
resources. The model developed under this research can be helpful to GRSL while
framing its policy of Working Capital to achieved predetermined ROI.

Table of Content
Serial

Particular

no.

Page
No.
-

1.

Declaration

2.

Acknowledgement

3.

Executive Summary

4.

Abbreviation

5.

Chapter One: Introduction to Project

6.

Chapter Two: Literature Review

7.

Chapter Three:
I.

Brief overview of Indian Edible Oil

10
11

Industry
II.

Brief overview of Company:

About Gokul
Vision and Mission
Leadership
History
Subsidiaries
Brands and Products
Distribution
Awards & Recognition
Corporate Social Responsibility

14

 Gokul Foundation
Gujarat

Gokul

Power

Limited

(GGPL)
Gokul Overseas
Major Competitors
8.

Chapter Four: Research Overview

i.

Research Objectives

35
36

General Objectives
Specific Objectives

9.

ii.

Research Methodology

38

iii.

Scope of Research

39

Chapter Five: Concepts of Working

40

Capital
10.

Chapter Six:
I.

Data collection

53
54

Personal Interview
Annual Reports of GRSL
II.

Data Analysis
Assumptions
Operating Cycle
Correlation
Multiple Regression

61

11.

Chapter Seven:

83

Findings
Suggestions
Limitations
12.

Bibliography / Webography

13.

Annexure

89
-

Abbreviation
GRSL:

Gokul Refoils and Solvent Ltd.

ROI:

Return On Investment

RMCP:

Raw Material Conversion Period

WIPCP:

Work- in- Progress Conversion Period

FGCP:

Finished Goods Conversion Period

ICP:

Inventory Conversion Period (RMCP +

WIPCP + FGCP)

DCP:

Debtors Collection Period

CPP:

Creditors Payment Period

CCC:

Cash Conversion Cycle

1|Pa g e

CHAPTER ONE:
Introduction to
Project

2|Pa g e

Introduction to Project
The research is on Impact of Working Capital Management on Profitability of
GOKUL REFOILS AND SOLVENT LTD. It aims to evaluate the relationship
between two variables:
A. Working Capital Management
B. Profitability.
Working capital management is the ability to control effectively and efficiently the
current assets and current liabilities in a manner that provides the firm maximum
Return on its Assets. Working capital is regarded as the result of the time lag
between the expenditure for the purchase of raw material and the collection for the
sale of the finished goods.
The way of managing working capital can have a significant impact on both
the liquidity and profitability of the company (Shin & Soenen, 1998).The main
purpose of any firm is to maximize profit. But, maintaining liquidity of the firm is
also an important objective. The problem is that increasing profits at the cost of
liquidity can bring serious problems to the firm. Thus, strategy of firm must
maintain a balance between these two objectives of the firms.
Working capital management is one of the most important functions of
financial management. All the individual components of working capital including
cash, stock, Account receivable, Account Payables play a vital role in the
performance of any firm. Referring to theory of risk and return, investment with
more risk will result to more return. Thus, firms with high liquidity of working
capital may have low risk and low profitability. Conversely, a firm that has low
liquidity of working capital faces high risk which results to high profitability.
3|Pa g e

 For determining Working Capital Policy of Gokul Refoils and Solvent Ltd (GRSL)
Operating Cycle method is used in Project.
Correlation method has been used for identifying the Relationship between
Profitability (ROI) and Working Capital Policy.
For determining the impact on Dependent Variable due to Change in Independent
variables Multiple Regression method is used.

Independent Variables:
Raw Material Conversion
Period (RMCP)
Work-in-Progress Conversion
Period (WIPCP)
Finished Goods Conversion
Period (FGCP)
Debtors Collection Period
(DCP)
Creditors Payment Period
(CCP)

Dependent Variable:
Return On
Investment (ROI)

The main purpose of the project (Research Study) is to identify the ways
through which GRSL can increase its Profitability.

4|Pa g e

Chapter Two:
Literature Review

5|Pa g e

REVIEW OF LITERATURE
Various studies have analyzed the relationship of Working Capital Management
(WCM) and Firms Profitability in various markets. The results are quite mixed,
but a majority of studies conclude a negative relationship between Working Capital
Management and Firms Profitability. The studies reviewed have used various
variables to analyze the relationship, with different methodology. This section
presents the chronology of major studies related to this study in order to assess and
identify the research gap.

1. Daniel Mogaka Makori and Ambrose Jagongo, PhD (2013)

They analyzed the effect of working capital management on firms
profitability in Kenya for the period 2003 to 2012. For this purpose,
balanced panel data of five manufacturing and construction firms each
which were listed on the Nairobi Securities Exchange (NSE) was used.
Pearsons correlation and Ordinary Least Squares regression models were
used to establish the relationship between working capital management and
firms profitability.
The

study

found

NEGATIVE

RELATIONSHIP

between

profitability and number of days accounts receivable and cash

conversion cycle, but a POSITIVE RELATIONSHIP between
profitability and number of days of inventory and number of days
payable.
Moreover, the financial leverage, sales growth, current ratio and firm
size also had significant effects on the firms profitability. Based on
6|Pa g e

the key findings from the study it had been concluded that the
management of a firm can create value for their shareholders by
reducing the number of days accounts receivable and by increasing
their inventories to a reasonable level. Firms can also take long to pay
their creditors in as far as they do not strain their relationships with
these creditors.

2. Mr. N. Suresh Babu (2014)

He investigated the relationship between the components of Working Capital
and Firms Profitability in Indian leather industry. He undertook profitability
(ROA) as a dependent variable and the inventory conversion period (ICP),
the average collection period (ACP), the average payment period (APP), and
the cash conversion Cycle (CCC) were used as independent variables, and
were considered for measuring working capital management.
The data was taken from secondary data source named as Industry;
financial aggregates and ratios (PROWS) of center for monitoring
Indian economy (CMIE) covering the period from 1997-98 to 201011 (14 years).
The regression result showed that profitability had insignificant
POSITIVE RELATIONSHIP of inventory conversion period and
average collection period. Even though, average payment period and
cash conversion cycle were significant negatively related to
profitability.
The results show that for overall leather industry, working capital
management has significant impact on profitability of the firms.
7|Pa g e

3. V. Taghizadeh Khanqah, M. Akbari Khosroshahi, and M. R.

Ebrati (2012)
(Department of Accounting, Tabriz branch, Islamic Azad University (IAU),
Tabriz, Iran) They study the relationship of working capital management on
performance of firms Listed in Tehran Stock Exchange (TSE). Average
Collection Period, Inventory Turnover in days, Average Payment Period,
Cash Conversion Cycle, and Net Trading Cycle were used to assess working
capital management, and Net Operating Profitability was used to assess
firms' performance.
The findings of studying 50 firms during the period between 2006 and
2009 by using an Ordinary Least Square Method (OLS) showed that
there would be a negative and significant relationship between the
variables of Average Collection Period, Inventory Turnover in day,
Average Payment Period, Net Trading Cycle and the performance of
firms Listed in Tehran Stock Exchange (TSE).
There were no evidences to prove the existence of a significant
relationship between Cash Conversion Cycle and the firm's
performance (NOP) for all years from 2006 to 2009.
The results showed that the increase in Collection Period, Payment
Period, and Net Trading will lead towards the reduction of
profitability in the firm. In other words, managers can increase the
profitability of their firms reasonably, by reducing Collection Period,
Inventory Turnover, and Payment Period.

8|Pa g e

4. Hina Agha, Mba, Mphil (2014)

(Bahria University Karachi Campus, Pakistan)

She investigate this

relationship between these two, the author collected secondary data from
Glaxo Smith Kline pharmaceutical company registered in Karachi stock
exchange for the period of 1996-2011.
For this purpose, they use variable of return on assets ratio to measure
the profitability of company and variables of account receivable
turnover, creditors turnover, inventory turnover and current ratio as
working capital management criteria.
The results of the research show that there is a significant impact of
the working capital management on profitability of company.
Therefore, managers may enhance the profitability of their firms by
minimizing the inventory turnover, account receivables ratio and by
decreasing creditors turnover ratios but there is no significant effect of
increasing or decreasing the current ratio on profitability. So, the
results indicate that through proper working capital management the
company can increase its profitability.
This study will benefit the Pharmaceutical companies in the
management of their working capital in such an efficient manner so
that they can multiply their profitability.

9|Pa g e

Chapter Three:
I.

Brief overview of Indian Edible Oil

Industry

II.

Brief overview of Company:

About Gokul
Vision and Mission
Leadership
History
Subsidiaries
Brands and Products
Distribution
Awards & Recognition
Corporate Social Responsibility
Gokul Foundation
Gujarat

Gokul

Power

Limited

(GGPL)
Gokul Overseas
Major Competitors

10 | P a g e

i. Brief Overview of
Indian Edible Oil Industry:
Edible oils constitute an important component of food expenditure in Indian
households. It has its own importance in a country like India where different
varieties of food are considered very special and edible oil of good quality adds the
flavour and authenticity to the food.
Historically, India has been a major importer of edible oils with almost 30-40% of
its requirements being imported till 1980s. In 1986, the Government of India
established the Technology Mission on Oilseeds and Pulses (TMOP) in order
to enhance the production of oilseeds in the country. The TMOP launched special
initiatives on several critical fronts such as
Improvement of oilseed production and processing technology;
Additional support to oilseed farmers and processors and
Enhanced customs duty on the import of edible oils.
Consequently, there was a significant increase in oilseeds area, production, and
yields until the late-1990s.

However, in order to fulfill its obligations towards various international trade

agreements and also meet the increasing demand-supply deficits, India began to
reduce import restrictions on edible oils in the late 1990s; and it was gradually
brought under Open General License. This led to a significant slump in the
domestic oil seeds market, as edible oil prices fell sharply in line with the low
international prices prevailing at that time. Subsequently, the duty structure was
11 | P a g e

modified so as to maintain a duty differential between crude and refined varieties

in order to protect the domestic industry. Due to high import dependence, domestic
edible oil prices remain highly correlated to international edible oil price
movement, and this has resulted in volatility in the key credit metrics of rated
edible oil companies.
The demand for edible oils in India has been growing because of
improvement in Per Capita Consumption, which in turn is attributable to rising
income levels and living standards. However, the current per capita consumption
levels of India (at 13.3 Kg/year for 2009-10) are lower than global averages (24
kg/year). The Indian edible oils market continues to be underpenetrated and given
the positive macro and demographic fundamentals it has a favourable demand
growth outlook over the medium-to-long term.
According to ICRA, the high price consciousness and varied taste preferences of
Indian consumers, Palm oil, Soyabean oil and Mustard oil these three oils to
continue to account for the bulk of edible oil consumption in the country.
Edible oil imports were observed to be the lowest in the last three years in view of
improvement in domestic oilseed production. The Indian edible oil industry is
highly fragmented, with the presence of a large number of participants in the
Organized (Present market share approximately 30%) and Unorganized sectors.
This has resulted in severe competition and inherently thin profitability margins.
Further, the profitability of market participants has also been vulnerable to risks
emanating from weak harvests; commodity price volatility and forex movements.
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The share of branded oils segment has remained low over the years; it is poised for
growth in view of rising income levels, increase in population, uptrend in
urbanization and increasing quality consciousness of Indian consumers.

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ii. Brief Overview of Company

About Gokul

Gokul Refoils and Solvent Limited (GRSL) is one of the leading FMCG
Companies of India with international presence, dealing in edible oils
such as,
Soya bean oil,
Cottonseed oil,
Palm oil (Palmolein),
Sunflower oil,
Mustard oil,
Groundnut oil,
Vanaspati
Industrial oils such as Castor Oil.
It is an ISO 22000:2005 certified company with a wide customer base
spread globally.
Today, GRSL stands as a Multinational conglomerate with its
subsidiaries located strategically at key world business centres.
14 | P a g e

To facilitate its international trading operations it has set up offices in

Singapore and Mauritius.
Its extensive marketing and distribution network helps it to reach the
customers in 20 states in India.
GRSLs industrial products viz. castor oil, de-oiled cakes etc. has
established a loyal customer base in various countries across continents.
The company supplies products to United States, South Korea, European
Union, China, Singapore, Indonesia, Malaysia and Vietnam.
The Company owns four production plants equipped with latest
equipment and technology in the states of Gujarat and West Bengal in
India. Their proximity to ports and connectivity with major rail/road
networks not only ensures uninterrupted supply of raw materials with
cost effectiveness but also facilitates extensive distribution of our
production domestic and international markets at optimal supply chain
cost.

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Vision and Mission

Vision:
To become the most preferred and admired brand globally, through
quality products and advanced technologies & processes, aimed at
bringing immense delight to all the stakeholders.

Mission:
To reach every kitchen of Indian family by delivering best quality
products with delicious taste.
To become a true Indian MNC with Pan India presence and
operations across the globe.
To develop most preferred and admired edible oil brands in India.
To create best value proposition to investors, vendors & society.
To uphold the principles of Corporate Governance.

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Leadership
Board of Directors
Mr. Balvantsinh Rajput
Mr. Kanubhai Thakkar
Mr. Bipinbhai Thakkar
Dr. Dipuda devada
Mr. Piyushchandra Vyas
Mr. Karansinhji Mahida

Chairman and Managing Director

Managing Director
Whole time director
Independent Director
Independent director
Independent Director

Mr. Balvantsinh Rajput

Mr. Bipinbhai Thakkar

Mr. Balvantsinh Rajput, a resident Indian national is the Chairman and

Managing Director of GRSL. He started as a commodity trader and has an
experience of more than two decades in edible oil industry. He is cochairman of the Vegetable Oil Processing Committee constituted by Solvent
Extractors Association of India (SEA).

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Mr. Bipinbhai Thakkar, a resident Indian National is the Additional

Director and Whole-time Director Legal and is a Competent Professional
having 20 Years of Experience in the field of Agriculture, Food Processing
Industries, Power Sector, Real Estate Sector, new Projects and relationship
management and Finance & Accounts.
Mr. Kanubhai Thakkar, a resident Indian national, is the Managing
Director of GRSL. He too started as commodity trader about two decades
back. He has been conferred the honor of The Oil Man of the Year-2000
by Globoil India, one of worlds premier vegetable oil research
organization.

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HISTORY

Gokul Refoils & Solvent Limited has a sound evolution history of

consistent growth and achievements. The inception took place way back in the year
1992 with full vigor and valor by two powerful men, Mr. Balwant Sinh Rajput
and Mr. Kanubhai Thakkar.
Moreover, age old unconstructive belief on new methods of extraction of oils, an
unpromising factor in the growth of the company, was eradicated with the help of
huge complex machineries. It was a dream-come-true for them when GRSL turned
into a listed company in the 2008.
Today, GRSL is a well established edible oil FMCG company standing among the
top 5 position in the last 3 consecutive years and has bagged the prestigious SEA
award for 7 consecutive years.
The evolution of the company to its present form is full of series of
accomplishments year after year.

1992

The Company Incorporated as a Private Limited Company

1994

The Company got converted into a Public Limited Company

1999

The Company set up a 200 TPD Seed processing & Solvent plant &
200 TPD Refinery.

2002

The Company Obtained ISO 9001:2000 Certification

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2003

The Company set up a Refinery of 900 MT, 100 MT Vanaspati

plant & a subsidiary in Mauritius.

2005

Touched INR 1000 Crores in turnover. Mr. Thakkar receives Oil

Man of the year award. The Company received an award from the
Malaysian Palm Oil Promotion Council

2006

The Company setup four Wind mills of 1.25 MW each and cogeneration power plant of 750 KWH in Kutch

2007

The Company setup a 100% owned subsidiary in Singapore and a

1,500 TPD Soya bean processing unit at Gandhiham

2008

The Company got listed on the Indian stock exchange. IPO was 5.5
times oversubscribed

2009

The Company setup a 1,100 TPD Refinery and a 2.4 MW cogeneration plant at Haldia, West Bengal

2010

The Company set up a Refinery of 400 TPD, 100 TPD Vanaspati

plant & 400 TPD Castor facilities at Gandhiham

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Subsidiaries
In order to expand its scale of operations and have a global presence, GRSL set up
two wholly owned subsidiaries in Mauritius and Singapore.

Maurigo International Limited:

Maurigo International Limited is a wholly owned subsidiary of Gokul
Refoils & Solvent Ltd (GRSL).
Mauritius Subsidiary procures raw material and trades in commodities.
The Company was incorporated in the Republic of Mauritius on 20 October
2003 as a private company limited by shares.

Maurigo Pte Limited:

Maurigo Pte Limited is a wholly owned subsidiary of Gokul Refoils &
Solvent Ltd (GRSL).
The Singapore Subsidiary procures raw material and trades in commodity.
It focuses on small Markets in Malaysia, Indonesia, Philippines, South
Korea, China and Vietnam.
It deals in Palm Oil, Mustard/ Rapeseed, Castor and Soya bean derivatives
and products.

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Professional Commodity Services Pvt Ltd:

It is a wholly owned subsidiary of GRSL (Gokul Refoils & Solvent Ltd).
PCSPL is an active member of National Commodity & Derivatives
Exchange Ltd (NCDEX) and mainly takes care of hedging operations.

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Brands and Products

GRSL has two major brands in edible oil category and these brands
are available in different sizes and for nearly 2 decades. The two brands encompass
healthy cooking oil ranges full of flavour and quality. The two brands are:
1. Gokul:

2. Zaika:

From Television commercials, health camps to promotions informing consumers

of the health benefits of its products, the Company has created strong brand recall
and loyalty among every household.

Gokul is the Parent Brand of The Company:

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Gokul Brand is a premium edible oil brand very well known for its purity,
freshness and its superior quality by the loyal customers.
The backdrop of the consumer preference and support has pushed the brand
to the top five positions in the country.

The Products available under Gokul brand are:

Mustard oil
Refined oils

Vanaspati

Zaika is a popular brand of Vanaspati in Northern India:

Zaika Brand is the mass brand of the company.
Zaika Vanaspati is yet another product of GRSL with strong and reputed
brand image and has been one of the preferred Vanaspati around the country.
It is known for its purity, consistency and smell that it exudes.

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Products
Consumer Products:

Industrial Products:

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Distribution
The distribution chain of the GRSL is wide spread in the country with
international presence in many foreign countries. It has four operational
production units producing edible oils that are distributed to various parts of the
country and abroad.
In the domestic market in India GRSL has distribution network in
almost every state of India reaching to 20 states of India. The operations and
promotions of the products are achieved through the far spread C & F agents,
Company depots, Distributors, Brokers & Retailer. Company products have
presence over more than one lakh retail shops.
States covered are: J&K, Himachal Pradesh , Punjab, Haryana, Delhi,
Uttarakhand, Rajasthan, U.P., Gujarat, Maharastra, M.P., Bihar, Jharkhand,
Chhattisgarh, Orissa, West Bengal, Assam, Meghalaya, Arunachal, Nagaland,
Tripura, Manipur & Mizoram.
GRSL is an organized player and distribute its products through
various domestic and international destinations through well defined transportation
channels. It transports its products through Road ways, Railways and Sea Routes
as modes of transportation to distribute & sell its products.
Import of crude oils is done through sea routes. Presence of GRSL
plants at strategic locations of Kandla & Haldia helps in reducing import freight
cost and also ensures timely reach of the products.

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Distribution Channel:

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Awards & Recognition

The journey of GRSL from the year 1992 to this stage has been appreciated
through various Awards awarded by recognized and reputed organizations.

Awards:
SEA Award in the year 2006-2007 & 2004-05 for Highest Exporter of
Rapeseed Extraction.
Oil Man of the year award from GLOBOIL India

in the Year

2005 to Mr. Kanubhai Thakkar MD, GRSL.

The Solvent Extractors Association of India for being the Platinum Sponsor
at 4th International Seminar on Castor Seed, Castor Oil and its Value added
Products.
Central Organization for oil and industry trade in the year 2005 for
supporting All India Seminar on Rabi Oilseeds Crops.
Central Organization for oil and industry trade in the year 2008 for
supporting All India Seminar on Kharif.
Award from Gujarat Edible Oil Traders Association.
Award from Traders Association during 27th All India RABI Seminar.
Malaysian Palm Oil promotion Council in the year 2005 for promoting the
Palm oil in India.

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Corporate Social Responsibility

The company has felt the requirement that it owes to the society
and has therefore contributed for its upliftment from time to time. The company set
up a social service foundation in the year 1999 with an effort to create social
awareness, well being and upliftment of the people.
Gokul Group of Companies have established educational complex for
hundreds of unprivileged children of backward classes for good education
with facility of hostel accommodation free of cost.
In addition, Scholarship are offered to ensure proper and continuous
education to all.
Moreover, old age homes are established as a social service initiative.
Gokul group of companies also maintain very well equipped hospital facility
near its plant locations serving around 25000-26000 people during a year.
Various awareness camps, health camps like Children Medical Camp, Eye Camp
and tournaments like inter village football championship are held to develop a
social atmosphere.

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Gokul Foundation

Gokul Foundation Trust was set up in 2009 in collaboration with

International University to provide international standard education to the
students in the field of Engineering, Medical, Pharmacy, Dental, Nursing,
Physiotherapy, Management, IT, B-Ed. & CBSE school.
Further, more colleges and a university has been planned at Sidhpur.
The proposed Engineering college is under construction.

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Gujarat Gokul Power Limited (GGPL)

GGPL is incorporated as a power generation company. GGPL is a joint

venture between Gokul Refoils and Solvent Ltd. (GRSL) and Gujarat
Mineral Development Corporation (GMDC).
GMDC is a Government of Gujarat enterprise, looking after the exploration
and management of Mineral deposits in the state of Gujarat.
GMDC owns all the major lignite deposits in the state.
GRSL's venture with GMDC in GGPL assures the uninterrupted supply high
quality lignite to the power project.
GGPL has concrete plan to set up a 125 MW power Project near Surat
(Gujarat) India.
The power produced by GGPL will mainly be consumed actively by GRSL
and GMDC.
However, surplus supplies will be sold to Gujarat Urja Vibhag Nigam Ltd as
per the Gujarat Electricity Regulation Commission norms.

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Gokul Overseas

Gokul Overseas (GO) is a Partnership firm. It was incorporated in the year

1995 as a merchant exporter of Rapeseed extraction meal, Castor seed,
Castor extraction meal and Soya bean Extraction Meal by Mr. Kanubhai
Thakkar and Mr. Balvant Sinh Rajput, Company Directors, to support the
governments policy for augmentation and growth of Indian Industrialist.
Gokul Overseas, a 100% Export Oriented Unit, is one of the leading
producers of Castor oil and Castor based derivatives in the country.
GO is based at one of the Major Indian Port, Kandla (Gujarat, India). The
Port City is at a well organized business location with proximity to sea route.
Gokul Overseas has been receiving various awards for being the highest
exporter in Agricultural sector in Kandla, Special Economic Zone from
Ministry of Commerce, and Government of India for last 3 years.

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Major Competitors
1. Ruchi Soya Industries Limited:
Ruchi Soya Industries Limited is one of the
major company in this field, it is a number
1 company in India based on turnover. It is
a part of Ruchi Group, headquartered in
Indore, Madhya Pradesh. The company is
mainly engaged in manufacturing and
selling of the edible oils.
The company offers a wide range of edible oil products under different brand
names such as Nutrela and Mahakosh where Nutrela is one of its famous
brand.The company is having different categories alomg with the brand they areRuchi Gold, Mandap, Nutrela Soyumm and Sunrich. It is one of Indias leading
edible oil brand supplier.

2. Adani Wilmar Limited (AWL):

Adani Wilmar

Limited

(AWL)

is

basically a joint venture between The

Adani Group, India and The Wilmar
International Limited, Singapore.

33 | P a g e

A refinery has been set up by AWL at Mundra, Gujarat which has been Indias
most sophisticated as well as largest oil refinery. In 2000, a brand name Fortune
for edible oils is being introduced. Apart from that it is a proud owner of brands
Kings, Raag, Bullet, Fryola, Jublee etc. The Company is also involved in the
manufacturing and selling of Specialty fats.

3. Marico:
Marico was founded in the year 1987
headquartered in Mumbai, Maharashtra. Its
product portfolio includes edible oil, hair
oils, skin care and other consumer products.
If we talk about edible oils it offers a famous
brand known as Saffola which is marketed
under the name New Saffola, Tasty and
Active.
The company also offers a wide range of Rice Bran oil, Kardi oil or Safflower oil,
Corn oil and Soya oil. It is one of Indias leading consumer product company.
Saffolalife is educating Indians about heart care. Saffola has built an ecosystem
which works for adopting healthier lifestyle.

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Chapter Four:
Research Overview
i. Research Objectives
General Objectives
Specific Objectives
ii. Research Methodology
iii. Scope Of Research

35 | P a g e

i. Research Objectives
General Objectives:
1. To identify Working Capital Policy of Gokul Refoils and Solvent Ltd
(GRSL).
2. To examine the relationship between working capital Policy and
profitability (ROI) of GRSL.

Specific Objectives:
1. To examine whether there is a significant relationship between Inventory
Conversion Period (ICP) and Profitability (ROI) of the firm.
To identify the relationship between Raw Material conversion period
(RMCP) and Profitability (ROI) of the firm.
To identify the relationship between Work-in-Progress conversion
period (WIPCP) and Profitability (ROI) of the firm.
To identify the relationship between Finished Goods conversion
period (FGCP) and Profitability (ROI) of the firm.
2. To determine whether there is a significant relationship between Debtors
Collection Period (DCP) and Profitability (ROI) of the firm.
3. To examine whether there is a significant relationship between Creditors
Payment Period (CPP) and Profitability (ROI) of the firm.
4. To ascertain whether there is a significant relationship between Cash
Conversion Cycle (CCC) and Profitability (ROI) of the firm.
36 | P a g e

5. The main Objective of the research is to establish a Model which can help
GRSL to predict impact on ROI (Return On Investment) due to change in
Working Capital Policy.

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ii. Research Methodology

Research Methodology refers to the methods used to collect the required Data for
the Research. The required Data has been collected from the following sources:

Primary Sources:
Primary Data has been collected by interviewing Mr. Manish Kella, Chief
Finance Officer (CFO) of Gokul Refoils and Solvent Ltd (GRSL).

Secondary Sources:
We have collected Secondary Data from the Annual Reports (Financial
Statements) of GRSL.
A number of books were referred to understand the Theoretical Concepts
related to Project work.
o Financial Concepts.
o Correlation and Multiple Regression concepts.
For collecting Information related to company, website of the company has
been visited.
Website- www.gokulgroup.com

38 | P a g e

iii. Scope of the Research

This Research Study has helped us in gaining Knowledge and Experience
regarding Working Capital Policy and its Impact on Profitability.
The key points of Research study is as follows:
To examine the Association between Working Capital Policy and
Profitability (ROI).
To develop a Model by which the Impact on ROI due to change in any of the
working capital Policy can be judged.
This Research study will provide us a value inside for Managing Working
Capital.

39 | P a g e

Chapter Five:
Concepts of
Working Capital

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Working capital
Working Capital is the capital available for conducting day to day operations of the
business. It consists of current assets and current liabilities.
Working

capital

management:

Working

capital

management

is

the

administration of current assets and current liabilities. Effective management of

working capital ensures that the organization is maximizing the benefits from net
current assets by having optimum level of working capital.

Current assets

Current liabilities

Inventories

Trade payables

Trade receivables

Bank overdraft

Loans and Advance

Short term borrowing

Cash/Bank Balance

Concept of working capital

Working
capital
management

Value

Gross
Working
Capital

Time

Net
Working
Capital

Permanant

Temporary

41 | P a g e

Working Capital Management based on value:

1. Gross working capital:

(Total Current Assets)

The gross working capital, simply called as working capital

refers to the firms investment in current assets.
Current assets are the assets, which can be converted into cash
within an accounting year or operating cycle. Thus, Gross
working capital, is the total of all current assets.

2. Net Working Capital:

(Total Current Assets Total Current Liabilities)
Net working capital refers to the difference between current assets
and current liabilities.
Current liabilities are those claims of outsiders, which are expected
to mature for payment within an accounting year.
Net working capital may be positive or negative.
A positive net working capital will arise when current assets exceed current
liabilities
A negative net working capital will arise when current liabilities exceed
current assets i.e. there is no working capital, but there is a working capital
deficit.

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Working Capital Management based on Time:

1. Permanent working capital:
Permanent working capital refers to that minimum level of investment
in current assets that is carried by the business at all times to carry minimum level
of its activities.
2. Temporary working capital:
Temporary working capital refers to that part of total working capital,
which is required by a business over and above permanent working capital. It is
also called variable working capital.

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Components of working capital

Inventory Management:
Inventory includes all types of stocks. For effective working capital
management, inventory needs to be managed effectively. The level of
inventory should be such that the total cost of ordering and holding
inventory is the least.
Simultaneously, stock out costs should also be minimized. Business,
therefore, should fix the minimum safety stock level, re-order level and
ordering quantity so that the inventory cost is reduced and its management
becomes efficient.

Receivables Management:
Given a choice, every business would prefer selling its produce on cash
basis. However, due to factors like trade policies, prevailing marketing
conditions, etc., businesses are compelled to sell their goods on credit. In
certain circumstances, a business may deliberately extend credit as a strategy
of increasing sales. Extending credit means creating a current asset in the
form of Debtors or Accounts Receivable. Investment in this type of
current assets needs proper and effective management as it gives rise to costs
such as:
Cost of carrying receivable (payment of interest etc.)
Cost of bad debt losses
Thus the objective of any management policy pertaining to accounts
receivables would be to ensure that the benefits arising due to the
44 | P a g e

receivables are more than the cost incurred for receivables and the gap
between benefit and cost increases resulting in increased profits. An
effective control of receivables helps a great deal in properly managing it.

Cash Management:
Cash is the most liquid current asset. It is of vital importance to the daily
operations of business. While the proportion of assets held in the form of
cash is very small, its efficient management is crucial to the solvency of the
business. Therefore, planning cash and controlling its use are very important
tasks. Cash budgeting is a useful device for this purpose.

45 | P a g e

Factors Determining Working Capital

Requirement
1. Nature of Business:
The requirement of working capital depends on the nature of business. The
nature of business is usually of two types: Manufacturing Business and
Trading Business. In the case of manufacturing business it takes a lot of time
in converting raw material into finished goods. Therefore, capital remains
invested for a long time in raw material, semi-finished goods and the
stocking of the finished goods. Consequently, more working capital is
required.
On the contrary, in case of trading business the goods are sold immediately
after purchasing or sometimes the sale is affected even before the purchase
itself. Therefore, very little working capital is required.
Moreover, in case of service businesses, the working capital is almost nil
since there is nothing in stock.

2. Scale of Operations:
There is a direct link between the working capital and the scale of
operations. In other words, more working capital is required in case of big
organizations while less working capital is needed in case of small
organizations.

46 | P a g e

3. Business Cycle:
The need for the working capital is affected by various stages of the business
cycle. During the boom period, the demand of a product increases and sales
also increase. Therefore, more working capital is needed. On the contrary,
during the period of depression, the demand declines and it affects both the
production and sales of goods. Therefore, in such a situation less working
capital is required.

4. Seasonal Factors:
Some goods are demanded throughout the year while others have seasonal
demand. Goods which have uniform demand the whole year their production
and sale are continuous. Consequently, such enterprises need little working
capital.
On the other hand, some goods have seasonal demand but the same are
produced almost the whole year so that their supply is available readily
when demanded. Such enterprises have to maintain large stocks of raw
material and finished products and so they need large amount of working
capital for this purpose. Example: Woolen mills.

5. Production Cycle:
Production cycle means the time involved in converting raw material into
finished product. The longer this period, the more will be the time for which
the capital remains blocked in raw material and semi-manufactured
products. Thus, more working capital will be needed.
47 | P a g e

 On the contrary, where period of production cycle is little, less working

capital will be needed.

6. Credit Allowed:
Those enterprises which sell goods on cash payment basis need little
working capital but those who provide credit facilities to the customers need
more working capital.

7. Credit Availed:
If raw material and other inputs are easily available on credit, less working
capital is needed. On the contrary, if these things are not available on credit
then to make cash payment quickly large amount of working capital will be
needed.

8. Operating Efficiency:
Operating efficiency means efficiently completing the various business
operations. Operating efficiency of every organization happens to be
different.
Some such examples are: (i) converting raw material into finished goods at
the earliest, (ii) selling the finished goods quickly, and (iii) quickly getting
payments from the debtors. A company which has a better operating
efficiency has to invest less in stock and the debtors.
Therefore, it requires less working capital, while the case is different in
respect of companies with less operating efficiency
48 | P a g e

9. Level of Competition:
High level of competition increases the need for more working capital. In
order to face competition, more stock is required for quick delivery and
credit facility for a long period has to be made available.

10. Inflation:
Inflation means rise in prices. In such a situation more capital is required
than before in order to maintain the previous scale of production and sales.
Therefore, with the increasing rate of inflation, there is a corresponding
increase in the working capital.

49 | P a g e

Importance of working capital

Working capital is one of the important measurements of the financial position. In
the words of Walker, A firms profitability is determined in part by the way its
working capital is managed.
The object of working capital management is to manage firms current assets and
liabilities in such a way that a satisfactory level of working capital is maintained. If
the firm cannot maintain a satisfactory level of working capital, it is likely to
become insolvent and may even be forced into bankruptcy.

50 | P a g e

Trade off between profitability and

liquidity

Working capital management is the administration of current assets and current

liabilities. It deals with the management of current assets and current liabilities
and directly affects the liquidity and profitability of the company.

In financial affairs of companies, working capital management is a very

important factor, which has a direct positive effect on profitability as well as
liquidity of the company.

Liquidity and profitability are both the two different sides of same coin.
Optimum level of liquidity guarantees a firm to meet their short term debts and
the proper management of flow can be promised by a profitable business.

Liquidity shows the ability of company in responding to short-term obligations.

A firm ought to optimize its liquidity and profitability while conducting its
daily business operations. The main purpose of any firm is to maximize profit.
But, maintaining liquidity of the firm also is an important objective. The
problem is that increasing profits at the cost of liquidity can bring serious
problems to the firm.

51 | P a g e

Thus, strategy of firm must maintain a balance between these two objectives of
the firms. Dilemma in working capital management is to achieve desire tradeoff
between liquidity and profitability (Smith, 1980; Raheman & Nasr, 2007).
Referring to theory of risk and return, investment with more risk will result to
more return. Thus, firms with high liquidity of working capital may have low
risk and low profitability. Conversely, a firm that has low liquidity of working
capital faces high risk which results to high profitability.
The purpose of working capital management is to manage firms liquidity so as
to maintain efficient profitability. In most of the cases its been seen that there
is always a negative relationship between liquidity and profitability. Therefore,
one is complementary to each other. Sound profitability increases the profit of
the firm where liquidity helps maintaining the operation of the firm.
Firms can achieve optimal management of working capital by making the
trade-off between profitability and liquidity.

52 | P a g e

Chapter Six:
I.

Data collection
Personal Interview
Annual Reports of GRSL

II.

Data Analysis
Assumptions
Operating Cycle
Correlation
Multiple Regression

53 | P a g e

I. Data collection
To analyze the Working Capital Policy of GRSL, the data has been gathered
through Interview and last SIX years Annual Reports of GRSL.

A. Personal Interview:
We

have

taken

Personal

Interview

of

Mr.

Manish

Kella,

CFO (Chief Finance Officer) of GRSL, on March 29, 2015. Firstly, we have told
them about our project research in brief. He was pleased by knowing about our
project research. After of that, he was ready to answer our questions. Following are
the questions which were raised by us and the answers were given by him openly.

1. Can you tell us about Inventory Management Policy of GRSL in brief?

Answer: Inventory includes three types of inventory A) Raw Material B) Work-inprogress C) Finished Goods
i.

About Raw Material:

GRSL is into edible oil industry. Its domestic Raw Material mainly includes Castor
seeds, Mustard seeds, Soya seeds, Crude soya oil and packing material.
For its refining activity, the company mainly imports Soya Degum Oil and
Crude Palm Oil.
While for its crushing activity, the company procures seeds from farmer,
APMCs, Mandis, Traders and commission agents spread over the soya belt

54 | P a g e

mainly in MP and to some extent in Maharashtra. Approximately 10% of

total purchases are on cash bases.
The seed season starts from the month of October and ends by the month of
February/March. During the season, seeds are available at cheaper rates.
Depending upon
the Crop pattern,
Availability of quality seeds,
Prevailing prices,
Expected supplies in the off season through traders, agents, etc.
the companies in this type of industry carry stock and continue
crushing. These factors decide the holding levels.
In case of GRSL, the plants are at multiple locations. It requires to stock
raw materials at all the location in sufficient quantity to run these plants
uninterruptedly.
It frames this policy by considering the various factors like the seasonality, cost
saving on bulk purchases and logistics involved in procurements. Approximately, a
holding level of Raw material is about to be 1 month.
ii.

About Work- in-progress:

The processing time involved in the activity is negligible. Till the oil is extracted
and refined, the stocks are treated as Raw Material. The company estimates 1 to 2
days for this activity.

55 | P a g e

iii.

About Finished goods:

The company has established marketing network across India through C & F
agents, dealers etc. The company has to maintain sufficient quantity of Finished
Goods for uninterrupted supply to their dealers/retailers spread over 26 states in
India which require adequate holding of Finished Goods. Accordingly, a holding
level of about 1 month is assumed for Finished Goods.

2. Can you describe Debtors Collection Policy of GRSL in brief?

Answer: The Company extends a credit period of 0.5 to 2 months to its domestic
customers. While, it extends the credit of 2-3 months to its overseas customers.
The domestic receivables constitute co operative societies, dealers, agents, malls,
etc. and export customers. Export sales ranges between 15- 25% of total sales. An
average holding level of around 30 days for export and 16 days for domestic
debtors is estimated and projected by company.

3. Can you describe Creditors Payment Policy of GRSL in brief?

Answer: The Company directly purchases from farmer and Mandis in cash i.e.
approximately 10% of total purchases. It imports 60-70% of total Raw Materials
requirement. The average level estimated includes creditors against Letter of Credit
(LC) on which GRSL enjoys usance of 90 to 120 days. Considering 60-70%
purchase of raw material under LC (on an average), the estimated creditors level
of 90 days can be considered acceptable.

56 | P a g e

4. What could be the reasons behind huge loss in the year 2011-12?
Answer: Company incurred loss primarily due to
increase in Raw Material Cost,
Suppressed margins on account of competitive condition with entry of
unorganized sector,
Unhedged purchases and forex positions.
Post losses, company has become cautious and 100% forex exposure has been
hedged.

5. How could GRSL be converted from loss making company to profit making
company (year 2012-13)?
Answer: The Company was able to the improve profitability over the previous
financial year through better forex risk management (100% hedging of forex risk).
Cost control and higher sales of branded products (in terms of quantity), due to
increase in health awareness among the customers, had helped the company in
improving its margins.

57 | P a g e

6. Why the Company could not achieved its estimated profitability in the
year 2012-13?
Answer: The Company could not achieved its estimated profitability mainly due
to
Lower crushing capacity utilization due to non availability of seeds,
Increase in imported crude edible oil prices due to rupee depreciation,
Wide price fluctuations in the international commodity markets etc.

7. Why the sales (amount wise) of the year 2013-14 have been reduced
compare to its previous year?
Answer: The sales have been reduced amount wise due to reduction in the prices
of edible oil. Actually, the no. of units sold has gone up.

8. Why had GRSL kept idle cash in the year 2011-12?

Answer: At that time, the Company was facing foreign currency loss situation
(due to foreign imports -payments). It had sufficient cash but if it would have paid
immediately, it might have more losses. Hence, it had used hedging technique to
protect itself from foreign risk exposure (believes that it had taken a wise
decision). And to have LC limits company has to keep some amount with bank as
deposits.

58 | P a g e

9. How can it be possible for GRSL that it can avail short term loans from
banks along with benefit of LC of 90 to 180 days?
Answer: The banks lend money to the company by keeping its fixed assets as
mortgaged.

10. Anything that you want to share with us.

Answer:
I have been working in this industry since 15 years. According to my opinion
following are the KEY SUCCESS FACTORS for the companies to be successful
in this industry.
1. ABILITY TO PROCURE SEEDS:
Availability of raw material, at the right price and the required quantity, is always a
huge risk for industry players. Raw Material alone comprise close to 90% of the
industrys operating cost. Hence, backward integration or having a strong network
to procure oilseeds, can act as a critical success factor for these players over the
longer run.
2. UTILIZATION OF PROCEESING UNITS:
Due to low margin pressure, the company in this industry cant effort to have high
unutilized capacity as it costs them in terms of Fixed Cost. Hence, prudent
management of the existing capacity is the key to improve profitability.

59 | P a g e

3. LOCATION OF CRUSHING UNITS:

Favourable location of crushing units helps companies in managing their costs
more effectively. Units, located closer to oilseed fields, have an advantage in
procuring Raw Material and optimizing transportation costs. In the case of import
dependent crushing units, it is crucial to be adjacent to a port. This can emerge as
a key differentiator in optimizing transportation cost and enhancing profitability
levels.
4. BRAND VALUE:
Branded Players Sales account for 20-25% of total sales of edible oil. This is
growing faster than the overall industry, due to increasing health and hygiene
consciousness among buyers and growth of the organized retail market. Players
enjoy better margin on branded sales than packaged sales which in turn earn more
margin than loose oil.

B. Annual Reports of GRSL:

The Income Statement and the Balance sheet of the years 2008-09, 2009-10,
2010-11, 2011-12, 2012-13, 2013-14 have been attached in Annexure - A, B, C,
D,E, and F.

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II. Data Analysis

Assumptions
PART A: For calculating Operating Cycle, following assumptions are made:
The number of working days in a year are360 days in GRSL.
70% of the Total Sales are on Credit basis.
90% of the Total Purchases are on Credit basis.
Simple Average of Opening balance and closing balance are used for
calculating Average stock of Raw Material, Work-in-Progress, Finished
Goods ,Average Trade Debtors and Average Trade Creditors.
While calculating Raw Material Conversion period (RMCP) stock of Other
Material has not been taken into consideration.
Stock in trade (Goods Traded) is treated as a part of Finished Goods.
Following Expenses are ignored while calculating Total Expenses:
Finance Cost
Selling & Distribution Cost
Donation
Taxes like Sales tax, Service tax etc.
Bad debt written off
Provision for Bad debt and any other Provisions
Foreign exchange difference.
PART B: In Multiple Regression Model (Error) has not been considered.

61 | P a g e

Operating Cycle:
The Operating Cycle measures the time between paying for goods supplied to
business and the final receipt of cash from its sale. It is desirable to keep the cycle
as short as possible as it increases the effectiveness of working capital.

Pictorial Presentation of Operating Cycle:

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Explanation:
The chain starts with buying of Raw Materials on credit by the firm.
In due course this stock will be used in production, work will be carried out
on the stock, and it will become part of the firms Work-in-Progress (WIP).
Work will continue on the WIP until it eventually emerges as the Finished
Product.
As production progresses, Labour costs, Administration expenses, and other
overheads will need to be incurred.
At some stage Trade Creditors will need to be paid.
When the Finished Goods are sold on credit, Debtors are increased; they will
eventually pay, so that Cash will be returned into the firm.

Concepts of Operating Cycle:

There are two concepts of operating cycle
A) GROSS OPERATING CYCLE:
Gross Operating Cycle represents the time gap between investment of Cash in raw
material and its recovery of Cash out of Sales revenue.
B) NET OPERATING CYCLE (CASH CONVERSION CYCLE):
Net Operating Cycle refers to the net time period to convert Cash into Cash. It
means the total number of days from purchase of raw material to Collection from
sales of finished goods after making payments to its Suppliers.

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Calculation of Operating Cycle:

Gross Operating Cycle = Inventory conversion period (ICP) + Debtors
collection period (DCP)
Where Inventory conversion period (ICP) = Raw Material
Conversion Period (RMCP) + Work-in-Progress Conversion
Period (WIPCP) + Finished Goods Conversion Period (FGCP)

Net Operating Cycle (Cash Conversion Cycle) = Gross Operating

Cycle - Creditors payment period (CPP).

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Variables Explanation and Analysis:

1. Inventory Conversion Period (ICP): ICP indicates how quickly the
inventory is converted into sales. It is an excellent measure of the efficiency
of the company in managing the inventory. The important decision regarding
inventory is that how much amount of cash should be tied up in inventory
while meeting the other operations and functions of the business and
demands of customers.
Formula:
ICP = RMCP + WIPCP + FGCP
RMCP represents the time (no. of days) taken to convert RM into
WIP.
Formula:

WIPCP represents the time (no. of days) taken to convert WIP into
FG.
Formula:

FGCP represents the time (no. of days) taken to convert FG into

SALES.
Formula:

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At Gokul Refoils and Solvent Limited:

Raw Material Conversion Period (RMCP)
(Amt in Lacs)
YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

Average Stock of RM
(Op+Cl/2)

Raw Material Consumed

17676
18485
17678
17522
17494
10587

RMCP (Days)

187323
194318
329681
503292
474893
425623

34
34
19
13
13
9

Work-in-Progress Conversion Period (WIPCP)

(Amt in Lacs)
YEAR

Average Stock of WIP

(Op+Cl/2)

Cost of Production

WIPCP
(Days)

2008-09
2009-10
2010-11
2011-12
2012-13

150
219
362
903
2266

199848
207541
349697
526687
499727

0.27
0.38
0.37
0.62
2

2013-14

8526

440798

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Finished Goods Conversion Period (FGCP)

(Amt in Lacs)
YEAR

Average Stock of FG
(Op+Cl/2)

2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

24185
27807
35899
31710
31011
22340

Cost of Goods Sold

234830
253201
423617
615073
549974
601125

FGCP
(Days)
37
40
31
19
20
13

Interpretation:
From the above tables (RMCP+WIPCP+FGCP) it can be analyses that In GRSL
the number of days to convert RM stock into WIP stock and WIP stock into FG
Stock is decreases.
Overall Inventory Conversion Period (ICP= RMCP+WIPCP+FGCP) is also
decreases, which shows that company is taking less time period to convert its
Inventory into Sales.
The firm has to keep reasonable level of inventory to avoid stock-out situation.
Simultaneously it also has to consider that the firm has not kept overstock
otherwise it will lead to increase in the carrying cost of inventory.
Note: Refer Annexure G,H,I,J for knowing calculation of Raw material consumes,
Cost of Production, Cost of Goods Sold, Total expenses respectively.

67 | P a g e

2. Debtors Collection Period (DCP): DCP is calculated by dividing Average

Trade Debtors by Credit Sales and multiplying the result by 360 days. It
indicates the time taken to collect cash from customers. The higher the
value, the more will be the investment in Trade Debtors.
Formula:

At Gokul Refoils and Solvent Limited:

(Amt in Lacs)
Trade Debtors
YEAR

Opening
Balance

Closing
Balance

Average
Credit
DCP(Days)
Debtors(Op+Cl/ Sales(70% of
2)
Total sales)
8517
8747
186509
17

2008-09

8977

2009-10

8517

18632

13575

195049

25

2010-11

18632

36984

27808

312518

32

2011-12

37318

41804

39561

448496

32

2012-13

41804

26906

34355

407077

30

2013-14

26906

42099

34503

435891

28

Interpretation:
From the table we can see that Debtors Collection Period is increases, which shows
that company is giving more credit Period to its customers. It is an indication of
Liberal Collection policy. On an Average GRSL is giving 1 month Credit to its
customers.

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3. Creditors Payment Period (CPP): It represents the time taken to pay the
firms suppliers. The longer the time period, the more advantageous for the
firm so that funds can be put to other uses. It can be calculated by dividing
Average Creditors by Credit Purchases and multiplying the results by 360
days.
Formula:

At Gokul Refoils and Solvent Limited:

(Amt in Lacs)

Trade Creditors
YEAR

2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

Opening
Balance
10482
10728
14178
28741
132573
101089

closing
Balance
10728
14178
28741
132573
101089
107618

Average Creditors
(Op+Cl/2)
10605
12453
21460
80657
116831
104354

Credit Purchases
(90% of Total
purchases)
239798
179204
283449
457808
413624
368212

CPP
(Days)
16
25
27
63
102
102

Interpretation:
A longer credit period of CPP shows that GRSL is getting more Credit Period from
its Suppliers. As 60-70% Raw material is imported from other countries, GRSL
has Most of the suppliers from overseas. The company is using Letter of Credit
(LC) to pay to its suppliers so it is able to take benefit of Longer Credit Period.
Longer Creditors Payment period also shows Credit worthiness of the company.
69 | P a g e

4. Cash Conversion Cycle (CCC): CCC is calculated by Adding ICP and

DCP and then deducting CPP from it. It shows the number of days to sell the
inventory, collect the receivables and to pay the bills. CCC is also known as
Net Operating Cycle.
Formula:
CCC = Gross Operating Cycle (ICP + DCP) - Creditors payment period
(CPP)

At Gokul Refoils and Solvent Limited:

Year
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

ICP (Days)

DCP (Days)
71
74
50
33
35
29

CPP (Days)

17
25
32
32
30
28

16
25
27
63
102
102

CCC (Days)
72
74
55
2
-37
-45

Interpretation:
Longer cash conversion cycle signifies greater investment in current assets and
therefore shows the greater need of financing of current assets, as during that time
period companys fund is blocked. Shorter cash conversion cycle signifies that
company is taking less time to convert Cash into Cash.
In GRSL CCC is negative in last two years because company is getting longer
Credit period from its suppliers and by using Letter of Credit (LC) it is taking the
advantage of longer credit period.

70 | P a g e

Correlation
Pearsons correlation coefficient is a number between -1 and +1, which measures
the strength of a linear relationship between two variables. The absolute value of
the coefficient measures how closely the variables are related. If the coefficient is
closer to +1 or -1 i.e. over +0.8 or -0.8, then it can be said that the relationship
between two variables is strong. If the coefficient is closer to zero, then it indicates
the weak relationship between them.
The sign of correlation coefficient represents the trend in the relationship.
The positive coefficient means that one variable increases, when the other
increases and vice a versa. Both variables would move in same direction.
The negative coefficient indicates that one variable increases, when the other
decreases and vice a versa. Both variables would move in opposite direction.

To judge the relationship between the components of working capital (Trade

Debtors, Inventory, Cash, and Trade Creditors) and Profitability (ROI), the
Pearsons Correlation Model is used.
Here, ROI = Profit Before Interest and Taxes
Capital Employed
Note: Refer Annexure K to see calculation of Capital Employed.

71 | P a g e

At Gokul Refoils and Solvent Limited:

YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

ROI
(%)
13.03
12.73
15.15
-20.5
26.53
17.55

RMCP
(Days)
34
34
19
13
13
9

WIPCP
(Days)
0.27
0.38
0.37
0.62
2
7

FGCP
(Days)
37
40
31
19
20
13

ICP
(Days)
71
74
50
33
35
29

DCP
(Days)
17
25
32
32
30
28

CPP
(Days)
16
25
27
63
102
102

CCC
(Days)
72
74
55
2
-37
-45

Using the above data, CORRELATION between the components of working

capital and Profitability (ROI) has been calculated.
Note: DATA ANALYSIS TOOLS - CORRELATION from Microsoft Excel is
used for the same.

Correlation between ROI and RMCP:

YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

ROI(%)
13.03
12.73
15.15
-20.5
26.53
17.55

RMCP
(DAYS)
34
34
19
13
13
9

Output:
Column 1

Column 2

Column 1

Column 2

0.099524

72 | P a g e

Correlation between ROI and WIPCP:

YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

ROI(%)
13.03
12.73
15.15
-20.5
26.53
17.55

WIPCP
(DAYS)
0.27
0.38
0.37
0.62
2
7

Output:
Column 1

Column 2

Column 1

Column 2

0.294919

Correlation between ROI and FGCP:

ROI(%)
YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

13.03
12.73
15.15
-20.5
26.53
17.55

FGCP
(DAYS)
37
40
31
19
20
13

Output:
Column 1

Column 2

Column 1

Column 2

0.125777

Correlation between ROI and ICP:

YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

ROI (%)
13.03
12.73
15.15
-20.5
26.53
17.55

ICP (DAYS)
71
74
50
33
35
29

Output:
Column 1

Column 2

Column 1

Column 2

0.162231

73 | P a g e

Correlation between ROI and DCP:

YEAR
2008-09

ROI (%) DCP (DAYS)

Output:

13.03

17

2009-10

12.73

25

2010-11

15.15

32

2011-12

-20.5

32

2012-13

26.53

30

2013-14

17.55

28

Column 1

Column 2

Column 1

Column 2

-0.23189

Correlation between ROI and CPP:

YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

ROI (%)
13.03
12.73
15.15
-20.5
26.53
17.55

CPP (DAYS)
16
25
27
63
102
102

Output:
Column 1

Column 2

Column 1

Column 2

0.17077

Correlation between ROI and CCC:

YEAR
2008-09

ROI (%)

CCC (DAYS)

13.03

72

2009-10

12.73

74

2010-11

15.15

55

2011-12

-20.5

2012-13

26.53

-37

2013-14

17.55

-45

Output:
Column 1

Column 2

Column 1

Column 2

-0.08782

74 | P a g e

SUMMARY OF OUTPUT:

CORRELATION

ROI

RMCP
WIPCP
FGCP
ICP
DCP
CPP
CCC

0.10
0.29
0.13
0.16
-0.23
0.17
-0.09

ANALYSIS:
PART A:
From the table we can conclude that Return On Investment (ROI) is
negatively (weak) related to Debtors Collection Period (DCP) and Cash
Conversion Cycle (CCC).
Firm can increase ROI by reducing DCP because the less the time taken by
customers to pay their bills, the more cash is available to replenish the
inventory hence it leads to more sales which results to an increase in
profitability.
But simultaneously it has to consider relationship with its customer
i.e. may reduce sales.

75 | P a g e

 The proportionate change in ROI would be lower than the

proportionate change in DCP as there is weak relationship between
them.

CCC represents the

time lag between the expenditure for the purchases of

raw materials processes and the collection of sales of finished goods.

If CCC is reduced then ROI of GRSL will go up (smaller change).
PART B:
From the table we can analyze that Return On Investment (ROI) is positively
(weak) related to Creditors Payment Period (CPP) and Inventory Conversion
Period (ICP).
The association between ROI and components of ICP i.e. Raw Material
Conversion Period (RMCP), Work-in-Progress Conversion Period (WIPCP),
Finished Goods Conversion Period (FGCP) has also found weak positive.
Higher CPP represents that the firm has some cash to purchase more
inventories for sales. Higher the sales, higher the profit.
But simultaneously it has to see that this would not hamper its
relationship with Suppliers, otherwise it may lead to low quality
materials, delay in supplies etc.
As there is weak relationship, the proportionate change in ROI would
be lower than the proportionate change in CPP.
Low inventory level ensures low carrying cost. But it may leads to stock out
which adversely affects the production process as well as profitability.

76 | P a g e

 Hence, high level of inventory prevents the loss of business due to

scarcity of products.
Firm can also protect itself against the price fluctuations i.e. Rise in
the prices of Raw Material.

77 | P a g e

Multiple Regression
To take the analysis a step further Multiple Regression Analysis technique has
been used. This technique can be used when More than one independent variable have impact on Dependent
variable and
To predict Dependent variable by Independent variables.

Multiple Regression Model:

Multiple Regression Model helps in predicting the impact of changes in
Independent variable on Dependent variable. The general equation of Multiple
Regression Model is as follows:
y = + 1 x1 + 2 x2 + 3 x3 ++ k xk +
Where,
y = the value of the Dependent variable
= the regression constant
1 =the partial regression coefficient for Independent variable 1
2=the partial regression coefficient for Independent variable 2
k=the partial regression coefficient for Independent variable k
k=the number of Independent variable

78 | P a g e

At Gokul Refoils and Solvent Limited:

Here, to forecast the changes in Dependent variable [ROI] due to change in
Independent variables like Raw Material Conversion Period (RMCP),
Work-in-Progress Conversion Period (WIPCP),
Finished Goods Conversion Period (FGCP),
Debtors Collection Period (DCP) and
Creditors Payment Period(CPP), the Regression Model is developed using
following data:

YEAR

ROI
(%)

RMCP
(Days)

WIPCP
(Days)

FGCP
(Days)

DCP
(Days)

CPP
(Days)

2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

13.03
12.73
15.15
-20.5
26.53
17.55

34
34
19
13
13
9

0.27
0.38
0.37
0.62
2
7

37
40
31
19
20
13

17
25
32
32
30
28

16
25
27
63
102
102

Output:
Intercept
X Variable 1
X Variable 2
X Variable 3
X Variable 4
X Variable 5

1
2
3
4
5

Coefficients
-5.45
-7.14
2.93
8.62
-4.07
0.67
79 | P a g e

Multiple Regression Model:

Based on the output derived, Multiple Regression Model has been developed
which is as follows:

ROI = + 1 RMCP + 2WIPCP + 3 FGCP + 4 DCP + 5 CPP

Where,
= the regression constant
1 =the partial regression coefficient for Independent variable RMCP
2=the partial regression coefficient for Independent variable WIPCP
3=the partial regression coefficient for Independent variable FGCP
4=the partial regression coefficient for Independent variable DCP
5= the partial regression coefficient for Independent variable CPP

ROI =
(-5.45) + (-7.14) RMCP + (2.93) WIPCP + (8.62) FGCP + (-4.07) DCP +
(0.67) CPP
This model can be used by Gokul Refoils and Solvent Ltd. (GRSL) to predict
impact on its Profitability (ROI) due to change in Raw Material Conversion Period
(RMCP), Work-in-Progress Conversion Period (WIPCP), Finished Goods
Conversion Period (FGCP), Debtors Collection Period (DCP) and Creditors
Payment Period (CPP).
Note: DATA ANALYSIS TOOLS - REGRESSION from Microsoft Excel is
used to develop above model.
80 | P a g e

Let us take some hypothetical situations and estimate the ROI using the above
Multiple Regression Model:

Situation A:
IMPACT ON ROI
DUE TO CHANGE IN DEBTORS COLLECTION PERIOD

ROI

RMCP 2

WIPCP 3

FGCP 4

DCP 5

CPP

27.96 -5.45 -7.14

30 2.93

2 8.62

30 -4.07

19 0.67

90

23.89 -5.45 -7.14

30 2.93

2 8.62

30 -4.07

20 0.67

90

19.82 -5.45 -7.14

30 2.93

2 8.62

30 -4.07

21 0.67

90

When RMCP = 30 days, WIPCP = 2 days, FGCP = 30 days, DCP = 20 days and
CCP = 90 days, the estimated ROI = 23.89%.
If GRSL will liberalize its Debtors Collection Policy i.e. DCP is increased
from 20 days to 21 days, ROI will be reduced to 19.82% (estimated).
And if it will collect payment from its Debtors faster, then it will help in
increasing its ROI. DCP is reduced from 20 days to 19 days; ROI will be
increased to 27.96% (estimated).

81 | P a g e

Situation B:
IMPACT ON ROI
DUE TO CHANGE IN CREDITORS PAYMENT PERIOD

ROI

RMCP 2

WIPCP 3

FGCP 4

DCP 5

CPP

20.53 -5.45 -7.14

30 2.93

2 8.62

30 -4.07

20 0.67

85

23.89 -5.45 -7.14

30 2.93

2 8.62

30 -4.07

20 0.67

90

27.25 -5.45 -7.14

30 2.93

2 8.62

30 -4.07

20 0.67

95

When RMCP = 30 days, WIPCP = 2 days, FGCP = 30 days, DCP = 20 days and
CCP = 90 days, the estimated ROI = 23.89%.
If GRSL will get more credit from its Trade Creditors i.e. CPP is increased
from 90 days to 95 days, ROI will approximately go up by 3.36%.
And if it has to make early payments to its Trade Creditors i.e. within 85
days, then it will have negative impact on its profitability ROI would be
approximately 20.53%.
Same way, GRSL can use this Multiple Regression Model to judge expected
ROI with respect to change in RMCP, WIPCP, FGCP, DCP, CCP.

82 | P a g e

Chapter Seven:
Findings
Suggestions
Limitations

83 | P a g e

Findings
Based on calculation of Operating Cycle of GRSL, it is found that In GRSL, Cash Conversion Cycle is negative during last two years, which
indicates that GRSL is having more availability of cash. This could be due to
the benefit of 90 - 180 days LC received by GRSL.
Another observation is that the RMCP (Raw Material Conversion Period),
WIPCP (Work-in-Progress Conversion Period), FGCP (Finished Goods
Conversion Period), DCP (Debtors Collection Period), CPP (Creditors
Payment Period) of last year i.e. 2013-14 do not match with the policy stated
by the CFO of GRSL in interview. This variation could be due to the
limitation of operating cycle method i.e. Simple Average of Opening
balance and closing balance are used for calculating Average stock of Raw
Material, Average stock Work-in-Progress, Average stock Finished Goods ,
Average Trade Debtors and Average Trade Creditors.
Based on Correlation Analysis of GRSL, it is found that The Debtors Collection period and Cash Conversion Cycle are having a
NEGATIVE RELATIONSHIP with ROI, while Inventory Conversion
period and Creditors

Payment Period are

having a

POSITIVE

RELATIONSHIP with ROI.

84 | P a g e

Based on Multiple Regression Analysis of GRSL,

The regression line has been developed which would be helpful to GRSL in
framing its Working Capital Policy in such a way that will maximize the
profitability of it.

85 | P a g e

Suggestions
Suggestions to GRSL are as follows:

The RMCP (Raw Material Conversion Period), WIPCP (Work-in-Progress

Conversion Period), FGCP (Finished Goods Conversion Period), DCP (Debtors
Collection Period), CPP (Creditors Payment Period) of last some years are not
exactly the same as stated by the CFO of GRSL in interview. This variation could
be due to the limitation of operating cycle method i.e. Simple Average of Opening
balance and closing balance are used for calculating Average stock of Raw
Material, Average stock Work-in-Progress, Average stock Finished Goods ,
Average Trade Debtors and Average Trade Creditors. But, GRSL should once
search for cause of variation.

As there is positive relationship between Return on Investment (ROI) and

Inventory Conversion period, GRSL can increase its profit by keeping reasonable
stock of inventory to avoid the situation of stock out.
As there is a negative relationship between ROI and DCP, GRSL can
increase its profit by reducing DCP.
GRSL can utilize LC limit to increase ROI. But simultaneously consider
cost benefit analysis of using this facility. Higher the CPP, higher the
ROI.
If GRSL reduces Cash Conversion Cycle and its ROI will go up, due to
negative relationship between them.

86 | P a g e

Based on the Multiple Regression model developed under this study can be used
by GRSL to predict the impact on ROI by changing Working Capital Policy. For
Example,
If DCP is reduces from 20 days to 19 days; estimated ROI will be
increases to 27.96% from 23.89%.
If CCP is decreases from 90 days to 85 days then ROI will be decreases
from 23.89% to 20.53%. Same way, GRSL can determine what should be
RMCP, WIPCP, FGCP, DCP and CPP to achieve a specific Rate of
return.
As GRSL does not have liquidity problems, it can increase its profitability through
efficient Working Capital Management.

87 | P a g e

Limitations
Due to lack of availability of all required information, the research has been
carried out using only last six years financial data of GRSL.
During Research we have found that, the Data which has been taken for
Analysis having some macro fluctuations.
Due to lack of availability of all required information of leader of this Edible
Oil Industry, inter-firm comparison has not been carried out.
While judging profitability, the impact on Sales Growth due to change in
Working Capital policy has not been taken into consideration.
The outcome of the study has been derived based on our Research with the
assumptions made and limitations prevail.
Despite of all the above Limitations of Project, based on our Research we have
successfully established a model which can help GRSL in predict its profitability
by changing its working capital policy.

88 | P a g e

Bibliography and Webography

Books:
1. Chandra Prasanna. Financial Management. New Delhi, Tata McGraw
Hill.1984.
2. Pandey I M. Financial Management. New Delhi, Vikas Publishing House
Pvt.ltd. 2011.
3. KEN BLACK. Business Statistics for Contemporary Decision Making. New
Delhi, Shree Maitrey Printech P.Ltd.2010.

Websites:

www.gokulgroup.com

www.ruchisoya.com

www.adaniwilmar.com

www.acornlive.com

www.ku.ac.ke

http://agrioutlookindia.ncaer.org/events/india-edible-oil-sector-mar.pdf

www.investopedia.com

89 | P a g e

Annexure A
BALANCE SHEET AS AT 31 MARCH, 2009
Particulars

SOURCES OF FUNDS
1.
SHARE HOLDERS FUNDS
(a) Share Capital
(b) Reserves and Surplus
2.

3.

LOAN FUNDS
(a) Secured Loans
(b) Unsecured Loans

Schedule

1
2

3
4

DEFERRED TAX LIABILITY(NET)

TOTAL

APPLICATION OF FUNDS
1.
FIXED ASSETS
(a) Gross Block
Less : Depreciation and amortisation
(b) Capital Work In Progress
Total Assets
INVESTMENTS
CURRENT ASSETS, LOANS AND ADVANCES
(a) Inventories
(b) Sundry Debtors
(c) Cash and Bank Balances
(d) Loans and Advances
Less : CURRENT LIABILITIES AND PROVISIONS
(a) Current Liabilities
(b) Provisions

6
7
8
9
10

11
12

NET CURRENT ASSETS :

Signifcants accounting policies and
Notes forming part of accounts
TOTAL

(Rs. in Lacs)
As at
31st March,2008

Rs.

Rs.

2,637.90
31,605.94

1,922.06
17,329.82

34,243.84

19,251.88

18,716.98
2,250.00

20,286.01
5,750.65

20,966.98

26,036.66

1,670.15

1,627.49

56,880.97

46,916.03

22,982.63
5,321.81

20,310.43
3,559.56

17,660.82

16,750.88

Net Block

2.
3.

As at
31st March,2009

9,654.90

141.96

27,315.72

16,892.83

2,104.47

1,326.80

31,242.70
8,517.36
7,918.30
11,781.03

40,189.87
8,976.77
6,628.35
4,573.84

59,459.39

60,368.83

31,534.74
463.88

31,230.09
442.34

31,998.62

31,672.43

27,460.78

28,696.40

56,880.97

46,916.03

20

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST

MARCH, 2009
(Rs. in Lacs)
Particulars

Schedule

Year ended
31st March,2009

Year ended
31st March,2008

INCOME
Sales and operating Income

13

273172.31

205,229.93

Other Income

14

582.26

381.69

273754.57

205,611.63

TOTAL
EXPENDITURE
Material Consumed

15

247464.94

175,178.48

Payment to and Provisions for Employees

16

829.06

559.68

Manufacturing and other Expenses

17

15829.12

16,281.87

Interest and financial Cost (Net)

18

4079.84

4,172.55

Depreciation and amortisation

1775.90

1,222.18

269978.86

197,414.76

3775.70

8,196.87

1207.66

2,804.95

2568.04

5,391.90

219.50

(104.04)

13880.11

8,387.34

3.17

TOTAL
Profit before Tax
Less : Provision for Taxation

19

Profit after Tax

Short (Excess) Provision of Taxation of ealier years
Add : Balance brought forward from Previous year
Less:-Transitional liability on adoption of AS-15
Available for Appropriation

16228.64

13776.07

Transfer to General Reserve

500.00

Proposed Dividend

395.69

56.03

951.72

15276.92

13,776.07

Tax on Proposed Dividend

Total
Balance carried to Balance Sheet
Earning per share- Basic & Diluted (Face value of Rs. 10 each) Rs.

10.16

28.96

Weighted Average No of Shares (Refer note No. 23 of schedule 20)

25280726

18,616,405

Notes forming part of accounts

20

Annexure - B
BALANCE SHEET AS AT 31 MARCH, 2010
(Rs. in Lacs)
Particulars
SOURCES OF FUNDS
1.
SHARE HOLDERS FUNDS
(a) Share Capital
(b)
Reserves and Surplus

2.

3.

LOAN FUNDS
(a) Secured Loans
(b) Unsecured Loans

Schedule

As at
As at
31st March, 2010 31st March, 2009

1
2

2,637.90
35,439.53
38,077.43

2,637.90
31,605.94
34,243.84

3
4

31,871.81
31,871.81
2,943.02
72,892.26

18,716.98
2,250.00
20,966.98
1,670.15
56,880.97

40,261.25
7,814.54
32,446.71

22,982.63
5,321.81
17,660.82

1,040.13

9,654.90

33,486.84

27,315.72

1,640.11

2,104.47

DEFERRED TAX LIABILITY(NET)

TOTAL

APPLICATION OF FUNDS
1.

FIXED ASSETS
(a) Gross Block
Less : Depreciation and amortisation
Net Block

(b) Capital Work In Progress

Total Assets
2.

INVESTMENTS

3.

CURRENT ASSETS, LOANS AND ADVANCES

(a) Inventories
(b) Sundry Debtors
(c) Cash and Bank Balances
(d) Loans and Advances

7
8
9
10

56,616.95
18,631.57
692.86
15,011.39
90,952.77

31,242.70
8,517.36
7,918.30
11,781.03
59,459.39

Less
CURRENT LIABILITIES AND PROVISIONS
(a) Current Liabilities
(b) Provisions

11
12

52,702.35
485.11
53,187.46
37,765.31

31,534.74
463.88
31,998.62
27,460.78

72,892.26

56,880.97

NET CURRENT ASSETS

Signifcant accounting policies and Notes forming part
of accounts
TOTAL

20

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST

MARCH, 2010
(Rs.In Lacs)
Particulars

Schedule

INCOME
Sales and operating Income
Other Income

13
14

TOTAL

EXPENDITURE
Material Consumed
Payment to and Provisions for Employees
Manufacturing and other Expenses
Interest and financial Cost (Net)
Depreciation and amortisation

15
16
17
18
5

TOTAL
Profit before Tax
Less : Provision for Taxation

19

Profit after Tax

Short (Excess) Provision of Taxation of earlier years
Add : Balance

brought forward from Previous year

Balance available for Appropriation

As at
As at
31st March, 2010 31st March,2009
281,628.40
408.80

273,162.65
582.26

282,037.20

273,744.92

251,381.49
1,166.38
17,465.79
3,253.95
2,508.64

247,444.66
829.06
15,839.75
4,079.84
1,775.90

275,776.25

269,969.20

6,260.95

3,775.70

2,005.77

1,207.66

4,255.18

2,568.04

(39.82)

219.50

15,276.92

13,880.11

19,571.92

16,228.65

Transfer to General Reserve

500.00

500.00

Proposed Dividend

395.69

395.69

65.72

56.04

961.40

951.72

18,610.51

15,276.92

3.23
131,895,000

2.03
126,403,630

Tax on Proposed Dividend

Total
Balance carried to Balance Sheet

Earning per share- Basic & Diluted (Face value of Rs. 2 each) Rs.
Weighted Average No of Shares (Refer note No. 23 of schedule 20)
Notes forming part of accounts
20

Annexure - C
Balance Sheet as at 31st March, 2011
(Rs. in lacs)

Particulars

Schedule
No.

As at
st
31 March, 2011

As at
st
31 March, 2010

Sources of Funds
1. Share Holders Funds
a.

Share Capital

2,637.90

2,637.90

b.

Reserves and Surplus

41,146.55

35,439.53

43,784.45

38,077.43
31,871.81

2. Loan Funds
a.

Secured Loans

28,496.46

b.

Unsecured Loans

10,011.51

38,507.97

31,871.81

3. Deferred Tax Liability (Net)

3,215.00

2,943.02

85,507.42

72,892.25

Gross Block

44,274.41

40,261.25

Less : Depreciation and amortisation

10,765.05

7,814.54

Net Block

33,509.36

32,446.71

1,228.41

1,040.13

Total
Application of Funds
1. Fixed Assets
a.

b.

Capital Work In Progress

Total Assets

2. Investments

34,737.77

33,486.84

5,037.65

1,640.11

3. Current Assets, Loans and Advances

a.

Inventories

47,544.57

56,616.95

b.

Sundry Debtors

36,983.62

18,631.57

c.

Cash and Bank Balances

1,299.42

692.86

d.

Loans and Advances

10

19,513.79

15,011.39

105,341.39

90,952.76

Less :
Current Liabilities and Provisions
a.

Current Liabilities

11

58,683.49

52,702.35

b.

Provisions

12

925.91

485.11

59,609.41

53,187.47

45,732.00

37,765.31

85,507.42

72,892.25

Net Current Assets :

Signifcant accounting policies and
Notes forming part of accounts
Total

20

Profit and Loss Account

for the year ended 31st March, 2011
(Rs. in lacs)

Particulars

Schedule
No.

As at
st
31 March, 2011

As at
st
31 March, 2010

Sales and operating Income

13

453,404.75

281,628.40

Other Income

14

Income

Total

473.51

408.80

453,878.27

282,037.21

404,450.00

251,381.49

Expenditure
Material Consumed

15

Payment to and Provisions for Employees

16

1,864.10

1,166.38

Manufacturing and other Expenses

17

30,951.57

17,465.79

Interest and financial Cost ( Net )

18

4,594.91

3,253.95

Depreciation and amortisation

3,018.65

2,508.64

444,879.21

275,776.25

8,999.04

6,260.94

2,854.61

2,005.77

6,144.44

4,255.18

(53.64)

(39.82)

Add : Balance brought forward from Previous year

18,610.51

15,276.92

Available for Appropriation

24,808.59

19,571.92

Transfer to General Reserve

500.00

500.00

Interim Dividend (including Dividend Distribution Tax)

153.81

Proposed Dividend

290.17

395.69

47.07

65.72

991.05

961.40

23,817.53

18,610.52

Earning per share- Basic & Diluted

(Face value of Rs. 2 each) Rs.
Weighted Average No. of Shares

4.66

3.23

(Refer note No. 23 of Schedule 20)

131,895,000

131,895,000

Total
Profit before Tax
Less : Provision for Taxation

19

Profit after Tax

Short ( Excess) Provision of Taxation of earlier years

Tax on Proposed Dividend

Total
Balance carried to Balance Sheet

Notes forming part of accounts

20

Annexure - d
Balance Sheet as at 31st March 2012
(` in Lacs)
Particulars

I.

Note
No.

As at
As at
st
March 2012 31 March 2011

EQUITY AND LIABILITIES

1

Shareholders funds
(a) Share capital
(b) Reserves and surplus
Non-current liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long-term provisions
Current liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions

3
4

2,637.90
30,437.93

2,637.90
41,146.55

5
6
7

5,027.80
67.85

8,225.00
3,215.00
42.35

8
9
10
11

166,367.48
132,573.10
6,128.95
3,221.54

45,238.29
44,983.60
5,799.11
1,248.42

346,462.55

152,536.22

12

33,408.85
165.20
2,782.16

33,361.15
148.21
1,228.41

13
14

1,469.29
1,467.95
-

1,214.89
466.85
-

15
16
17
18
19
20

20,829.65
58,182.75
41,804.36
159,498.93
21,594.61
5,258.79

3,822.76
47,544.57
37,317.64
8,565.42
15,623.16
3,243.16

346,462.55

152,536.22

TOTAL
II.

st

31

ASSETS
Non-current assets
1
(a) Fixed assets
(i)
Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Long-term loans and advances
(d) Other non-current assets
2

Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and bank balances
(e) Short-term loans and advances
(f) Other current assets
TOTAL

Statement of Profit and Loss for the year ended

31st March 2012
(` in Lacs)
Particulars

Note
No.

st

31

For the
For the
year ended
year ended
st
March 2012 31 March 2011

I.

Revenue from operations

21

648,717.16

453,631.55

II.

Other income

22

6,621.21

1,079.04

655,338.37

454,710.59

III. Total Revenue (I + II)

IV. Expenses:
Cost of materials consumed

23

513,447.84

338,825.45

Purchases of Stock-in-Trade

24

86,358.75

67,569.14

Changes in inventories of finished goods work-in-progress

and Stock-in-Trade

25

1,035.99

(1,840.08)

Employee benefits expense

26

2,509.74

2,077.04

Finance Cost

27

14,962.90

7,582.82

Depreciation and amortization expense

12

3,289.67

3,018.65

Other expenses

28

47,777.98

28,478.53

669,382.86

445,711.55

Total expenses

V.

Profit/(Loss) before Tax (III- IV)

(14,044.49)

8,999.04

VI. Tax expense:

(1)

Current Tax (MAT)

Less: Mat Credit entitlement

Net Current Tax

(2) Deferred Tax
(3) Excess/(short) provision of earlier years
VII. Profit/ (Loss) for the Year
VIII. Earnings per equity share: (Face value ` 2 per share)
(1) Basic in Rupees
(2) Diluted in Rupees

2,758.28
175.66

(3,215.00)
(120.87)

2,582.62
271.99
53.64

(10,708.62)

(8.12)
(8.12)

6,198.07

4.70
4.70

Annexure - E

Annexure - F
Balance Sheet as at 31st March 2014
(` in Lacs)
Particulars

I.

Note
No.

As at
st
31 March 2013

EQUITY AND LIABILITIES

1

Shareholders funds
(a) Share capital
(b) Reserves and surplus

3
4

2,637.90
32,039.25

2,637.90
31,730.43

Non-current liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Long-term provisions

5
6
7

5,100.00
109.37
47.24

2,312.77
40.03

8
9
10
11

58,204.55
107,617.95
5,321.19
2,048.65

110,056.54
101,088.71
4,751.40
1,936.64

213,126.10

254,554.42

13
6
14

32,989.14
116.71
695.70
1,469.29
371.26

33,651.15
131.35
1,259.64
1,469.29
362.51
1,383.03

15
16
17
18
19
20

11,871.90
40,197.86
42,099.09
47,170.90
25,170.22
10,974.01

18,134.07
50,066.14
26,905.95
86,726.30
20,845.22
13,619.77

213,126.10

254,554.42

Current liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
TOTAL

II.

As at
st
31 March 2014

ASSETS
1

Non-current assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances
Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and bank balances
(e) Short-term loans and advances
(f) Other current assets
TOTAL

12

Statement of Profit and Loss for the year ended 31st March
2014
(Amount ` in Lacs)
Particulars

Note
No.

For the
For the
year ended
year ended
st
st
31 March 2014 31 March 2013

I.

Revenue From Operations

21

631,052.28

571,847.09

II.

Other Income

22

9,929.67

16,189.20

III.

Total Revenue

640,981.95

588,036.29

IV. Expenses:
Cost Of Materials Consumed

23

436,471.49

486,904.06

Purchases Of Stock-In-Trade

24

142,356.81

50,876.29

Changes In Inventories Of Finished Goods

Work-In-Progress And Stock-In-Trade

25

7,185.22

-2,364.35

Employee Benefits Expense

26

2,769.52

2,238.22

Finance Cost

27

9,025.37

19,292.18

Depreciation And Amortization Expense

11

3,743.21

3,654.56

Other Expenses

28

38,447.70

26,505.34

639,999.32

587,106.30

982.63

929.99

471.88

-362.51

Total Expenses
V.

Profit/(Loss) Before Tax

VI. Tax Expense:

(1)

Deferred Tax Liability/(Assets)

(2) Excess/(Short) Provision Of Earlier Years

VII. Profit/ (Loss) For The Period

201.93
308.82

1,292.50

VIII. Earnings per Equity Share: (Face Value ` 2 Per Share)

(1)

Basic In Rupees

0.23

0.98

(2)

Diluted In Rupees

0.23

0.98

Annexure G

Calculation of Raw Material Consumed

(Amnt in Lacs)

Particulars

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Opening Stock
Closing Stock

21739
13612

13612
23357

23357
11998

11998
23045

23045
11942

11942
9232

Average Stock(Op+Cl/2)

17676

18485

17678

17522

17494

10587

Opening Stock
Add: Purchases
Add: Purchases expenses
Less: Closing stock

21739
174912
4284
13612

13612
199115
4948
23357

23357
314943
3379
11998

11998
508675
5664
23045

23045
459582
4208
11942

11942
409124
13789
9232

Raw Material Consumed

187323

194318

329681

503292

474893

425623

34

34

19

13

13

Raw Material Consumed

Raw-Material Conversion
Period=

Annexure H
Calculation of Cost of Production
(Amnt in Lacs)
Particulars

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Opening Stock

179

121

316

407

1398

3134

Closing Stock

121

316

407

1398

3134

13918

Average Stock(Op+Cl/2)

150

219

362

903

2266

8526

179

121

316

407

1398

3134

192801

199717

338826

513448

486927

436471

6989

8019

10962

14231

14536

15110

121

316

407

1398

3134

13918

199848

207541

349697

526687

499727

440798

0.27

0.38

0.37

0.62

Cost Of production:
Opening Stock of WIP
Add: Cost of material consumed
Add: Total expenses
Less: Closing Stock pf WIP
Cost Of production

WIP Conversion period=

Annexure I
Calculation of Cost of Goods sold
(Amnt in Lacs)
Particulars

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Opening Stock
Closing Stock

17396
30974

16539
39074

39074
32723

32723
30696

30696
31325

31325
13355

Average Stock(Op+Cl/2)

24185

27807

35899

31710

31011

22340

Total Opening Stock of FG

Add: Cost of production
Add: Purchase of Goods Traded
Add: Total expenses
Less: Total closing Stock of FG

17396
199848
48560
0
30974

16539
207541
68195
0
39074

39074
349697
67569
0
32723

32723
526687
86359
0
30696

30696
499727
50876
0
31325

31325
440798
142357
0
13355

Cost Of Goods Sold

234830

253201

423617

615073

549974

601125

37

40

31

19

20

13

Cost Of Goods Sold

FG Conversion period=

Total Opening and Closing Stock of FG

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Opening Stock of FG
Add: Opening Stock in Trade
Total Opening Stock of FG

15864
1532
17396

14153
2386
16539

25523
5451
30974

32477
246
32723

26044
4652
30696

28342
2983
31325

Closing Stock of FG
Add: Closing Stock in Trade
Total closing Stock of FG

14154
2386
30974

25523
5451
30974

32477
246
32723

26044
4652
30696

28342
2983
31325

13153
202
13355

Annexure J
Calculation of Total expenses
(Amnt in Lacs)

Total Expenses
Total expenses
Employee Benefit expenses
Add Other Expenses
Consumption of Stores,Spares and Tools
Power and Fuel
Rent, Rates and Taxes
Add Repairs and Maintainance
Building
Plant & Machinery
Others
Add Insurance
Auditors Remuneration
Directors Sitting fees
Other Expenses
Direct Labour expenses
Other Manufacturing Expenses

Total expenses

200809

200910

201011

201112

201213

201314

829

1166

1864

2510

2239

2770

110
3040
142

134
3512
80

427
5201
138

681
6926
280

869
7049
169

791
7125
117

3
158
29
213
11
168
923
1273
90

13
224
27
372
12
190
811
1405
72

23
233
82
441
16
213
1092
1201
30

39
353
135
516
16
1
1089
1652
32

15
464
196
682
18
0
986
1824
25

35
388
127
512
19
1
1087
2113
25

6989

8019

10962

14231

14536

15110

Annexure K
Calculation of Capital Employed
(Amnt in Lacs)

Capital employed
Particulars
Share Capital

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2638

2638

2638

2638

2638

2638

Add

Reserves

31606

35440

41147

30437

31730

32039

Add

Long term Loans

22637

34814

41721

5096

2353

5257

Capital Employed

56881

72892

85507

38171

36721

39934