A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE WORKING CAPITAL IN SELECT SUGAR MILLS IN CHITTOOR DISTRICT, AP.

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1 MADRAS UNIVERSITY JOURNAL OF BUSINESS AND FINANCE Refereed, Peer-reviewed and Bi-annual Journal from the Department of Commerce Global Impact factor: Vol. 2 No. 2 July 2014 Pp ISSN: journal.unom.ac.in A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE Dr. V. Ramesh Babu* Prof. B. Bhagavan Reddy** Abstract Working capital plays a key role in a business enterprise just as the role of heart in human body. Working capital acts as grease to run the wheels of fixed assets. Its effective provision can ensure the success of a business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern.. There is a positive trend in the in current assets, current liabilities and net working capital during the period leaving and. Between the and the, the trend in net working capital is positive in the former while negative in the latter. It means the net working capital has declined in subsequent years over the base year in the. A contrary situation emerges in the. Key Words: Working Capital, Structure, Size, Trend analysis, Liquidity INTRODUCTION Working capital plays a key role in a business enterprise just as the role of heart in human body. Working capital acts as grease to run the wheels of fixed assets. Its effective provision can ensure the success of a business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern. Thus the efficiency of a business enterprise depends largely on its ability to manage its working capital. It is one of the important facets of overall financial management of a firm. Therefore, management of working capital is analysed in terms of size, structure and trend. For this purpose, two sugar factories are selected to analyse meaningfully and compare aptly. At the end of, there were 6 sugar factories in Chittoor district. Out of these, 2 are in the cooperative sector and the remaining, 4 in the private sector. Out of them, one sugar mill from each sector is purposely brought into the sample frame. These include the Chittoor Co-operative Sugar Factory Limited (), Chittoor, and the Prudential Sugar Corporation Limited (), Nindra. The period of the study covers years from -12. SIZE: The size of working capital implies total current assets. The term, gross working capital, is most important from the point of view of financing of working capital. On the other hand, the networking capital concept is most significant from the liquidity point of view. Therefore, gross and net working capitals of select sugar mills are analyzed. The gross working capital in the has increased from Rs lakhs in to Rs lakhs in (see Table 1). On an average, per year, 42 *Guest Lecturer in Commerce, PVKN Govt. College, Chittoor ** Dean, Faculty of Commerce & Management, SV University, Tirupati

2 A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE Table - 1 Size of Gross and Net Working Capitals in the during -12 (Rs. lakhs) Gross working capital % of change over base year Net working capital % of change over base year % of col.(4) to col. (2) (1) (2) (3) (4) (5) (6) Average CGR %) t-cal 5.70** 3.23** 2017 (trend value) Notes: CGR: Compound growth rate **: Indicates significant at 1 per cent level. Source: Compiled from the Annual Reports of the Chittoor Cooperative Sugar Factory Ltd., Chittoor. it stood at Rs lakhs. The change in subsequent years over the base year has varied between per cent and per cent. It declined in and and increased in the remaining seven years in varying proportions. The CGR was per cent, which is significant at one per cent level. The projection for 2017 is found to be Rs lakhs. The net working capital was Rs lakhs in while it was Rs lakhs in. On an average, per year, it stood at Rs lakhs during the period. The trend percentage varied between per cent and per cent during the period. The CGR was per cent, which is significant at one per cent level. The estimated net working capital by the end of 2017 would be Rs lakhs. The proportion of net working capital in the gross working capital was per cent in as against per cent in.on an average, per year, the net working capital in the gross working capital was per cent. At the end of 2017, it may stand at per cent. A glance at the Table 2 reveals that there is a swelling in both the gross and net working capitals. The gross working capital was Rs lakhs in as against Rs lakhs in. The trend percentage was in the range of On an average, per year, it works out to Rs lakhs. The CGR was 43

3 Dr. V. Ramesh Babu and Prof. B. Bhagavan Reddy Table - 2 Size of Gross and Net Working Capitals in the during -12 (Rs. lakhs) Gross working capital % of change over base year Net working capital % of change over base year % of col.(4) to col. (2) (1) (2) (3) (4) (5) (6) Average CGR (%) t-cal 0.22NS 3.36** 2017 (trend value) Notes: CGR: Compound growth rate NS: Not significant **: Indicates significant at 1 per cent level. Source: Compiled from the Annual Reports of the Prudential Sugar Corporation Ltd., Pichatur. negatively insignificant. The estimated gross working capital by the end of 2017 would be Rs lakhs. The net working capital has varied between Rs lakhs and Rs lakhs during the period. The trend in subsequent years over the base year was in the range of per cent. On an average, per year, it stood at Rs lakhs. The CGR was negatively significant at one per cent level. By 2017, the net working capital may reach Rs lakhs. The share of net working capital in the gross working capital was per cent in as against 9.58 per cent in. On an average, per year, it works out to per cent. By 2017, it may reach 7.06 per cent. 3. STRUCTURE: A look at the Table 3 shows that, in the, of the gross working capital, the share of cash was in the range of per cent during -12. On an average, per year, it formed 3.50 per cent. The CGR was negatively insignificant. 44

4 A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE Table - 3 Structure of Gross Working Capital in the during -12 (Rs. lakhs) Cash Debtors Inventory Others Total (1.85) (18.71) (75.53) (3.91) (8.99) (31.03) (54.73) (5.25) (9.58) (32.07) (52.45) (5.90) (1.85) 732. (18.36) (76.37) (3.42) (4.51) (21.11) (71.90) (2.48) (3.55) (24.88) (69.13) (2.44) (0.15) (35.34) (60.98) (3.53) (0.03) (59.33) (37.52) (3.12) (2.56) (42.17) (54.74) (0.53) (6.89) (38.69) (53.25) (1.17) Average (3.50) (34.24) (59.61) (2.65) S.D CGR (%) t-cal 0.37NS 9.74** 2.33* 0.94NS 5.70** 2017 (trend value) Notes: Figures in brackets indicate the percentage to total. CGR: Compound growth rate NS: Not significant *: Indicates significant at 5 per cent level **: Indicates significant at 1 per cent level Source: Compiled from the Annual Reports of the Chittoor Cooperative Sugar Factory Ltd., Chittoor. By the end of 2017, it may stand at Rs lakhs. Out of the total current assets, debtors were per cent in as against per cent in. On an average, per year, debtors work out to per cent. The CGR was per cent, which is significant at one per cent level. It may reach Rs lakhs by the end of The proportion of inventory in the total current assets was in the order of per cent during the period. It was more than fifty per cent throughout the period except 20. The CGR was.37 per cent, which is significant at one per cent level. 45

5 Dr. V. Ramesh Babu and Prof. B. Bhagavan Reddy Table - 4 Structure of Gross Working Capital in the during -12 (Rs. lakhs) Cash Debtors Inventory Others Total (0.34) (16.28) (65.18) (18.20) (0.61) (20.16) (59.13) (20.) (0.46) (21.66) (53.34) (24.54) Average CGR (%) t.cal 2017 (trend value) (6.42) (3.41) (2.11) (1.84) 8.60 (2.57) (4.69) (5.16) (2.85) ** (16.43) (22.63) (34.20) (18.24) (17.67) (9.94) (9.46) (17.58) * (54.87) (57.85) (45.56) (73.41) (64.16) (67.89) (67.98) (61.82) NS (22.28) (16.11) (18.13) (6.51) (15.60) (17.48) (17.40) (17.75) NS Notes: Figures in brackets indicates the percentage to total. CGR: Compound growth rate NS: Not significant *: Indicates significant at 5 per cent level **: Indicates significant at 1 per cent level Sources: Compiled from the Annual Reports of the Prudential Sugar Corporation Ltd., Pichatur NS By the end of 2017, the inventory may reach Rs lakhs. In the gross working capital, on an average, per year, inventory constituted per cent. Here others include loans and advances, interest due, other current assets and so on. Others formed 3.91 per cent in vis-à-vis 1.17 per cent in. The CGR was negatively insignificant. The projection for others at the end of 2017 would be Rs lakhs. 46 In the, the share of cash in the total current assets varied between 0.34 per cent and 6.42 per cent with ups and downs during the period (see Table 4). On an average, per year, it stood at 2.85 per cent. The CGR was per cent, which is significant at one per cent level. The cash may amount to Rs. 41. lakhs at the end of The debtors constituted per cent in while 9.46 per cent in. On an average, per year, these have formed per cent. The CGR was

6 A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE negatively insignificant at 5 per cent level. By 2017, they may reach Rs lakhs. The account of inventory was in the order of per cent. On an average, per year, it constituted per cent. The CGR was insignificant. The inventory may be Rs lakhs at the end of In the gross working capital, others formed per cent in vis-à-vis per cent in. In average terms, others formed per cent. The projection for 2017 would be Rs lakhs. A perusal of the Table 5 reveals that there is no significant difference in the cash, inventory and total gross current assets between the and the. Table - 5 Results of t Test for the Components of Gross of Working Capital between the and the during -12 Particulars Factor N Mean Std. deviation t-cal Cash NS 0.36 Debtors * Inventory NS 0.59 Others ** Total NS 0.38 Notes: NS: Not significant *: Indicates significant at 5 per cent level. **: Indicates significant at 1 per cent level. Source: Table 4 It means, the null hypothesis is accepted. With regard to debtors and others, the difference is significant at 5 per cent level and one per cent level respectively. Therefore, the null hypothesis is rejected and alternate hypothesis is accepted. 4. TREND: Table 6 shows the state of working capital in the. In order to ascertain the trend in working capital, indices were computed. The trend in current assets during and over was per cent and per cent respectively. In the remaining period, the trend was in the range of per cent. A similar trend exists in current liabilities. There is a decline in and and increase in the remaining period, which varied between 0.53 per cent Table - 6 Trend in Current Assets, Current Liabilities and Net Working Capital in the during -12 (Rs. lakhs) Current assets Current liabilities Net working capital

7 Dr. V. Ramesh Babu and Prof. B. Bhagavan Reddy (60.83) (75.25) (34.03) (71.90) (78.65) (59.35) (137.12) (0.53) (205.18) (136.) (146.13) (117.44) (159.19) (131.33) (2.99) (164.90) (6.72) (273.09) (178.05) (163.85) (204.45) (202.46) (231.53) (148.41) (247.34) (180.23) (372.14) Note: Figures in parenthesis indicate the trend percentage Source: Compiled from the Annual Reports of the Chittoor Cooperative Sugar Factory Ltd.,Chittoor. and per cent. The increase in current assets is more than that of increase in current liabilities. Therefore, the working capital is satisfactory. The same is revealed by the indices of net working capital. These are unfavourable during and and favourable in the remaining period. The trend in the rest of the period fluctuated between per cent and per cent. There is a decline in current assets, current liabilities and net working capital in the in all the subsequent years over the base year except (see Table 7). The trend was in the level of per cent. In the case of current liabilities, Table - 7 Trend in Current Assets, Current Liabilities and Net Working Capital in the during -12 (Rs. lakhs) Current assets Current liabilities Net working capital (86.92) (69.23) (96.64) (63.48) (62.25) (64.17) 48

8 A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE (71.67) (75.52) (69.56) (75.32) (87.) (68.85) (53.28) (124.24) (14.28) (60.51) (1.85) (32.85) (73.93) (149.20) (32.56) (82.77) (151.27) (45.12) (117.03) (298.36) (17.37) Note: Figures in parentheses indicate the trend percentage Source: Compiled from the Annual Reports of the Prudential Sugar Corporation Ltd.,Pichatur. the trend values were less than the base year till and more than the base year in the remaining period. The declining trend in the indices of current assets and increase in the indices of current liabilities have been reflected in the indices of net working capital. The trend in the net working capital fluctuated between per cent and per cent. 5. CONCLUSION: It may be concluded that, there is an increase in gross as well as net working capitals in the. The growth is significant in both the mills. The net working capital in the gross working capital was less than 50 per cent during the period except and. The net working capital has declined in the. A contrary situation exists in gross working capital. The may be favourably compared with that of the. This is so because the net working capital in subsequent years over base year has increased in the former while a contrary trend exists in the latter. The proportion of net working capital in the is more when compared to that of the. In the, out of the gross working capital, inventory ranks first followed by debtors, cash and others. In both the factories, inventory occupied the dominant position and its thereby, reduces the liquidity and lowers the profitability. There is a positive trend in the in current assets, current liabilities and net working capital during the period leaving and. Between the and the, the trend in net working capital is positive in the former while negative in the latter. It means the net working capital has declined in subsequent years over the base year in the. A contrary situation emerges in the. REFERENCES Anantakrishnan, E.P; Working Capital Finance Provided by Banks to Industrial Units, The Banker, Vol.23, No.4, June, 1986, pp Baker, J.C and Mallott, D,W; Introduction to Corporate Finance, McGrwaw Hill Book Company, New York,1936; Filed, K; Corporation Finance, The Ronald Press Co., New York,1938, p.173; Mead, E.S; Corporation Finance, Appleton-Century Co., New York,1933. Chawla, S.K; Working Capital Management A Practical Approach, The Management Accountant, 49

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