CHAPTER-I

INTRODUCTION

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1.1 INTRODUCTION

Finance is one of the important and indispensable resources and without financial support no
business activity can be pursued. It is guide for regulating investment divisions and expenditure.
Financial management studies about the process of procuring and optimum utilization of
financial resources with a view to maximize the value of the firm there by the value of the
owners i.e., equity shareholder. Finance is life blood of any business and holds the key to all
business as well as human activities. The government also treats as a sign and healthy indicator
to control and measure its steps. Finance plays a role in every economic situation where there is a
present or future payment of money.

Financial management is broadly concerned with the acquisition and use of funds by a business
firm. The scope of financial management can be defined to terms of following questions.

How large should be the firm and how fast should it grow?

What should be composition of firms assets?

What should be the composition of firms financing?

Working capital to a company is like the blood to a body. It is the most vital ingredient of
a business. Working capital is essential to maintain the smooth running of a business. No
business can run without an adequate amount of working capital. A company invests its
funds for long term purpose and for short term operations. That portion of companys
capital invested in short - term or a current asset to carry out its day- to - day operations
smoothly is called the working capital.

Working capital refers to that part of firms capital which is required for
financing short - term or current assets such as cash, marketable securities, debtors and
inventories. In other words, working capital is the amount of funds necessary to cover the
cost of operating the enterprise. The efficient working capital management is necessary to
maintain a balance of liquidity and profitability.

The management of current assets is similar to that of fixed assets in the sense
that in both cases a firm analyses their effects on its return and risk. The management of

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fixed and current assets, however, differs in three important ways. First, in managing fixed
assets, time is a very important factor, consequently, discounting and compounding
techniques play a significant role in capital budgeting and a minor one in the management
of current assets, second, the holding of current assets, especially cash, strengths the firms
liquidity position but also reduces the overall profitability.

The two main aspects of working capital management are ratio analysis and management
of individual components of working capital. A few key performance of a working capital
management system are the working capital ratio, inventory turnover and the collection
ratio. Ratio analysis will lead management to identify areas of focus such as inventory
management, cash management, accounts receivable and payable management.

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NATURE OF WORKING CAPITAL

Working capital management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities and inter relationship that exists between them. The term
current refers to those assets which in the ordinary course of business can be, or will be
converted into cash,within one year without major current assets are cash, marketable securities,
account receivables and inventory. Current liabilities, which are intended at aheir inception, to be
paid in the ordinary course of business,within year out of the current or the earning of the
concern. The basic current liabilities are account payable, bills payables, bank overdraft and
outstanding [Link] goal of working management is to manage the firms assets and
liabilities in such a way that a satisfactory level of working capital, it is likely to become
insolvent and may even be forced into bankruptcy. The current assets should be large enough to
cover its current liabilities in order ensure aresoursiable margin of safety each of short term
sources of financing must be continuously managed to ensure that they are obtained and used in
the way. Interaction between current liabilities is, therefore the main themes of the management
of working capital.

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1.2 NEED FOR THE STUDY

working capital management is the process of identifying all aspects of the administration of
both current assets and current liabilities. the basic objective of working capital management is
to manage the firms current assets and current liabilities in such a way that the satisfactory level
of working capital is maintained.

The finance manager has to make use of both long time and short time sources of funds in a way
that the overall cost of working capital is the lowest and the funds are available on time and for
the period they are really needed. Working capital management indicates that the problems that
arise in attempting to manage the working capital current assets the current liabilities and
interrelationships that exists between them.

The study is conducted to fulfill the needs and management of funds particularly working capital
decides not only liquidity and solvency but also operating efficiency of the organization this
study helps to study the working capital needs and strengths of the organization in meeting and
managing working capital management both theoretically and practically. This study also helps
to develop the communication skill by preparing the project report.

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1.3 OBJECTIVES OF THE STUDY

The study for the report preparation is based on the following objectives:

To study growth and development of Vamshadara Paper Mills Ltd.

To know Working Capital practices of the firm.
To analyze the overall liquidity position of Vamshadhara paper Mills Ltd.
To prepare the funds flow statement with the help of statements of changes.
To identify the problem areas of Organization and basing on which necessary suggestion
can be rendered.

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1.4 METHODOLOGY

Information presented in the report is gathered from two sources, they are

Primary Sources
Secondary Sources

Primary Sources

Recent and present information submitted in the report is gathered from concerned
authorities of the Vamshadara Paper Mills Ltd taking personnel interviews and by circulating the
questioners among the various customers of Ltd.

Secondary Sources

Established data, which was information in the report, is taken from the text books
of Working Capital from various books, magazines of industries and alsofrom previous reports
and of Working Capital.

Period of Study

Period of study involves minimum of 5years of operations relation to organization as

well as banks.

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1.5 LIMITATIONS

The following limitations have encountered while doing the project.

The present study is mainly focused on the working capital management only
Some aspects of financial information is held due to confidentiality of the company
Key personnels were not available because of their hectic workload.
The present study covers only for a period of 5 years 2011 2016.
45 days which is given for project is not sufficient to go for in depth study.

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1.6 CHAPTERIZATION

The project entitled Working capital management in Vamshadhara paper mill pvt ltd in
madapam has been divided in to 6 chapters. The first chapter i.e. Introduction has been divided
in to 6 sub-chapters i.e.

[Link],
1.2 Need for the study,
1.3 Objectives of the study,
1.4 Methodology, and
1.5 Limitations.
The second chapter deals with Working capital management related with the topic.

The third chapter deals with the Industry Profile where the emphasis has laid on
Industry Scenario,
Government Policy,
Major players etc.
Company Profile the emphasis has laid on
Vision and Mission,
Future Plans and Functional Profile etc.

The fourth chapter deals with the Theoretical Framework which laid emphasis on the
theoretical aspects of employee welfare measures.

The fifth chapter deals with Data analysis and Interpretation.

The sixth chapter deals with Summary, Findings and Suggestions
followed with Bibliography and Annexure.

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 CHAPTER II

REVIEW OF LITERATURE

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REVIEW OF LITERATURE

Working capital management is the key area of financial management and plays an important
role in any industry. A number of researchers have conducted research on the subject and its
various components. This Chapter is an overview of the research that has been carried out on the
subject. Some of the most relevant articles have been reviewed here as a part of my research
work .As the title of the thesis broadly deals with working capital management of the selected
pharmaceutical units of Gujarat, the need arises to carry out literature review under two major
headings:
2.1 Working Capital Management
2.2 Components of Working Capital
2.1 Working Capital Management

It deals with all the aspects of working capital of which in depth study has been
carried out as discussed below.

[Link] V. V. (1972) widely touches upon a method of appraising working capital

finance applications of large manufacturing concerns. It states that similar methods need to be
devised for other sectors such as agriculture, trade etc. The author of the view that banks while
providing short-term finance, concentrate their attention on adequacy of security and repayment
capacity. On being satisfied with these two criteria they do not generally carry out any detail
appraisal of the working of the concerns.

[Link] Keith V. (1973) believes that Research which concerns shorter range or working capital
decision making would appear to have been less productive .The inability of financial managers
to plan and control properly the current assets and current liabilities of their respective firms has
been the probable cause of business failure in recent years. Current assets collectively represent
the single largest investment for many firms, while current liabilities account for a major part of
total financing in many instances .This paper covers eight distinct approaches to working capital
management. The first three-aggregate guidelines, constraints set and cost balancing are partial
models; two other approaches-probability models and portfolio theory, emphasize future

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uncertainty and inter depencies while the remaining three approaches -mathematical
programming, multiple goals and financial simulation have a
wider systematic focus.

[Link] S. K. (1974) tries to distinguish cash working capital v/s balance sheet working
capital. The analysis is based on the following dimensions:

a) Working capital in common parlance

b) Operating cycle concept

[Link] Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is exercise
primarily through credit controls. The Tandon Study Group has provided a comprehensive
operational framework for the same. In operational terms, efficient working capital consists of
determining the optimum level of working capital, financing it imaginatively and exercising
control over It .He concludes that at the corporate level investment in working capital is as
important as investment in fixed assets. And especially for a company which is not growing,
survival will be possible only so long as it can match increase in operational cost with improved
operational efficiency, one of the most important aspects of which is management of working
capital.

[Link] V. S. (1985) has based his writing on the RBIs studies on finances of large public
limited companies. This review of working capital finance refers to two points of time i.e., the
accounting years ending in 1979 and 1983 and is based on the data as given in the Reserve Bank
of India on studies of these companies for the respective dates .He observes that the Indian
industry has by and large failed to change its pattern of working capital financing in keeping with
the norms suggested by the Chore Committee. While the position of working capital
management showed some investment between 1975-79 and 1979-83, industries have not
succeeded in widening the base of long-term funds to the desired extent .The author concludes
with the observation that despite giving sufficient time to the industries to readjust the capital
structure so as to shift from the first method to the second method, progress achieved towards
this end fell short of what was desired under the second method of working capital finance.
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[Link] Hrishikes (1987) tries to develop a comprehensive theory and
tool of working capital management from the systems point of view. According to this study,
capital is often used to refer to capital goods consisting of a great variety of things, namely,
machines of various kinds, plants, houses, tools, raw materials and goods-in-process. A finance
manager of a firm looks for these things on the assets side of the balance sheet. For capital he
turns his attention to the other side of the balance sheet and never commits a mistake. His
purpose is to balance the two sides in such a way that net worth of thefirm increases without
increasing the riskiness of the business. This balancing is financing, i.e., financing the assets of
the firm by generating streams of liabilities continuously to match with the dynamism of the
former .The study is an improvement of the concept of Park and Gladson who were not able to
capture the entire techno-financial operating structure of a firm.

[Link] K.V. and Rao Chinta (1991) observe the strong and weak points of conventional
techniques of working capital analysis. The result has been obviously mixed while some of the
conventional techniques which could comprehend the working capital behavior well; others
failed in doing the job properly. The authors have attempted to evaluate the efficiency of
working capital management with the help of conventional techniques i.e., ratio analysis.
The article concludes prodding future scholars to search for a comprehensive and decisive
yardstick in evaluating the working capital efficiency.

[Link] Alan P. and Heath field David F. (1991) opine that working capital is necessary
input to the production process and yet is ignored in most economic models of production. The
implications of modelling the time dimension of production, and hence, the working capital
requirements of firms are explored ,with the particular stress placed on the competitive
advantage gained by firms that retained flexibility in the time structure of their production .In
this article they have attempted to explore only this most basic role of time in the production
process and so focus is on the implications of explicitly recognizing the need for working capital.

[Link] M. (1991) studies the working capital management practices of Public Sector Jute
Enterprises in Bangladesh which have been found to be seriously affected. This has been
attributed to several factors like low demand for jute goods and serious competition in the
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international market, insufficient inventory management policy, poor collection policy and
inefficient cash policy. The author has formulated a long term flexible and operational working
capital management model. In conclusion he has suggested the model which would
certainly help improve the working capital management practices of the jute industry in
particular and other public enterprises as well in Bangladesh.

[Link] Steven M. and Petersen Bruce C. (1993) throws light on new tests for finance
constraints on investment by emphasising the often neglected role of working capital as both a
use and a source of funds. The authors believe that working capitalis also a source of liquidity
that should be used to smooth fixed investment relative to cash-flow shocks if firms facefinance
constraints. They have found that working capital investment is excessively sensitive to cash-
flow fluctuations. Besides, when working capital investment is included in afixed- investment
regression as a use or source of funds, it has a negative coefficient. They conclude that
controlling for the smoothing role of working capital results in a much larger estimate of the
long-run impact of finance constraints than reported in other studies.

[Link] Saiyed Zabid and Akon Md. Habibur Rahman (1997) emphasise the basic
objective of working capital management i.e., to arrange the needed working capital funds
at the right time, at right cost and from right source with a view to achieving a trade-off between
liquidity and profitability .The analysis reveals that BTMC had followed an aggressive working
capital financing policy taking the risk of liquidity. There was uninterrupted increasing trend in
negative net working capital throughout the period of the study which suggested that BTMC had
exploited the entire short-term sources available to it without considering the actual needs.

[Link] Habib (1998) points out that when the interest rate is included; money loses its
predictive power on output. The study explicates this finding by using arational expectations
model where production decisions of firm required debt finance working capital. Working
capital is an important factor and its cost, the rate of interest, affects the supply of goods by
firms. Monetary policy shocks, thus, affect the interest rate and the supply side, and as a result
price and output produced by firms. The model indicates that this can cause the predictive power
of monetary shocks on output to diminish when the interest rate is used in empirical analysis.

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The model also alludes to the effects of monetary policy on the price level through the supply
side (cost push) factors.

[Link]. Mallick Amit and Sur Debasish (1998) attempt to make an empirical study of AFT
Industries Ltd, a tea producing company in Assam for assessing the impact of working capital on
its profitability during the period 1986-87 to 1995-96. The author has explored the co-relation
between ROI and several ratio srelating to working capital management .On the whole, this study
of the co-relation between the selected ratios in the area of working capital management and
profitability of the company revealed both negative and positive effects.

2.2 Components of Working Capital

It deals with all the major areas of working capital management, i.e. management of cash and
bank, management of receivables and management of inventory which have been discussed
below:
Cash and Bank Management

[Link] M. N. A. and Keyvani S. M A. (1995) examine the efficiency and effectiveness of

liquidity management in Indian Petrochemicals Corporation Ltd. (IPCL). The study has been
conducted with the aid of an analysis of both the absolute amount of net working capital and the
liquidity ratios for a period from 1983-84 to 1993-94. The liquidity position of the unit under the
study has also been compared with that of the chemicals and petrochemicals industry in India.
The study concluded that IPCL had increasingly followed a tight control
over the working capital. It was also observed that liquidity ratios in IPCL fell below their
standard norms and also their industry averages. Further, IPCLs liquidity was marked with
frequent fluctuations, while the same in the case of the industry remained constant throughout
the period of the study.

[Link] Tanmoy(1995) describes various thoughts on management of liquidity. The major

objective indicators of the problem of liquidity always remain in the background, obtainable only
through inquiry from various internal and external

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[Link] author concludes with the observation that while revisiting along the foregoing
winding path of liquidity, it can be reminded, as a passing remark, that managing of liquidity,
more specifically of illiquidity, is a labyrinthine process and, therefore, deserves a contingency
approach. The underlying idea is that there cannot be one best way to anything. Everything is
contingent upon the situational factors, internal (controllable) and external (non-controllable).

[Link] Ekkki K. and Laitinen Teija (1998) aim to evaluate the information contained in
inventory cash management models to predict failure. The management model was presented
both in a static and dynamic [Link] study concludes with the observations that although the
static cash management model provides important tinformation for failure prediction in the first
year prior to bankruptcy, this information is not incremental over traditional financial
variables. The dynamic model clearly outperformed the static model in failure prediction. The
estimate for the scale elasticity of cash in the dynamic model provided information which had
incremental value over the traditional financial variables. This information also remarkably
increased the classification accuracy based on traditional financial variables in the first year
before bankruptcy.

[Link] R. L. (1999) focuses on current assets financing policies. He further states that a
proper evaluation of the assets -liquidity and financial structure liquidity is quiet essence for
sound working [Link] author firmly believes that the considerations of working capital
investment and financing are very crucial and should be given due significance by
themanagement for framing the overall working capital policy.

[Link] Jay F. and Deli Daniel N., (2002) closely examine the influence of NYSE
specialist firm organizational form on the nature of liquidity provision. A comparison is made
between closely held firms whose specialists provide liquidity with their own capital andwidely
held firms whose specialists provide liquidity with diffusely owned capital. The authors further
argue that specialists using their own capital have a greater incentive and ability to reduce
adverse selection cost, but face a greater cost of capital.

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[Link] Santimoy (2005) analyses the impact of liquidity on profitability considering the case of
Tata Iron and Steel Company Ltd liquidity and profitability are two important dimensions in
determining the soundness of an enterprise. The paper has covered the following objectives:

[Link] examine the impact of liquidity on profitability between ROI and each of the selected ratios

[Link] assess the joint effect of the above ratios upon the profitability .The study of the impact of
liquidity ratios on profitability showed both positive and negative association. The hypothesis
that there is an adverse effect of liquidity on profitability is true in case of TISCO Ltd. Now
regarding profitability of the company under the study, though there is no standard norm of
profitability which depends upon the management policy of the company, still it appears to be
too little.

[Link] Amalendu (2007) analyses the working capital management of public sector iron and
steel enterprises. The level of working capital is found to be lower. Liquidity position was poor
and the management of inventory and accounts receivable was found to be inefficient. It has
been suggested that steps should be taken for the improvement of the same.

[Link] P. K. (2008) has shown that the overall liquidity position of Ranbaxy Laboratories Ltd
was satisfactory. Although the behavior pattern of the different indices indicate the sound
liquidity management of the company, the author offers suggestions to improve certain factors
like reduction in current assets through maintaining its optimum level, prompt recovery of debts
through the preparation of periodical reports of the overdue, maintaining a definite
proportion among the various components of working capital on the basis of past experience and
strengthening the cash position to reducing the level of investment in inventory and collecting
what is outstanding properly.

[Link] Sudipta (2008) makes an attempt to analyze the liquidity management of TISCO Ltd.,
one of the leading Iron and Steel manufacturing companies in India for the period from 1996-97
to 2000-2001. Basically this paper examines the following main objectives:

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 CHAPTER III

VAMSHADHARA PAPER MILL LTD

-AN OVERVIEW

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3.1 INDUSTRY PROFILE

3.1.1 INTRODUCTION TO PAPER INDUSTRY:

It is fact that paper is inevitable for the development of human race, and the economy of country.
Hence the paper industry of any country plays vital role. In this chapter how the present material
form of paper has come in to existence, how they worked paper industry is, the role of Indian
paper industry and that of Tamilnadu are explained. The origin of paper goes to the early
Egyptian civilization. The Egyptians used the stalks of the papyrus plant to manufacture a
material resembling paper. Several changes have been made and many new materials have been
used in the paper making process, but base of most papers is still fiber form plant.

HISTORICAL DEVELOPMENT OFPAPER INDUSTRY IN THE WORLD

Paper making can be traced to about 105 AD, when TSai Lun, an official in the imperial court
of China created a sheet of paper using mulberry and other bast fibres along with fishnets,old
rags and hemp

[Link] its slow travel westward, the art of papermaking reached Samarkand, in central asia, in
751 AD and in 793 AD the first paper was made in Baghdad during the time of Harunat-Rashid,
with the golden age of 10thcentury, Arabians substituted linen fibres and bamboo to create finer
sheet of paper. By 12thcentury, paper making reached Europe. Johannes Gutenberg invented
printing machine in 1448 which led to rapid increase in demand of paper. The first successful
paper machine was built by JLN Robert in 1798. Thereafter, papermaking underwent
revolutionary changes, when several major pulping processes were gradually developed, which
relieved paper industry of its crucial dependence upon cotton and linen rags. The origin and
development of paper industry is segregated in five stages and presented.

PAPER INDUSTRY DEVELOPMENTAL PHASES

Phase Period covered Development Process First 1800-1860

Mechanization rage preparation, use of filler, pulp beating and paper machine Second1840-
1880

Industrial scale rage substitute (ground wood/chemical pulp)

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Appropriate pulp mills were developed Third 1860-1950

Enlargement of web width - 85 to 770cm

Increase in production speed - 5 m pm to 500mpm

Introduction of electric drive

Machines to produce particular type of paper Fourth1950-1980

Further increase in web width and working speed, use of new materials (TMP, dinked paper,
new filler, chemicals and dyes), new sheet forming (twin wire formers) etc. Fifth 1980 onwards

Leads into future

Evolution of new sheet forming principles and chemical pulp processes

VARIOUS PAPER PRODUCTS:

TYPES OF PAPERS PRODUCED IN PAPER INDUSTRY

There are different types and grades of paper for different uses, which are often reflected in their
names. Coated text and cover are used for the majority of four-color printing. Uncoated text and
cover are also used regularly. Bond, book, offset, label, index, and news-print are some of the
other grades used commercially. Paper choice can make a major difference in the appearance of
the finished job. A dull or plain design can be perked up with an exciting color or texture.

a)Coated Papers

It is best suited for higher-quality jobs. Coated papers may be gloss-coated, dull-coated,
machine-coated, and cast-coated on one or both sides. Printing ink does not soak into a coated
sheet as much as it does with an uncoated paper. So, coated papers can make halftones and color
images look richer. Coated papers are associated with corporate capability brochures and annual
reports. Since coated papers come in several grades and prices, user should not have to shy away
from using [Link], more and more coated papers are recycled, which also lowers their
costs.

b)Uncoated Papers

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Uncoated papers are also known as text. These papers can be excellent sheets for printing. Some
uncoated papers are so smooth that it's hard to tell that they're not coated. Uncoated papers are
manufactured in many textures and colors. Uncoated papers are used for halftones, when the
designer is trying to achieve a certain effect or look.

c)Bond

It is often used for stationery. It takes ink wellfrom a laser printer or a pen. Part of this
absorbency comes from the paper's rag content, which is the percentage of cotton fiber in a sheet
of bond. Twenty five per cent or 50 percent is the usual amount added.

d)Note Book Paper It is used, for books and textbooks. These papers come in antique or smooth
finishes. They also come in many weight so that a book can be bulked up or down.

e)Offset Papers It is similar to the coated and uncoated sheets. It resis ts the moisture that occurs
in offset printing.

f)Index Papers It is stiff. It takes writing ink well. Index papers are less expensive than cover
grades. Index papers are used for cards or tabs and are also used in place of the more expensive
cover stocks. They come in a smooth or vellum finish.

g)Newsprint PapersAs their name suggests, they are used for newspapers. The sheets are not as
white as other papers. Ink tends to soak into them. Being relatively inexpensive, newsprint is
ideal forthe large volumes of paper that modern newspapers need.

h)Computer PaperThis is the general term used to describe paper used in a computer. It can also
refer to paper used with a copier or for alaser printer. Although the fan-fold paper was
probably the Copier Paper, or just plain bond paper. This is because of the move from the dot-
matrix printer to the laser and inkjet printers. If so, take a look below for some valuable
information that may help you in your search.

i)Copier Paper It is standard paper used for copies. It is 20 per grams square meter, thin and
somewhat transparent. Copier Paper has many different properties that affect the quality of the
copies. White Point - Contrast is a key element between the toner and the paper. The whiter the
paper the better your copies, Texture- The smoother the paper, the better the toner transfers to it.

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Smoother paper gives sharper copies and better fills. Smooth paper, however, can sometimes be
difficult to feed.

j)Coating Coating paper needs some type of clay or dust coating to help the paper separate and
feed it. Most copier paper will have some type of indicator to show which side should be copied
on.

k)Gloss PaperIt is ideal for photographic images, posters and printing of graphic designs. Matte
Paper-is a high resolution bright white coated paper. Ideal is for everyday printing and it features
superior drying properties.

l)Picture Paper

It is water resistant. It dries spontaneously for easy handling. This inkjet paper, in the popular 4"
x 6" format, is ideal for consumer use.

m)Inkjet PaperIf the task is a printing of a document an email ormemo, plain copier paper will
work best. If color is important, then coated paper stock is preferred. Coated paper allows colors
to sharper than regular copier paper. A high level of coating allows for a high print resolution
from 600dpi -1440 dpi. There are many different types of paper available. But, only coated
papers designed specifically for inkjet printers, will give the highest quality output.

VARIOUS TYPES OF PAPER INDUSTRY

a)Wood Based industry Forest policy should be revised wish a view to raising plantation by
industry/Cooperatives of farmers/State Government.

b)Waste Paper based Industry Introduction of ecolabeling system wherein productsmade from
recycled fibre, are rated higher than the products made from virgin fibre.

c)Agro Based Industry Funds are made available for technology up-gradation for handling and
processing of agro residue fibre, in small andmedium scale industries.

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WORLD PAPER INDUSTRY

Although modern inventions and engineering have transformed an ancient craft into a highly
technical industry, the basic operations in papermaking remain the same to this day. The steps in
the process are as follow

(1) suspension of cellulose fibre is prepared by beating it in water, so that the fibres are
throughly separated and saturated with water;
(2) the paper stock is filtered on a woven screen to form a
matted sheet of fibre;
(3) the wet sheet is pressed and compacted to squeeze out a large proportion of Water
(4) the remaining water is removed by evaporation; and
(5) depending upon the use and requirements, the dry paper sheetis further compressed,coated or
impregnated.

The differences among various grades and types of paper are determined by the type of fibre or
pulp, the degree of beating, the addition of various materials to stock, formation conditions of the
sheet, including basisweight, or substance per unit are, and the physical or chemical treatment
applied to the paper after its formation. Government has completely delicensed the paper
industry with effect from 17 thJuly, 1997. The entrepreneurs are now required to file an
Industrial Entrepreneur Memorandum with the Secretariat for Industrial Assistance for setting up
a new paper mill or substantial expansion of the existing mill in permissible [Link] new
millennium is going to be the millennium of knowledge. So demand for paper would go on
increasing in times to come. In view of paper industry's strategic role for the society and also for
the overall industrial growth, it is necessary that the paper industry performs well. The Paper
industry is a priority sector for foreign collaboration and foreign equity participation up to 100
percent receives automatic approval by Reserve Bank of India. Several fiscal incentives have
also been provided to the paper industry, particularly to those mills which are based on non-
conventional raw material. Global production of paper and paper board was around 350million
tons which contributes to about 3.5 percent of worlds Industrial production and 2 percentage of
worlds trade. India was ranked15thin the World in terms of paper and boards production
capacity. The world paper industry was growing at a CAGR (Compound Annual Growth Rate)
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3.1.2 INDUSTRY SCENARIO

The Indian paper industry has been in existence for more than a decade. Today there are more
than 850 paper mills functioning all over the country. These industries manufacture various types
of paper materials required for different purposes. This industry is known to be one of the
leading industries in India as it provides employment to more than 1.5 million people.

The widespread demand for different types of paper products such as book, magazines,
newspapers, bags, plates, cups, envelopes and so forth has further escalated the growth of this
industry. But the lack of proper raw materials has affected the future of this thriving industry in
India. Large scale deforestation has led to the depletion of raw materials for the production of
paper products.

According to the type of raw materials used for production purposes, the paper industry in India
is classified into three categories which include the wood based, waste paper based and the agro
based industries. Most of the mills in India are based on raw materials which are non-
conventional such as waster paper. Today the paper industry in India is in search of
technologically advanced methods to reduce the cost of production and augment the existing
technologies to meet the international standard levels. The government of India has introduced
various rules and regulations to encourage joint ventures and investments in this field.

Current Scenario

The strong demand of paper products has pushed the Indian paper industry to a new level. It is
expanding to meet the growing demands of the people. Vast changes have taken place in the
field of printing paper, tissues, newsprint and so forth. Modern management along with latest
technological machines is used for the completion of various projects. Nowadays, foreign
investors are interested in setting up new plants for manufacturing paper to bring forth huge
revenue to the paper industry.

The paper industry is planning to widen its horizons with the help of joint ventures and new
investors.

24 | P a g e
However, the paper industry is facing many challenges due to the shortage of raw materials and
the rise in population. The demand for industrial wood, fire wood and timber is continuing to
grow due to the ever increasing population.

Challenges Faced by the Industry

Some of the other challenges faced by this industry are the location of paper units. Most of the
paper units in the country are located in remote areas. The industry is quite unattractive to the
young generation as it is located away from the city and modern facilities.

25 | P a g e
3.1.3 GOVERNMENT POLICY

The industrial policy of a country, sometimes denoted IP, is its official strategic effort to
encourage the development and growth of part or all of the manufacturing sector as well as other
sectors of the economy. The government takes measures "aimed at improving the
competitiveness and capabilities of domestic firms and promoting structural transformation." A
country's infrastructure (transportation, telecommunications and energy industry) is a major part
of the manufacturing sector that often has a key role in IP.

Industrial policies are sector-specific, unlike broader macroeconomic policies. Examples of the
latter, which are horizontal, economy-wide policies, are tightening credit and taxing capital
gains. Traditional examples of industrial policy that involves vertical, sector-specific policies,
include protecting textiles from imports and subsidizing export industries. More contemporary
industrial policies include measures such as support for linkages between firms and support for
upstream technologies Industrial policies are interventionist measures typical of mixed economy
countries.

Many types of industrial policies contain common elements with other types of interventionist
practices such as trade policy and fiscal policy. An example of a typical industrial policy is
import-substitution-industrialization (ISI), where trade barriers are temporarily imposed on some
key sectors, such as manufacturing By selectively protecting certain industries, these industries
are given time to learn (learning by doing) and upgrade. Once competitive enough, these
restrictions are lifted to expose the selected industries to the international market

26 | P a g e
History

The traditional arguments for industrial policies go back as far as the 18th century. Prominent
early arguments in favor of selective protection of industries were contained in the 1791 Report
on the Subject of Manufactures of US economist and politician Alexander Hamilton, as well as
the work of German economist Friedrich List. List's views on free trade were in explicit
contradiction to those of Adam Smith, who, in The Wealth of Nations, said that "the most
advantageous method in which a landed nation can raise up artificers, manufacturers, and
merchants of its own is to grant the most perfect freedom of trade to the artificers, manufacturers,
and merchants of all other nations." The arguments of List and others were subsequently picked
up by scholars of early development economics such as Albert Hirschman and Alexander
Gerschenkron, who called for the selective promotion of key sectors in overcoming economic
backwardness.

The relationship between government and industry in the United States has never been a simple
one, and the labels used in categorizing these relationships at different times are often misleading
if not false. In the early nineteenth century, for example, "it is quite clear that the laissez faire
label is an inappropriate one." In the US, an industrial policy was explicitly presented for the first
time by the Jimmy Carter administration in August 1980, but it was subsequently dismantled
with the election of Ronald Reagan the following year.

Historically, there is a growing consensus that most developed countries, including United
Kingdom, United States, Germany and France, have intervened actively in their domestic
economy through industrial policies.[14] These early examples are followed by interventionist ISI
strategies pursued in Latin American countries such as Brazil, Mexico or Argentina More
recently, the rapid growth of East Asian economies, or the newly industrialized countries (NICs),
has also been associated with active industrial policies that selectively promoted manufacturing
and facilitated technology transfer and industrial upgrading. The success of these state-directed
industrialization strategies are often attributed to developmental states and strong bureaucracies
such as the Japanese MITI. According to Princeton's Atul Kohli, the reason Japanese colonies
such as South Korea developed so rapidly and successfully was down to Japan exporting to its
colonies the same centralised state development that it had used to develop itself. Many of these
27 | P a g e
domestic policy choices, however, are now seen as detrimental to free trade and are hence
limited by various international agreements such as WTO, TRIM or TRIPS. Instead, the recent
focus for industrial policy has shifted towards the promotion of local business clusters and the
integration into global value chains.

During the Reagan administration, an economic development initiative called Project Socrates
was initiated to address US decline in ability to compete in world markets. Project Socrates,
directed by Michael Sekora, resulted in a computer-based competitive strategy system that was
made available to private industry and all other public and private institutions that impact
economic growth, competitiveness and trade policy. A key objective of Socrates was to utilize
advanced technology to enable US private institutions and public agencies to cooperate in the
development and execution of competitive strategies without violating existing laws or
compromising the spirit of "free market". President Reagan was satisfied that this objective was
fulfilled in the Socrates system. Through the advances of innovation age technology, Socrates
would provide "voluntary" but "systematic" coordination of resources across multiple "economic
system" institutions including industry clusters, financial service organizations, university
research facilities and government economic planning agencies. While the view of one president
and the Socrates team was that technology made it virtually possible for both to exist
simultaneously, the industrial policy vs. free market debate continued as later under the George
H. W. Bush administration, Socrates was labeled as industrial policy and de-funded.

Following the Financial Crisis of 2007-08, many countries around the world - including the
USA, the United Kingdom, Australia, Japan and most countries of the European Union - have
embraced industry policies. However contemporary industry policy generally accepts
globalisation as a given, and focuses less on the decline of older industries, and more on the
growth of emergent industries. It often involves government working collaboratively with
industry to respond to challenges and opportunities . China is one of the most prominent cases
where the central and subnational governments still intervene in nearly all economic sectors and
processes.

28 | P a g e
3.1.4 MAJOR PLAYERS

The following are the of the paper units are major player in Tamilnadu

A)Tamil Nadu Newsprint and Papers Ltd.

B)Seshasayee Paper and Boards Ltd.,

C)Sun Paper Mill Ltd.

D)Subburaj Papers Ltd.

The particulars of operational efficiency and other details of such units are given in Annexure
part of this report.

ROLE OF PAPER INDUSTRY IN ECONOMIC DEVELOPMENT

Paper industry is the second largest sector providing employment to 0.3 million directly and
about 1 million people indirectly. Industry turnover is 120 billion rupees and contributes about
2.3 percentage of overall Indian industrys output. Generally, the composition of Indian paper
industry is wood-based (35-40 percent) and non-wood based (60-65 percent). The wood based
industries are functioning under imported/indigenous hardwood/ softwood, bamboo and the non
wood based industries are classified as agro-residue based (functions under baggase and sabai
grass, Jute/rag, wheat straw) and waste paper based (imported/ indigenous waste paper,
corrugated/kraft waste paper, waste cuttings). The end products of paper industry are classified
under

(i) Cultural paper accounts for 44 percentage of total domestic demand. It consists of writing and
printing paper, office stationery, communication paper and specialty paper such as cheques and
currency papers. The demand is a function of the GDP, the population, the literacy levels, and
the standard of living.

(ii) Industrial paper accounts for 43 percentage the total demand in India. It consists of kraft
paper, pulp board and duplex board, and is used in packaging applications. Demand depends on
growth in industrial production, consumer durables, processed food, and other kind of packaging.
This segment is relatively price inelastic.

29 | P a g e
(iii) Newsprint accounts for 80 percentage of the output. It depends on the number of
newspapers, the size of the paper and the circulation. It has been placed under the OGL which
me s that newspaper companies are free to import any quantity of newsprint. Large size mills
(above50,000tpa) are reasonably modern and efficient but design capacities of world paper
machines are about 20-30 times the capacity of the best Indian paper machines. Smaller size
machines result in higher energy consumption besides quality constraints. Quality benchmarking
with international standards improved technology are being used for cleaner, brighter and
stronger paper. High speed machines of more than 1000 mpm are not many in India. Paper
industry represents an important segment of the Indian economy. The Industry has witnessed. A
steady increase in installedcapacity and production over the decades. The paperindustry in India
is primarily tree-free as 62 per cent of the market iscatered by paper products from non-
conventional raw material like agro-waste,agro-resides and recycled papers. The demand is
estimated to be around 84.80 lakh tons in 2012-2014 on the basis of growth rate of 6.5 per cent
for the period 2007-08 to 2012-2014. At present, there are about 400 mills in the country with an
annual installed capacity of about 51 lakh tons. They account for more than 5 per cent of the total
installed capacity and production. At present, the capacity utilization in the paper industry is
about 67 percent, as 125 paper mills particularly small mills are sick and are lying closed.
Several fiscal incentives have also been provided to the paper industry, particularly to those mills
which are based on non-conventional rawmaterial. Import was 2.20 lakhs tons in 2009-10 and
3.05 lakhs tons in 2010-11. It is estimated to be almost 4.20 lakh tons in 2011-12. About 70,000
tons of paper is exported per annum mainly to the neigh bouring countries. India is the 10th
largest industrialized sector in the world and it accounts for Asias 4th largest economy. The GDP
growth rate is around 7 percent, one of the highest in the world and the GNP per capita is
Rs.21,9576 or GNP 22,834 billion rupees. The economy size contributed to US $ 600 billion,
growing @ 6 percent for the last five years. The value of exports (2007-08) is Rs.28,3605 crore
and the values of Imports (2007-08) is Rs 34,6475. 99

30 | P a g e
3.2 COMPANY PROFILE

3.2.1 GENESIS AND GROWTH

Paper has played a vital role in the development of mankind, since time is
immemorial, as a means of communication, as the most versatile material for packaging of
goods, as a medium of preserving knowledge for progeny.

Paper is defined as A mat of cellulose fibers arranged in crises-cross fashion with

hydrogen bond and other forces.

Paper is derived from the word papyrus. Today, paper includes a wide range of
products with very different applications: communication, cultural, educational, artistic, hygienic
and sanitary as well as storage and transport of all kinds of goods. Its almost impossible to
imagine a life without paper.

There is a degree of consensus that the art of making paper was first discovered in China
and its origin in that country is traced back to 2nd century. In about A.D 105 Tsai-Lun, an
official attached to Imperial Court of China; created a sheet of paper using Mulberry and other
baste fibers along with fishnets, old rags and hemp waste.

EVOLUTION OF PAPER INDUSTRY

A courier named Tsai-Lun, from Lei-Yang in China, was the inventor of paper (not
papyrus) circa 105 A.D. However, the world paper is derived from the name of the reedy plant
papyrus, which grows abundantly along the Nile River in Egypt. Paper is made of pulped
cellulose fibers like wood, cotton or flax. Papyrus is made from the sliced sections of the flower
stem of the papyrus plant, pressed together and dried.

31 | P a g e
EVOLUTION OF PAPER

3000 BC

Of all the writing and drawing materials that people have employed down the ages, paper
is the most widely used around the world. Its name derives from the material used by the ancient
Egyptians, Greeks and Romans: papyrus. Papyrus, however, is one of those predecessors of
paper produced by beating or pressing. They are known by the generic term tapa and are
mostly made from the inner bark of paper mulberry, fig and Daphne.

Tapa is found extensively in nearly all cultures along the equator belt. The oldest
papermaking technique - and one still practiced at a few locations in the Himalayas and in South-
East Asia -leaves no doubt as to the origin of the tapa technique. Cooked baste is flattened with a
wooden to form a thin fibrous layer and then dissolved in a vat with water to make a pulp. A
screen consisting of a wooden frame with a fabric bottom is laid in a puddle or big basin and
floats with the fabric under the surface of the water.

The papermaker then pours the quantity of pulp needed to make one sheet into this
floating mould and spreads it evenly, by hand across the surface. The screen is carefully lifted
out of water and allowed to drain off. This technique has two basic drawbacks. Firstly, a
separate screen is needed for each new sheet, and is only available for use again after the last
sheet has dried. Moreover, an increase in production can soon lead to shortage of raw materials,
since fresh baste is not always available everywhere in the required quantity.

As recent findings of the oldest paper in Chinese tombs show, paper has been produced in
China ever since the last centuries before our time reckoning. The fibers normally used for
textiles, i.e., flax and hemp, also served as substitutes for baste. In late times, the wire was made
of fine bamboo sticks, which freed the papermaker of then need to let the paper dry naturally on
the wire, sine the poured or ladled sheet could be couched off.

32 | P a g e
1980 onwards

The fifth stage (from 1980 on) leads into the future. The evolution of new sheet-forming
principles (with fluid boundaries between paper and now-woven fabrics) and chemical pulp
processes, but also the situation on the global market (increased demand, above all in the Third
World, trends in chemical pulp pries, location problems) are again raising capital intensity and
encouraging the formation of big company groups with international operations.
Simultaneously, however, there are definite opportunities for smaller local firms satisfying
specific needs.

19th& 20th century

The history of the paper industry in the 19th and 20th centuries can be broken down into
five partly overlapping periods, each marked by definite trends.

In the first stage (from approximately 1800 to 1860), all work sequences previously
performed by hand were mechanized. This was true of rag preparation, the use of fillers, pulp
beating, the paper machine with its various parts, and the machines required for finishing the
paper (head box, wire section, press section, dryer section, units for reeling, smoothing and
packaging).

In the second stage (from approximately 1840 to 1880) efforts were made to obtain rag
substitutes on an industrial sale (Ground wood pulp and Chemical pulp) and the development of
appropriate industrial plants (Ground wood and Chemicals pulp mills).

The third stage (from approximately 1860 to 1950) was marked by the enlargement or the
web width, an increase in working speeds, the introduction of electric drive, further
improvements to various machine parts, the development of machines designed specifically for
the production of particular paper and broad grades (e.g. Yankee cylinder, multi-cylinder
machines).

Web working width grew from 85 cm (1830) to 770 m (1930), while production speeds
rose from 5m/min. (1820) to over 500m/min. (1930).

33 | P a g e
 The fourth stage (1950 to 1980), which was still dependent on the old methods as far as
the mechanics were concerned - brought unprecedented changes in papermaking. Alongside
further increases in web width and working speeds, the changes included the use of new
materials (thermo mechanical pulp, de-inked recovered paper, new fillers, process chemicals and
dyes), new sheet forming options (e.g. by twin wire formers), neutral sizing, greater stress on
ecology (closed loops) and - most of all automation.

The operational impact of these changes is there for all to see: specialization in certain
paper types; development of new paper grades (LWC-light weight coated paper); corporate
mergers, company groups with their own raw material supply and trading organizations; shut
downs of unprofitable operations.

INDIAN PAPER INDUSTRY

Indians were using Copper plates, Iron plates and for the purpose of writing, before paper
came into existence. Papermaking entered our country through Arabs as an art. This art was
restricted to Muslim families as a secret, at that time, which were mainly based and lived in
Kashmir and Punjab named Kagazius.

Nothing can be said about the First Paper Mill in India. But it was said that, William
Warvaty, in 1812 started the First Paper Mill at Sarampur, with the help of Kagazius. In 1832
four machines were installed and introduced in India. Royal Black Paper Mills started at Hubli
in 1870s and was merged in Telegram Paper Mills. Later the remaining paper mills are
established one by one.

The per capita paper consumption in India is only 3.62; it is inclusive of Newsprint Paper
consumption. According to this it is clear that, we are much backward in paper consumption that
compared to the some developed countries.

Paper Industry supplies various types of paper, paper boards and specially papers to a
number of end users, which includes Government, Education, Companies, Packing, Printing,
News Paper and Magazines etc. Use of paper and paper product is intimately linked with the
Cultural and Economic Development of a country.

34 | P a g e
 The demand for paper depends on a number of intangible factors such as Population, National
Income; Growth of Literacy spread Education, Standard of Living and Industrial Production.

GLOBAL PAPER INDUSTRY

Industry Structure

The Global industry is configured for volume driven operation with distinct pulp
manufacturers and paper makers. Europe and Canada dominate the pulping industry while North
America Western Europe and parts of Asia dominate paper manufacturing.

The global paper consumption in FY 2008 was approximately 825mn tones. Writing and
printing segment for 32 percent of the global paper consumption while packaging, tissue and
sanitary and newsprint accounted for 50 percent, 6 percent and 12 percent respectively.

Demand- Supply Scenario

Geographically, Asia accounts for around 32 percent for 31 percent and 28 percent respectively.
Asian countries have experienced higher growth in demand due to higher economic growth,
ranging from 7 percent to 10 percent per annum. As of 2010, the aggregate global capacity of
paper and paper boards stood at 865 MTPAresulting in excess supply to the extent of 40 mn
TPA. However, due to geographical capacity inequalities global prices have remained steady.
Global paper & board demand growth in china along other Asian economies.

The growth in world paper demand and consumption pattern for the last 5 years in
indicated in the chart. As per global industry estimates, paper and paper boards demand is
expected to grow at a CAGR of 2 percent p.a. and is expected to touch 883MTPA by 2015.

35 | P a g e
DOMESTIC INDUSTRY

Demand scenario

Despite being the 15th largest paper manufacturer in the world, India is highly under penetrated
form the consumption perspective, which makes it a Large and latent at the same time. A major
portion of the consumption is attributable to the western and southern regions of the country,
which account for nearly 65 percent of the countrys total paper consumption. This skew in paper
consumption in India has also been in line with the literacy levels and industrialization in these
regions of the country.

Supply Scenario

Effective paper & paperboard capacity was approximately 6.2 MTPAfor FY2010. The
average utilization levels of the industry were at 82 percent resulting in production of 5.1 tpa in
fy 2010. As per the Indian paper manufacturers association, the Indian paper industry is expected
to report a 5-10 percent improvement in production and sales during the coming years. This
growing demand is not expected to be met by a corresponding rise in capacity due to the high
capital costs and environmental [Link] the domestic paper industry has low duty
protection levels, the domestic prices have been in line with international prices. This has
resulted import of paper, which is now mainly confined to waste paper pulp does impact
domestic pricing there by impacting profitability, but the paper imports constitutes less than 10
percent of the total paper & paper board supply.

Recent scenario & outlook

After a prolonged down cycle, the domestic paper industry started to firm up in the last
year. As the same time in the past 6-9 months has witnessed sharp rise in operating costs as
inputs like caustic soda and chlorine have risen about 40 percent over the past [Link] fore cast
in the capacity expansion during the same period is expected to be much lower resulting in a gap
between demand and supply within the country. In view of the above the overall industry outlook
is expected to be positive with relatively low per capital consumption, rising demand, slow
capacity additions and rise in price trends.

36 | P a g e
PAPER AND ITS ESTABLISHMENT

The word Paper is derived from the Water Plant called Papyrus that grows around
the Nile River, Egypt. The citizens of Egypt used the bark of papyrus Plant after cutting and
dry it. It was said that [Link] Chin had prepared with the bark of the mulberry tree in 105
A.D. In 751 A.D. the Arabs imported the knowledge of paper making with the help of Chinese,
later the art of paper making was spread to Europeans and Central Countries of the [Link]
was highly popularized by the Baud has especially by the BOKZA mark throughout the world.
The first paper mill in the world was started in 1336 A.D. in Germany, viewing the tremendous
aspect of paper Industry paper mills were started in 1586 in Switzerland and London. Later it
was spread to all other countries of the world in no great amount of time.

The technology used in paper making has made many modifications and was entirely
different from the technology used in the beginning. In the year 1927 Chlorine gas was used for
bleaching of the pulp. In 1979, Robert Micholas the French scientist has designed first paper
machine in the world. The paper machine used in the late 1960s was designed by LoberDidut
and Brimal Conklin. The machines used now a day are quite different and very well advanced
both in capacity to produce and the enormous speed with which they operated.

Another major development came in its way in 1862 when the soda pulping process was
first used in England. The consumption of Rosin and Alwen was started in 1900 A.D. The
industry in these days has been much development with production technology.

SIZE AND CAPACITY OF PAPER INDUSTRY

The economic size of a paper industry is determined by the availability of raw materials
and density of markets availability of power and transport facilities etc. The beginning of 1st V
plan there were only 19 paper and production was 1.34 lakh tons. At present there are 106 mills
with total annual capacity of 1394 lakh tons and production is about 11.12 lakh tones although
there has been a several spreading of mills in large dimensions.

37 | P a g e
 There are some units well organized and well equipped with a production capacity of
more than 50,000 tones and units too small with a capacity of 1,000 tons. In India the growth of
paper industry after independence is satisfactory under the guidance of 5 year plans.

Its growth is reflected by the fact that from a major 17 mills with annual capacity of 1.37
lakh tons. In 1957, the industry has been enlarged to 319 mills with annual capacity of 32.31
lakh tons at the end of VII five year plan.

The paper and paper boards production in India during 1951 was 17 units and the total
installed capacity of 1.40 lakh tons, file the production excluding news print is about 1.30 lakh
ton.

TYPES OF PAPER PRODUCT

Paper industry supplies various types of paper board, special paper to a number of uses
which include Government education, companies packaging, news paper and magazines etc.

The Indian paper industry produces a number of varieties of paper and paper boards.
These include glassine paper, art paper, carbon papers, insulation papers, draft papers, map litho
papers, quoted papers, quoted board, duplex boards, triplex boards, straw boards, paper boards,
lottery paper, and Xerox paper.

PRESENT STATUS

In 1974 Government of India introduced the paper control order to regulate the prices and
qualities of paper boards with the withdrawal of paper control order. The industry has received
some received some receipt and its hope to achieve higher profitability by producing these
blends of paper and paper board which are supported by terrible demand.

A significant term around has been achieved by a large no. of units during the past two or
three years. However, the paper industry put a lot of something conflicting signals during 1992.

The Government has taken the following step of encourage and enhance production of
paper and paper boards in the country. They are

38 | P a g e
 Paper units based on the use of minimum 75 percent of pulp derived from baggage,
agricultural, residues and other non contravention raw materials have been exempted for
industrial licensing subjected to 10 caution angles.
Manufacture of writing and printing paper and unquoted craft paper containing not less
than 75 percent by weight of pulp made for rice, wheat, straws, jute and baggage mix of
more pulps of the above mentioned materials exempted for excise duty.
Import of water paper has been freely allowed without the need import license at low rate
of customs duty (20 percent). In recent years the Government in other certain
concessions with a review to help the industries to improve its capacity utilization and
financial liability.
These include liberalized import of raw materials board sanding of different vacant of
paper and paperboards and de-licensing the manufacturing of certain varieties of paper.

39 | P a g e
3.1.5 FUTURE PROSPECTS

The challenges to be met by the paper industry include production of stronger paper and
paperboards. Cost reduction through modernization encouragement of the use of non
conventional materials for the production of paper and paperboards and striking and equilibrium
between demand and supply.

Both the Central and State Government along with the private sector should strive the
basic input for papers and paper boards and implement research and development. The above
measures should be used in order to improve the technology used and also measures must be
taken to increase the productivity of the paper industry in this country through safe methods

CAPACITYPAPER INDUSTRY STATE-WISE DISTRIBUTION OF UNITS & CAPACITY

(In Lakes & tones)

[Link]. State No. Of mills InstalledCapacity Production

1. Andhra Pradesh 18 4.106 2.173

2. Assam 4 2.208 1.084

3. Bihar 8 0.915 0.025

4. Gujarat 45 2.743 1.670

5. Haryana 17 1.496 1.110

6. Karnataka 15 1.933 1.770

7. Jammu & Kashmir 1 0.033 0.009

8. Himachal Pradesh 13 0.094 0.215
9. Kerala 3 0.393 -

10. Madhya Pradesh 15 1.813 0.991

11. Maharashtra 52 4.697 3.555

12. Nagaland 1 0.030 0.218
13. Orissa 7 2.136 1.207
14. Punjab 17 1.378 0.820

15. Rajasthan 9 0.433 0.064

16. Tamilnadu 21 2.051 1.616

17. Uttar Pradesh 58 3.120 2.092

18. West Bengal 21 2.386 0.858

19. Chandigarh 1 0.030 0.016

40 | P a g e
COMPANY PROFILE

The Vamshadhara Paper Mills pvt Ltd., was established at MADAPAM on the Bank of
river VAMSHADHARA in SRIKAKULAM District, a centrally declared backward area as an
agro based industry in the year 1980 for manufacture of KRAFT PAPER using PADDY
STRAW and GUNNY as the main raw materials with a licensed capacity; of 7500 tones per
annum with the assistance of State level Financial institutions and banks and seed capital
assistance and equity participation from IDBI and ICICI.

LOCATION ADVANTAGE

Fuels and water

Though infrastructure wise the district Srikakulam lags, inputs like unconventional fuels
such as husk, groundnut shell, cashew shell, jute waste etc., are available, in plenty, and the low
water table poses no threat of scarcity of water.

Transport

As the unit is located not only on the national high way, but also nearer to the state
border, it faces no problem for transporting the fuels. Whenever required, coal can be
transported through wagons from Orissa and the Srikakulam road station will be made use of for
unloading and transportation.

Labour

The labor force available in the district is of unskilled type. However, as they posses the
required educational background, we had drawn them into the skilled and semi-skilled pools by
imparting training. The company was successful in carrying out this task and about 99 percent
of todays labor force is from local only. Even majorities of the executives are from local area
only.

41 | P a g e
BRIEF DETAILS OF THE UNIT

Location : Madapam village, Srikakulam dist.

Constitution : Public Limited company
Date of incorporation : 2nd April 1980
Date of commencement of Business : 28th January 1983
Initial proposed cost of the project : 264.37 lakhs
Present existing cost of the project : 38.00 cores.

PROMOTERS

The Main promoters are [Link] and [Link]. The other promoters
have since left, and the equity is presently held predominantly by Sri. [Link], Sri
[Link] and relatives.

Share holding pattern

Particulars Number of shares held Face value No. of shares held

i) Promoters 708092 Rs. 70,08,920

ii) Associates 871230 Rs. 87,12,300
iii) Public 26895 Rs. 2,68,950
iv) Financial Institutions 187000 Rs. 18,70,000
v) Others 680458 Rs. 68,04,580

RAW MATERIAL

Waste paper
Imported waste paper

CHEMICALS

Alum Rosin and Caustic Soda.

42 | P a g e
SOURCES OF WATER

Underground through bore-wells

FUEL

Coal
Paddy husk
Jute waste
POWER SOURCE:
A.P. Trans Co. Ltd. D.G. Sets and T.G. Set

43 | P a g e
3.2.2 ORGANISATION STRUCTURE

It implies a formalized international structure of rotes of positions. Hence international

structure means, people working together must fill certain roles. The peoples are asked to till
should be intentionally designed to ensure that required activities are done and that activities fit
together that people can work smoothly effectively and efficiently in groups.

. Organizational set up in Vamshadara Paper Mills is a functional deparetmentation headed by

VC & CEO, who assisted by Managing Director and Director i.e. grouping activities in
accordance with the functions.

Here the basic enterprises functions are personnel, production, finance, commercial
(purchase) and marketing co-ordination among these different functional activities has been
achieved successfully so far

. Managing Director is the total in charge of the all functions of the departments in the company.
All department heads are required to report and work under him. Managing Director is directly
looking over the Marketing, Commercial and Finance department in the organization

Different Departments of VPML

In the VMPL, there are six departments. They are

Civil Department : This department function is to take up civil

. construction working the factory

Mechanical Department : To install the new machines

Electrical Department : To control over total electrical system.

Pulp Mill Department : To collect raw materials and prepare pulp.

Paper machine Department : To making paper according to the customer

requirements.

Administration Department : To control over the manpower in the factor.

44 | P a g e
ORGANIZATIONAL STRUCTURE

ORGANIZATION CHART

PERSONNEL DEPARTMENT STRUCTURE

Vamshadara Paper Mills Ltd. has personnel department it is headed by Manager (Personnel). He
is reported to General Manager. Under him [Link](Time Officer) and [Link]
Supervisor. Under the assistants for first aid; co-operative stores & time keepers, security guard.

PERSONNEL DEPARTMENT CHART

Manager HR

Deputy Security
Officer
Manager Officer

( AM ) Stores Assistant Head Security

First Aid ( AM )
Mgr Manager Officer

Security
Officer
guards

45 | P a g e
PERSONNEL DEPARTMENT CHART

CEO/ CHAIRMAN

He will be available at Chennai SENNARS GROUPS SENNARS FACTORY.

SRIKAKULAM, VAMSHADHARA PAPER MILLS PRIVATE LIMITED

HYDERABAD, HUMS PAPER MILLS LIMITED

CHENNAI, SEENAR FACTORY

MANAGING DIRECTOR

Managing Director available at VAMSAHARA PAPER MILLS PRIVATE LIMITED,

Srikakulam. He is looking activities in VPML. These activities are all marketing and production
as well as administration office.

EXECUTIVE DIRECTOR

Wereport M.D. we will follow the activities of all production as well as administration and
reporting to M.D.

[Link] Inreporting M.D. he bring after looking activities of mostly collective the
collection department under he is control these are all activities. And staff members, they will
follow the GM instructions.

[Link].

He will be report E.D. as well as M.D. under his control all administrative and production. All
department heads, executives reported to G.M. executives.

Under his control eight DGMs from different departments and HR Manager his working.
Every day he has to intimate the regular activities of the as well as production to the M.D. &
E.D. and he will be the responsible to the factory for occurrence of the problem as well as

46 | P a g e
rectification of problem. And also he will be pick the man power according to the requirement
of work and ensure that number of absenteeism.

DGM COMMERCIAL He is reported to GM works and under his control Manager

commercial working. He is the responsible for material procurement for various places as per
the requirement and concern departments. And also while procured the material.

DGM WORKS (PULP MILL)

He will report to GM works under his control there are two Manager people are working
there are AM (ELEC) and staff, MGR (PM) and his staff, he should coordinate under his
subordinates to fulfill the work in time as well as up to date for G.M. works.

DGM BOILER

He his report to GM works under his control staff are working during the duty hours who
should the subordinate the process of the boiler and there is any break downs gets if repair at the
sufficient people as well as inform to the GM works.

DGM (MACHINE)

One Manager electrical and staff working he is the responsible for the all repairs machinery
and rectification. The problems shall be rectified with the staff.

MARKETING DEPARTMENT

Sales are the major functional areas in marketing in VAMSHADARA PAPER MILLS,
LTD., Managing Director is directly with sales. He takes the assistance of Dy. General Manager
(sales) in doing so. Managing Director is the chief of the Marketing Department.

His duties include

He has to coordinate work of all departments.

He has to study the market conditions to make necessary changes.
Controlling and supervising of various sections in the Department.

47 | P a g e
 He has to increase the sales volume to the extent possible.
Collection of payments.
Procurement of orders.
Dispatch of material and planning of Transportation.
Coordinating with Excise department.

TECHNICAL DEPARTMENTS

General Manager headed three departments, namely General Security and Personnel
Department.

The Main responsibility of the General Manager is to look after the production, Maintenance
and operations of the factory.

Under the General Manager, four types of Dy. General Managers are working. Their
activities are.

Mill
Paper Machine
Maintenance
Boiler

48 | P a g e
FUNCTIONAL PROFILE

3.2.3 PRODUCTION PROCESS

The raw materials used in the process of Production paper are

Imported waste paper

Indian waste Paper and making Semi-virgin Kraft Paper varieties.

Waste paper pulping

Waste Paper, generally corrugated boxes, paper cuttings, trimmings etc., of Kraft variety
both Indian and Imported are used for waste paper pulping. The waste paper, in suitable
proportion, is fed in the pulp through salt conveyor, where it is slashed along with water. The
pulp thus generated contains a lot of plastics, pins, ropes etc., partially the plastics and pins are
removed in pulpier and the rest is sent to a chest, from where it goes to Turbo Separator through
an HD cleaner.

While, HD Cleaner removes the pins and heavy materials, plastics are removed in Turbo
Separator. The cleaned pulp is sent to thickener for removing excess water. The thickened pulp
is then processed in refiners to impart strength and then stored in a chest.

Paper machine

In Head Box, the consistency of the pulp is maintained at, as low as 0.75 to 0.8 percent to
have the better formation of the paper web. This excess water is removed in four-drainer at
various drainage elements to the extent of 80 percent i.e. 20 percent solids come out of four-
drainer. Then this wet web of the paper with 20 percent solids will pass through press part where
the wet web is subjected to high compression loads between press rolls up to 60-120 Kg/Cm to
increase the solids concentration to 40 percent

The water thus removed from wet will be absorbed by the press felts and in turn removed
by vacuum pump from press felts.

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 From press section, the wet web (paper) with 40 percent solids, will pass through Dryer
Section and get dried to 93-95 percent solids. The water in the wet will be evaporated in the
dryer part by indirect steaming i.e. steam is injected in the individual dryers, by which the
surface of the dryers gets heated up and in turn transmit the heat to wet web to remove water.

The condensate thus formed inside the dryers will be removed through condensate
removal system and sent to boiler house for re-using in the boiler. The paper after drying will be
wound at the pope reel in Tam bur Roll.

Rewinder

The paper rolls thus manufactured will be concerted to required sizes, as desired by the
customers, and then packed and stored in the paper go down. From go down, the paper is
dispatched to various parties as per the orders.

Back water

The paper machine backwater, mostly collected at four drainer is sent to SAVELL to
remove the fibers and the clarified back water is re circulated in the system to reduce the fresh
water consumption. The fibers from Save-all take back into the system for further processing.

Effluent Treatment Plant

The company is having a full-fledged effluent treatment plant, to take care of the
effluents generated from the mills.

50 | P a g e
CAPACITY AND PRODUCTION

The actual production/sales for the last two years & estimation/projection for the ensuring
year/next years.

Actual/ Production Sales

Net Sales value
Year Estimates Quantity Quantity
(Rs. In lakhs)
(MT) (MT)
2011-12 Actual 18867 18717 3098.71
2012-13 Actual 17750 17749 2992.30
2013-14 Estimates 17500 17500 6058.00
2014-15 Projections 19575 19575 9310.00

2015-2016 Kraft/News print 19800 19800 9410.00

RAW MATERIALS

The company used unconventional raw material chemicals, and packaging materials for
manufacturing the paper, un-conventional raw material includes, waste paper and imported waste
paper etc. Waste paper is the main raw material for the unit. It is available plenty in near village
of the plant site. The company has procuring paper from Vizag, Madras, Mumbai, Cuttack,
Vijayawada etc., The company is also importing waste paper from other countries.

The mill uses chemicals along with above mentioned raw materials. Chemicals like
Alum Sodium sulphate, caustic soda, Guar gum, Rosin and other Chemicals.

PACKAGING MATERIAL

It is also purchasing packaging materials like Hessian cloth, reel cores, wooden plugs,
cum tap and PP strips roles and other.

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POWER & FUEL

Electricity
Own generation (Captive power)
through diesel generator
APSEB

ELECTRICITY

It is the main source of energy for the unit. The unit is having 33/140 substation with an
installed capacity of 2000 kv. This substation has a 33 KV. This substation has a 33KV line
passing site. The maximum record demand is past around 12,200 KVA.

The substation is sufficient to meet the requirements of the unit. But initially the company
has to face lot of problem because of heavy power cut. To overcome this problem two die
generator sets of capacity 750 KVA each have been installed in the plant. They are capable of
taking care of 100 percent of power cut at the existing installed capacity and around 5 lacks was
invested for some auxiliaries, such as motors, capacitors, cables etc.,

MACHINERY

M/S several Engineering works who are one of the reputed paper mill machinery
manufactures has made the technical evaluation of the machine condition. As per their findings
the areas requiring immediate attention were the head base, press part dryers section calendaring
and pope sections of the paper machinery.

In these sections of the reconditioning required are mainly grading of surfaces, changing
of bearings and religion of rubber roller etc., which will improve performance and reduce in
mechanical [Link] a thorough study of the units performance and available facilities
made by Andhra Pradesh Industrial and Technical Consultancy Organization Limited (APITCO)
revealed certain deficiencies in the plant, and certain area where modernization are needed to
reduce variable costs to improve the performance and validity of the plant

52 | P a g e
MANUFACTURING PROCESS

The process for manufacturing Kraft Paper consists of following steps

Boiling
Clarifying
Mixing
Rolling
Drying
Rewinding

To analyze the process it is in the following way.

BOILING- In this process the water is boiled and the steam is produced for the purpose of
running the mill.

CLARIFYING- In this gunny bags and straw and waster paper are washed through the water
and clarified in routine manner.

MIXING-In this crushed paper is mixed with some chemicals big drums to bring the thickness
of paper to a particular level.

ROLLING -After mixing the paste of the above mentioned materials are rollers for purpose of
preparing swath paper.

DRYING -In this after the rolling the paper is crushed and dried with steam on rollers.

REWINDING -The purpose of rewinding is to roll paper in a sufficient manner so that it could
be loaded on trucks.

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3.2.4 FINANCE DEPARTMENT

Under Financial Department, Dy. General Manager (finance) is controlling the activities
namely, Finance, Accounts, Sales, Purchase, Stores, Salaries and Wages and Dispatches. He is
directly reporting the Managing Director of the company. He has prepared and annual accounts
of profit and loss account and Balance sheet of the company.

Further he has to look after secretarial works of conducting Board Meeting/Annual general
Meetings of the company. Attending statutory audits of the company. [Link] Manager
(Finance) is the person responsible for arranging and managing the total finance of the company,
coordinating with financial institutions/Banks etc.

COMMERCIAL DEPARTMENT

Under commercial Department, Dy. General Manager (Commercial) is the chief of the
following Officers, Senior Commercial Officer, Commercial Officer and Purchase Officer. He is
looking of procurement of raw materials, fuels, and stores and spares for uninterrupted
production of the company.

54 | P a g e
BALANCE SHEET/POSITION STAMENT OF VAMSHADARA PAPER MILLPVT LTD AS ON 31-03-2011 TO31-03-2016
[Link] PARTICULARS 31-03-2011 31-03-2012 31-03-2013 31-03-2014 31-03-2015 31-03-2016
A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT
1 SOURCE OF FUNDS
(A)share capital 18906 20622 23077 24545 26591 29564
(B) reserve and 56641 84402 65843 74821 69382 65972
surplus
75547 86465 88920 99366 95973 95536
2 LOANS OF FUNDS
A)secured loans 29302 35462 37024 31909 21154 19754
B)un secured loans 65001 61002 75854 94276 56612 49682
94303 96464 112878 126185 77766 69436
TOTAL 169850 201488 201798 227551 173739 164972
3 APPLICATION OF
FUNDS
FIXED ASSETS
A)Gross block 67919 85450 82651 93736 91334 89654
B)depreciation 43065 51065 47992 56857 52486 49587
C)capital work in 24854 34385 34658 36879 38848 3978
progress
CURRENT ASSETS
LOANS&
A)inventories 32696 32800 31452 35995 46453 48235
B)sundry debtors 79549 13311 15005 12359 52421 53859
C)cash & bank 50182 34339 45291 32231 11491 11025
balance
D)loans and bank 75107 59735 65709 61516 50588 49865
TOTAL 237534 140185 157457 284202 149462 325968
Current liability 21212 28741 30848 33542 37622 39541
&prior
NET CURRENT 216322 109337 126609 250660 111840 246886
ASSETS
Miscellaneous 2535 2768 2956 2562 2453 2215
expenditure (to the
extent not written
off of adjusted)
preliminary
expenses
Debit balance in 19626 67856 98567 61577 22504 29856
profit & loss
account
TOTAL 169850 201488 201798 227551 173739 164972

55 | P a g e
 P & L INCOME STAMENT OF VAMSHADARA PAPER MILLPVT LTD AS ON 31-03-2011 TO31-03-2016
[Link] PARTICULARS 31-03-2011 31-03-2012 31-03-2013 31-03-2014 31-03-2015 31-03-2016
A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT
1 INCOME
Sales 14024 25095 25776 27899 31519 34512
Other income 21701 81548 54782 76521 62485 59628
Increase/decrease in 31290 44857 52461 64234 56852 51982
Inventory

TOTAL 67015 151500 306258 168654 150856 146122

2 EXPENDITURE
Manufacturing 10965 20659 22025 23715 24726 26584
Expenses
Payment & benefits 22458 33676 22444 31265 56564 59874
To employee

Administrative 60836 91455 70198 82145 95142 94581

Charges
Depreciation 39404 45782 53475 58246 58246 77842
TOTAL 133663 191572 168142 195371 234678 258881
3 Profits/loss before 66648 40072 138116 26717 83822 112759
Taxation
Provision for taxies
A)current tax 66132 34339 45291 32231 11491 11025
B)differed tax 65232 59735 65709 61516 50588 49865
(assets/liability)
C)fringe benefits 55136 140185 157457 284202 149462 325968
Tax
Profit/loss after 253148 274331 282268 404666 295363 1224245
taxation
TOTAL 453826 617403 756668 768691 680897 1632248

56 | P a g e
NATURE OF ACTIVITY

Actually paper is made by the using of raw material that are

Forestry Soft wood, hard wood, Eucalyptus and some grasses
Agro based Paddy straw, Wheat and food grains and
Re-cycling of paper waste paper.

According to the M/S Vamshadhara Paper Mills Ltd. Follows the re cycling system in
this process waste paper cooking is started with pulpier in this pulpier waste paper is grind,
and remove the plastic tapes this grinded pulp put into a sand trap her sand trap.

Remove the unwashed pulp after removing off unwashed pulp the raw material put in to a
Turbo Separate in this process storage the pulp in the tank that is chest.

Cooking of waste paper pulp mixed in Blending Chest in this process mixing of both
pulps with adding or rose in the alum and dyes (with a requirement of customer order).

MISSION OF VAMSHADARA PAPER MILLS LTD.

To carry on the business of manufactures buyers, sellers, importers and exporters and
dealers in all kinds and classes of paper board, card-board and [Link] carry on the business of
manufacturing purchasing, selling or otherwise, dealing in cartons fib rite-boxes, corrugated
wrappers, corrugated papers and other packing materials products and the like.

VPML is located at village at Madapam, about 15 kms from, Srikakulam the district head
quarters, on the NH 5 connecting Madras-Howrah, Srikakulam district is classified as category
b in industrial backwardness. The nearest broad gauge railway head is Srikakulam road station
(Amadalavalasa) which is about 15 kms from the plant-site. The railhead is connecting Calcutta-
Madras and Calcutta-Hyderabad.

VPML is located at about 120 kms. From Visakhapatnam, this is one of the fast
developing industrial centers in India. Visakhapatnam has the facilities of airport and
harbor.

57 | P a g e
POLLUTION CONTROL & ABATEMENT

The company obtained consent orders under the water (Prevention and Control of
Pollution) Act for effluent treatment and disposal and air consent under air (Prevention and
Control of Pollution) Act 1981 valid up to 31 12 2011. Effluent treatment and disposal
measures are being carried out satisfactorily.

58 | P a g e
3.2.5 PERSONAL

Man power particular Total manpower of Vamsadhra Paper Mills Ltd. is 350. In this number 39
are staff and permanent workmen are 196 and casuals are 115. Manpower particulars are given
below. Since the unit is located in a remote back ward area, recruitment of trained and
experience persons was a big problem to the firm. However the company able to strength its
organizational structure by giving some training facilities to the selected employees. Through
this they increase the ability of the employees.

Manpower Particulars

Particulars Manpower
Managing director 1
Executive manager 1
General manager 1
Deputy General manager Staff 6
Manager 5
Deputy manager 4
Manager(assistant) 11
Senior draft man 1
Officer Casuals 6
Flore man 1
Workman 72
Casuals 87
Total 350

59 | P a g e
3.2.6 MARKETING

THE FOUR PS MODEL

Product- The first of the four ps of marketing is product. A product can be either a tangible
good or an intangible service that fulfills a need or want of consumers. Whether you sell custom
pallets and wood products or provide luxury accommodations, its imperative that you have a
clear grasp of exactly what your product is and what makes it unique before you can successfully
market it.

Price Once a concrete understanding of the product offering is established we can start making
some pricing decisions. Price determinations will impact profit margins, supply, demand and
marketing strategy. Similar (in concept) products and brands may need to be positioned
differently based on varying price points, while price elasticity considerations may influence our
next two Ps.

Promotion Weve got a product and a price now its time to promote it. Promotion looks at the
many ways marketing agencies disseminate relevant product information to consumers and
differentiate a particular product or service. Promotion includes elements like: advertising, public
relations, social media marketing, email marketing, search engine marketing, video marketing
and more. Each touch point must be supported by a well positioned brand to truly maximize
return on investment.

Place Often you will hear marketers saying that marketing is about putting the right product,
at the right price, at the right place, at the right time. Its critical then, to evaluate what the ideal
locations are to convert potential clients into actual clients. Today, even in situations where the
actual transaction doesnt happen on the web, the initial place potential clients are engaged and
converted is online.

60 | P a g e
The Segmentation, Targeting and Positioning model

Today, Segmentation, Targeting and Positioning (STP) is a familiar strategic approach in

Modern Marketing. It is one of the most commonly applied marketing models in practice.

How to use STP?

Through segmentation ,you can identify niches with specific needs, mature markets to find new
customers, deliver more focused and effective marketing messages.

Well known ways to segment your audience include:

1. Demographics

Breakdown by any combination: age, gender, income, education, ethnicity, marital status,
education, household (or business), size, length of residence, type of residence or even
profession/Occupation.

An example is Firefox who sell 'coolest things', aimed at younger male audience. Though, Moshi
Monsters, however, is targeted to parents with fun, safe and educational space for younger
audience.

2. Psychographics

This refers to 'personality and emotions' based on behaviour, linked to purchase choices,
including attitudes, lifestyle, hobbies, risk aversion, personality and leadership traits. magazines
read and TV. While demographics explain 'who' your buyer is, psychographics inform you 'why'
your customer buys.

There are a few different ways you can gather data to help form psychographic profiles for your
typical customers.

1. Interviews: Talk to a few people that are broadly representative of your target audience.
In-depth interviews let you gather useful qualitative data to really understand what makes
your customers tick. The problem is they can be expensive and difficult to conduct, and

61 | P a g e
 the small sample size means they may not always be representative of the people you are
trying to target.
2. Surveys: Surveys let you reach more people than interviews, but it can be harder to get as
insightful answers.
3. Customer data: You may have data on what your customers tend to purchase from you,
such as data coming from loyalty cards if an FMCG brand or from online purchase
history if you are an ecommerce business. You can use this data to generate insights into
what kind of products your customers are interested in and what is likely to make them
purchase. For example, does discounting vastly increase their propensity to purchase? In
which case they might be quite spontaneous.

3. Lifestyle

This refers to Hobbies, recreational pursuits, entertainment, vacations, and other non-work time
pursuits.

Companies such as on and off-line magazine will target those with specific hobbies i.e. Four
Four Two for football fans.

Some hobbies are large and well established, and thus relatively easy to target, such as the
football fan example. However, some businesses have found great success targeting very small
niches very effectively. A great example is the explosion in 'prepping' related businesses, which
has gone from a little heard of fringe activity to a billion dollar industry in recent years.
Apparently

4. Belief and Values

Refers to Religious, political, nationalistic and cultural beliefs and values.

The Islamic Bank of Britain offers Sharia-compliant banking which meets specific religious
requirements.

62 | P a g e
A strange but interesting example of religious demographics influencing marketing that you
might not have guessed is that Mormons are really into 'multi-level marketing'. They're far more
likely to be engaged in the practice than any other US group. Going the extra mile with
demographic research can lead to discovering new marketing opportunities and thinking outside
the box. For example, did you know 55-64-year-olds are the most likely age group to buy a new
car? But you don't tend to see them in the car ads. An opportunity waiting to be seized!

5. Life Stages

Life Stages is the Chronological benchmarking of peoples lives at different stages.

An example is Saga holidays which are only available for people aged 50+. They claim a large
enough segment to focus on this life stage.

6. Geography

Drill down by Country, region, area, metropolitan or rural location, population density or even
climate.

An example is Neiman Marcus, the upmarket department store chain in the USA now delivers to
the UK.

7. Behaviour

Refers to the nature of the purchase, brand loyalty, usage level, benefits sought, distribution
channels used, reaction to marketing factors.

In a B2B environment, the benefits sought are often about how soon can it be delivered? which
includes the last minute segment - the planning in advance segment.

An example is [Link] who offer same day, next day and international parcel
deliveries.

63 | P a g e
 8. Benefit

Benefit is the use and satisfaction gained by the consumer.

Smythson Stationary offer similar products to other stationery companies, but their clients want
the benefit of their signature packaging: tissue-lined Nile Blue boxes and tied with navy ribbon!

Market targeting

The list below refers to whats needed to evaluate the potential and commercial attractiveness of
each segment.

Criteria Size: The market must be large enough to justify segmenting. If the market is
small, it may make it smaller.
Difference: Measurable differences must exist between segments.
Money: Anticipated profits must exceed the costs of additional marketing plans and other
changes.
Accessible: Each segment must be accessible to your team and the segment must be able
to receive your marketing messages
Focus on different benefits: Different segments must need different benefits.

Product positioning

Positioning maps are the last element of the STP process. For this to work, you need two
variables to illustrate the market overview.

In the example here, Ive taken some cars available in the UK. This isnt a detailed product
position map, more of an illustration. If there were no cars in one segment it could indicate a
market opportunity.

64 | P a g e
3.2.9 SWOT ANALYSIS

Competitive strengths

Large and growing domestic paper market

Some competitive PMs in newsprint, carton board and coated wood free
Relatively low personnel and fuel costs (although personnel productivity is lower than in
many competing countries and the quality of coal varies)
Up to date research institute (CPPRI)
Know how in non wood pulping and applications
Well developed printing industry
Local market knowledge

Competitive weaknesses

Harmful to environment
Infrastructure inefficiencies, severe shortage of skilled labour
High transaction cost
Lack of awareness of global technologies, and trends in Manufacturing IT has also
contributed to this low adoption
Paper making factories are associated with pollution and causing harm to abjacent areas.

Competitive Opportunities

The increase in e-commerce industry has resulted in high demand for packaging solutions
Consolidation and expansion of business in other geographies through acquisition route
Due to scale of international paper, it would have the backing of the government for
expansion

Competitive Threats

Focus on digitalizing all mass media content which will ultimately lead to decrease in
consumption of paper and related items

65 | P a g e
 Destruction of rain forest in Amazon basin which forms the main source of raw material
for manufacturing
Considerable resource in Russia which may be affected due to global crises and US
stance against Russia
Impact of environment laws could harmful to the company
Competitors
1. Balapur paper industry
2. Jk paper industry
3. Asia pulp and paper
4. Stora enso group
5. Smurfit kappa group

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 CHAPTER -IV
WORKING CAPITAL MANAGEMENT
Theoretical Framework

67 | P a g e
THEORETICAL FRAMEWORK

Finance plays an important role in any organization. The dictionary meaning of finance is
money affairs or the art of managing or administrating the public money. Hence the name
financial management could be referred to as money management. The function of finance is not
arranging funds for the business organization but also it includes planning, forecasting of cash
flow, both receipts and payments, raising the funds, allocation of funds and financial control.

FINANCIAL FUNCTION

The functions of any business organization include finance, marketing, personal and
production. These four functions are interlinked and cumulatively. They lay greater stress on
management for its successful endeavor. Among the four Financial Function has a dominant
role. Through the ages it has been said that finance is the life blood of business it is the most
primary function that starts laying its influences from the very beginning of the entrepreneurial
ideal its presence is felt in every bit of organizational functioning.

FINANCIAL MANAGEMENT

Financial management involves the management of finance function. It is concerned with

the planning, organizing, directing and controlling the financial activities of an enterprise. It
deals mainly with raising funds in the most economic and suitable manner; using these funds as
profitably as possible; planning future operations and controlling current performance and future
developments through financial accounting, cost accounting, budgeting, statistics and other
means. It is continuously with achieving an adequate rate of return on investment, as this is
necessary for survival and the attracting of new capital. Thus, financial management means the
entire gamut of managerial efforts devoted to the management of finance- both its sources and
uses- of the enterprise.

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IMPORTANCE OF FINANCIAL MANAGEMENT

The importance of financial management cannot be over emphasized. In every

organization, where funds are involved, sound financial management is necessary. It helps in
monitoring the effective development of funds in fixed assets and in working capital. As Collins
Brooks has remarked Bad production management and bad sales management have slain in
hundreds, but faulty financial management has slain in thousands

The term Working Capital is commonly used for the capital required for day to day
working in a business concern. Such as for purchasing raw materials, of meeting day to day
expenditure on salaries, wages, rents & rates, advertisement etc.

The Working Capital refers to the firms total investment is current assets. Current assets
mean assets which can be converted into cash within an accounting year and includes cash, short
terms securities, debtors, bill receivable, stock etc.

Every business has two types of Capital i.e.,

Fixed Capital
Working Capital
Every business needs funds for two purposes they are
Establishment
To carry out day to day Expenses.

NATURE OF WORKING CAPITAL

Working Capital management is concerned with the problem that arise in attempting to
manage the current assets, the current liabilities and the inter relationship that exist between
them.

The goal of Working Capital management is to manage the firms current asset and
current liabilities in such a way that satisfactory level of Working Capital is maintained. This is
because if the firm cannot maintain a satisfactory level working capital. It is likely to become
insolvent and may even be forced into bankruptcy. The current assets should be large enough to

69 | P a g e
cover its current liability ignored to ensure reasonable margins of [Link] interaction
between current assets and current liabilities is therefore the main working capital management.

The need of efficient working capital management cannot be over emphasized in modern
business administration. We hardly find a business firm, which does not require working capital.
Indeed, firms differ in the requirements of the working capital. We know that firms aim at
maximizing the wealth of shareholders. In this endeavor to maximum shareholders wealth, the
firm should earn sufficient return from its operation. Earning a steady amount of profit requires
successful sales activity. The firm has to invest enough funds in current assets for generating
sales. Current assets are needed because sales do not convert into cash instantaneous.

Now days, working capital is gaining importance in every organization. A firms

working capital reveals its strength against its current obligations. In any firm working capital
plays a vital role. Without proper allocating of working capital and its management, in the firm
cannot achieve its goals. The organization should maintain optimum and sufficient level of
working capital reveals the liquidity position of the organization.

Static View of Working Capital

Traditionally the term working capital is defined in two ways. Gross working capital is
equal to the total of all current assets concluding loans and advances of company. Net working
capital current liabilities (including provisions) sometimes Net working capital is also referred to
as net current assets. Since both Gross working capital and net working capital are obtained from
the date contained in the either sedans denotes the position of current assets as at the end of
companies accounting year.

And important a characteristic asset is conventionally considers being their convertibility

into cash within a single accounting year unlike fixed assets which provide the production
capacity; for the manufacture of finished goods for sale. Current liabilities arise in the context of
and hence are derived from current assets conventionally current liabilities are of short term
nature and come up for payment within single accounting year. Consequent a lot of emphasis is
traditionally placed on the current assets is considered to be satisfactory by short term creditors.

70 | P a g e
 The underlying logic being that a company can face the unlikely situation of meeting all
of its current liabilities by liquidation it is even at half their recorded value without any financial
embarrassment.

Dynamic View of Working Capital

In the lighting of shortening comes of the traditionally view of working capital there is a
need for evaluating a more expensive definition that highlights the importances of working
capital a companys working capital can be viewed as the amount of the normal business
operation of a company ranging from the procurement of raw material converting the same
finished products for sale and realizing cash along with profit from the accounts receivables that
a rise from the sale of finished goods on credit.

Implication for Working Capital

Our conceptual overview of decision concerning cash and marketable determined is any
active decision sense but falls out as a residual from the decision sense but falls out as a residual
from the decision just names.

Thus working capital current assets less current liabilities has no economic meaning in
the sense of implying some type of normative behavior, According to this line of reasoning. It is
largely an accounting artifact. Working capital of firm is not managed the term describes
affecting types of current assets and current liabilities. In turn that decision should be routable in
the overall valuation of the fund.

Need For Working Capital

Every business needs some amount of working capital. The need for working capital arises
owing to the gap between production and realization of cash from sales.

The following are the need of working capital:

For the purpose of raw material

To meet the selling cost

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 To pay wages and salaries

To meet the selling

To maintain inventories of raw material

Working capital is the life blood and the nerve center of business. Just as circulation of blood
is essential in the human body for maintain the smooth amount of working capital. No business
runs successfully without an adequate amount of working capital as follows.

Solvency of Business: Adequate working capital helps maintaining solvency of the

business by providing uninterrupted flow of production.

Cash Discounts: Adequate working capital also enable a concern to obtain cash
discounts on the purchases and hence its reduce costs.

Quick and Regular Return on Investment: Easy investor wants a quick and regular
return on his investment sufficient working capital enable a concern to its investor as
there may not be much pressure to plough back profits.

Easy Loans: A concern having adequate working capital high solvency and good credit
standing can arrange loans from banks and other on easy and favorable terms.

Regular Supply of Raw Materials: Sufficient working capital ensures supply of raw
materials and continuous production.

Good Will:Sufficient working capital enables a business concern to make prompt

payment and hence in creating and maintaining good will

There is always time gap between sale of goods and receipt of cash. The time gap
technically known as the Operating Cycle, Which is the duration required to convert sales, after
the conversion of resources into inventories, i.e Raw Material later the raw material converted
into work in progress. Work in progress converted to finished goods and finished goods
converted into debtors. Ultimately debtors converted to cash.

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CONCEPT AND DEFINITIONS OF WORKING CAPITAL

Gross working capital

Net working capital

GROSS WORKING CAPITAL

Gross working capital refers to the firms investment in current assets. It means the
amounted capital invested in the total current assets of a firm. Current assets are the assets,
which can be converted into cash within an accounts year. The Gross working capital concept
focuses attention on four aspects of current assets management.

Optimum investment in current assets.

How current assets should be financed.

Give information about total current assets required for business operations.

Determining the rate of return of investment in working capital.

The Consideration of the level of investment is current assets should avoid two danger
points excessive and inadequate investment in current assets. Investment in current assets
should be just adequate not more not less, to the needs of the business firm. Excessive
investment in current assets should be avoided because it impairs the firms profitabilitys as an
idle investment earns nothing.

On the other hand, inadequate amount of working capital can threaten solvency of the firm
because of its inability to meet its current obligation. Another aspect of the Gross working capital
points to the need of arranging funds to the finance current assets.

NET WORKING CAPITAL

Net working capital refers to the difference between current assets and current liabilities,
those claims of outsiders, which are expected to mature for payment within an accounting year &
include creditors, Bills payable and outstanding expenses.

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 Net working capital can be positive or negative. A positive net working Capital will arise
when Current assets exceed current liabilities. A negative net working capital occurs when
current liabilities are in excess of current assets.

Net Working Capital= Current Assets-Current Liabilities

Net working capital refers to the excess of current assets over and above the actual
current liabilities of a firm.

APPROACHES DETERMINING FINANCING MIX

The most importance decisions, involved in the management of working capital are how
current assets will be financed. There are, broadly speaking, two sources from which funds can
be raised for current asset financing.

Short term sources (Current Liabilities), and Long term sources, such as share capital,
long term borrowings, internally generated resources like retained earnings and so on.

There are three basic approaches to determine an appropriate financing mix.

Hedging approach, also called matching approach.

Conservative approach

Tradeoff between these two

HEDGING APPROACH

According to this approach, the maturity of the sources funds should match the nature of
the assets to be financed. For the purpose of analysis, the current assets can be broadly classified
into two [Link] which are required in a certain amount for a given level of operation and
hence, do not very over time. The hedging approach suggests that long term fund should be used
to finance the fixed portion of current assets requirements.

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 The purely temporary requirements this is, the seasonal variations, over and above the
permanent financing needs should be appropriately financed with short term funds (current
liabilities).

CONSERVATIVE APPROACH

This approach suggests that the estimated requirement of total funds have should be form
long term sources, the use of short term funds should be restricted to only situations are when
there is an unexpected out flow of funds.

A TRADE OF BETWEEN THE HEADGING AND CONSERVATIVE

APPROACHES

The third approach tradeoffs between the two approaches strike a balance and provide a
financing plan that lies between two extremes. The exact tradeoff between risk and profitability
will differ from case to case depending no risk perception of the decision makers.

One possible trade off could be assumed to be equal to the average of the minimum and
maximum monthly requirement of funds may be financed rough long run sources and for any
additional financing need, short term funds may be use.

CONCEPT OF NET WORKING CAPITAL

The concept of Net Working Capital.

It indicates the Liquidity position of the firm.
It suggests the extent to which working capital needs may be financed by permanent
sources of funds.
It indicated the firms ability to meet its operating expenses and short term liabilities.
It indicates the measure of protection available to the short term creditors.
Current assets should be sufficiently in excess of current liabilities to constitute a margin
or buffer for maturing obligations within the ordinary operating cycle of a business.

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 Net Working Capital concept also covers the question of judicious mix of long term
funds for financing current assets. For every firm there is a minimum amount of net
Working Capital, which is permanent.
The goal of Working Capital Management is to manage the current assets and liabilities
in such a way that an acceptable level of NWC is maintained.

TYPES OF WORKING CAPITAL

On the basis of periodicity requirements Working Capital can be classified into two
types.
Fixed or permanent Working Capital.
Variable or Temporary Working Capital.

FIXED OR PERMANENT WORKING CAPITAL

It refers to the minimum level of Current assets, which is continuously required by the
firm to carry on its business operations. This investment is current assets are of the permanent
nature and will increase as the size of business expands.

The Permanent or Fixed Working Capital consists regular Working Capital and reverse
Working Capital.

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VARIABLE OR TEMPORARY WORKING CAPITAL

This extra working capital required for meeting the season demands and some
special exigencies. Variable working capital may be of two types.

Seasonal working capital.

Special working capital.

DETERMINATION OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirements of the
firms. The working capital requirements of a depend on a number of factor. A firm always
wants to strike a balance between.

Profitability and liquidity of the working capital funds. The various factors determining
the working capital requirements of a firm can be classified into two groups

Internal factors. External factors

INTERNAL FACTORS

These are the factors, which are well within the control of the management. Such factors
include the following.

Nature of Business

The level of working capital varies among various types of business undertakings. For
instance, concerns, engaged in rendering public utility service require little amount of working
capital but abundant amount of fixed capital. Contrary to this, trading concerns require more
working capital and less amount of fixed capital. The amount of working required by industrial
units varies according to their scale of operations.

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Size of Business

A small firm may require more amount of working capital because of small cash inflows and
also because of small cash inflows and also because of frequent defaults committed by the
customers. As against this, large firms having adequate and continuous flow of funds may
require only less working capital.

Production policy of Firm

The production policy of firm is an importance factor to decide the working capital
requirement of a firm. Seasonally, if production has a decisive impact on the requirements of
working capital of firms, the working capital requirements vary among manufacturing concerns
depending upon the level of inventory required to meet the seasonal demand and the need to
maintain a steady rate of production. Hence, firm having uniform production policy will require
more amount of working capital than that or manufacturing concern with varying production
plans.

We just noted that strategy of constant production might be maintained in order to resolve the
working capital in the demand for the firms product. A steady production policy will cause
inventories to accumulate during the off season periods and the firm will be exposed to great
inventory costs and risks. Thus, if costs and risks of maintaining a constant production schedules
in accordance with changing demand.

Those firms, whose production capacities can be utilized for manufacturing, carried products,
can have the advantage of diversified activities and solve their working capital problems. They
will manufacture the original product line during its increasing demand and when it has an off
season other production policies will differ from to firm, depending on circumstances of
individual firm.

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Firms Credit Policy

The level of working capital its also determined by the credit policy by the firm that is, the
policy concerning purchase and sales. The credit policy influences the working capital
requirements in the following two ways.

Through the credit terms granted by the firms to its customers.

Credit terms available to the firm from its creditors

Dividend Policy

There is a well-established relationship between dividends and working capital in firms

where conservative dividend policy is followed. A firm following conservative divided policy
will have more earnings that could be ploughed back into business. This gives an adequate
working capital for the firms. As against this, a firm following a liberal dividend policy may
require more working capital because such a policy reduces the profits available fort retention in
the business.

Available of Credit

The working capital requirements of a firm are also affected by credit terms granted by
its creditors. A firm will need less working capital it liberal credit terms are available.

Seasonal Variations

Strong seasonal movements create certain special problems of working capitals in

controlling the internal financial savings.

EXTERNAL FACTORS

The following are the various external factors, which determine the quantum of working
capital required by a firm.

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Business Fluctuations

Most firms, experience fluctuations in demand for their products & services. These
business variations affect the working capital requirements. When there is an upward saving in
the economy, sales will increase correspondingly, the firms investment in inventories and book
debts will also increase capacity. This act of firm will require additional funds of working
capital. On the other hand, when there is decline in economy, sales will come down and
consequently the levels of inventory and book debts will also fall. Under necessary condition,
the firms tries to reduce the short term borrowing.

Technology changes and developments

The technologies changes and developments is the area of production can have
immediate effects on the need for working capital. If the manufacturing process user of the latest
technologies advancement there may be increase in the scale of production and distribution,
which may require maintenance of huge working capital.

Infrastructure Facilities

The firm may require additional funds to maintain the levels of inventory and other
current assets, when there are good infrastructure facilities in the country like transportation and
communication.

Import Policy

The policies of the Government have a direct hearing on the quantum of working capital
required for a firm. For instance, if the import duties are heavy, the cost of goods, which are
imported, will in turn, necessitate the holding of more working capital.

Taxation Policy

The tax policy of the Government will influence the working capital decisions. The
Government follows regressive taxation policy [Link] heavy tax burdens on business
firms, they are if with little profits for distribution and retention purpose. Consequently the firm

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has to borrow additional funds to meet their increased working capital needs. When there is
liberalized tax policy, the pressure on working capital requirement is minimized.

Importance of Working Capital

Now days, working capital is gaining importance in every organization. A firms

working capital reveals its strength against its current obligations. In any firm working capital
plays a vital role. Without proper allocation of working capital and its management, the firm
cannot achieve its goal. The organization should maintain optimum and sufficient level of
working capital. The importance of working capital management can be reviewed from the
following facts.

There is positive between the sales and the current assets.

More of the capital is invest in current assets.

Fixed assets can be acquired even on lease but current assets cannot be so acquired.

Working capital is more often arranged through outside sources.

It is more important for small units, which do not have easy access to long term capital.

The importance of Working capital management is reflected in the fact that financial
Manager spends a great deal of time in managing current assets and current liabilities. Arranging
short term financing, negotiating favorable credit terms, controlling the movement of cash,
administrating accounts receivable monitoring the investment in inventories covers a great deal
of time financial manager.

COMPONENTS OF WORKING CAPITAL

The interaction between current assets liabilities is therefore, the main theme of the
theory of working capital management. The term current assets refers to these assets which in
the ordinary course of business can be or will be, turned into cash with in on year without
undergoing a diminution in value and without disrupting the operating of the firm. The major
components are Current Assets and Current Liabilities

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Current Assets

The current Assets include

Cash
Marketable Securities
Accounts Receivable
Inventory
Bills receivable
Working progress
Finished goods
Prepaid Expenses
Short Term Loans & Advances

Current Liabilities

The Current Liabilities include

Account Payable
Bills Payable
Bank Overdraft
Out Standing Expenses
Short Term Loan

Operating Cycle Approach to Working Capital Management

The normal business operations of a trading company start with cash go through the
successive of the operating cycle, namely raw material storage period, convention period,
finished goods, storage period and average collection period, before getting back cash along with
profit. The total duration of all the segments mentioned above is known as Gross Operating
Cycle Period.

The above picture depicts the interdependence among the components of working
capital. For this purpose, the company has to make payments towards wages, salaries and other

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manufacturing costs. Payments to suppliers have to be made on purchase in the case of cash
purchases and on the expiry of credit period in the case of credit purchase.

Further the company has to meet other operating costs such as selling & distribution
costs, general administration costs and non operating costs described as financial costs. In case
the company y sells its finished goods on cash basis it will cash along with the profit with least
delay. When it sells goods on credit basis, it will cash along with the profit with least delay.
When it sells goods on credit basis, it will pass through on more stage, namely accounts
receivable and get back cash along with profit on the expiry of credit period

OPERATING CYCLE

The above picture depicts the interdependence among the components of Working Capital.
For this purpose, the company has to make payments towards wages, salaries and other
Manufacturing costs. Payments to suppliers have be made on purchase in the case of cash of
cash purchases and on the expiry of credit period in the case purchases.

Further, the company has to meet other operating cost such as selling & distribution
costs, general Administration costs and non operating costs described as financial costs.

In case the company sells its finished goods on cash basis it will cash along with the
profit with least delay. When it sells goods on credit basis, it will pass through one more stage,
namely accounts receivable and get back cash along with profit on the expiry of credit period.

Once again, the cash will be used for the purchase of raw material or paying to suppliers and the
whole cycle is termed as working Capital Cycle of Operating Cycle repeats itself. This
process indicates the dependence of each stage (or) component of Working Capital on its
previous stage or Compton.

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ANALYSIS OF WORKING CAPITAL MANAGEMENT

A study of the cause of changes in uses and sources of working capital is necessary to
observe whether working capital is serving the purpose for which it has been created (or)
not. The analysis of working can be through.

Ratio Analysis

Funds Flow Analysis

Ratio Analysis

The Ratio analysis of working capital helps the management in checking upon the
efficiency with which the working capital is being used in the business. For this purpose
different ratios are calculated to serve different purposes.

The most important ratios for determining the trend in the business over a period of years
are as follows.

Short term working capital needs and sources to finance them.

Current Ratio

Cash Ratio

Current Assets to Total Assets Ratio

Debtor Turnover Ratio

Net Working Capital Ratio

Funds Flow Analysis

Funds Flow Analysis is the study of the sources of funds their application in business the
analysis show how they have been employed. By the use of this method, changes in the
Working Capital between two dates can be very easily analyzed by studying the changes in each
type of Current Assets and Current Liabilities.

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Budgeting Analysis

Efficient working capital management is concerned with the careful measurement of future
requirements and the formulation of plants to meet them. For this purpose, a working capital
budget as a part of total budgeting process is prepared stating the future long term and show.

The Management of Working Capital has been studied under the following heads.

Management of Cash

Management of Accounts Receivable

Management of Inventory.

MANAGEMENT OF CASH IN VPM LTD

Cash is the money includes coins and currency held by the firm and also balances in its
bank accounts. Near cash items such as marketable securities and short term deposits are also
included in the concept of cash. Cash is the most important current assets for the operation of
business. It is basic input needed to keep the business running on continuous basis. It is also an
ultimate and important output expected be realized by selling the product manufactured or the
services rendered by the firm.

Cash is the money, which a firm can disburse immediately without any restriction. The
basic characteristic of near cash asset in that they can readily be converted into cash. Generally,
when a firm has access cash it invests it in marketable securities. This kind of investment
contributes some profit to the firm.

Significance of the Cash Management

Cash is the most significant and at the same lease productive asset held by a firm.

It is used to pay the firms obligations.

It is difficult to predict cash flows accurately.

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 No perfect relationship exists between cash inflows and cash outflows.

Cash contributes small portion of the total current assets, yet managers
considerable time is devoted in managing it.

MOTIVE OF HOLDING CASH

The firms needed to hold cash may be attributed to the following motives. There are

Transaction Motive

The transaction motive refers firms to hood cash to conduct its business in the ordinary
course. The firm needs cash payments for purchases, wages and salaries other operating
Expenses, taxes, dividend etc.

Precautionary Motive

The precautionary motive is the need to hold cash to meet contingencies in the further. It
proves a cushion buffer to withstand some unexpected emergencies. The precautionary amount
of cash depends upon the predictability of cash flows. Precautionary balance may be kept in
cash Marketable securities. This may be kept in cash and marketable securities. This may be
account of floods, strikes, cancellation of orders etc.

Speculative Motive

This refers to the policy of the firm to take advantage of the opportunity to purchases raw
material at a reduced price on payment on immediate cash etc.

Compensation Motive

This is motive of holding cash for the purpose of meeting the obligations against out of
bank transactions such as the maintenance of minimum balance in the back account etc.

Cash management efficiency will have to be improved through a proper control of cash
collection and disbursement.

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 Decentralized cash collections

Controlling disbursements.

There is a close relationship between cash and marketable securities excess cash should
be normally invested in marketable securities, which can be conveniently and promptly
converted into cash.

MANAGEMENT OF ACCOUNTS RECEIVABLES

There are the amounts to be received from sundry debtors for goods sold on credit basis.
They include book debts and bills receivables. Trade credit arises when a firm sells its products
or services on credit and does not receive cash immediately./ It is an essential marketing tool
acting as a bridge for the movement of goods through production and distribution stages to
customers finally.

The book debts or receivable arising out of credit has three characteristics. First, it
involves an element or risk, which should be they carefully analyzed; second it is based on
economic value. Third, it implies futurity. Receivables contribute a substantial portion of current
assets of several firms. Thus, trade debtors represent investment. A substantial amount tied up
in trade debtors it needs careful analysis and proper management.

Goal of Receivables Management

The basic goal of receivables management of a firm is to maximize the value of striking a
balance among liquidity, safety and profitability. Credit is granted to boost up the sales and its
costs the firm in granting such a credit. Several costs are allocated with the extension and
collection of such a credit. They areCost of investigation to ascertain the credit worthiness of
parties.

Cost of collecting receivables.

Cost of delinquency

Opportunity costs.

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Establishing Optimum Credit Policy

A firms investment in accounts receivables depends on

The volume of credit sales

The collection period

Daily credit sales average collection period

The volume of credit sales is a function of percentage of credit sales to total sales. The
percentage of credit sales to total sales is mostly influenced by the nature of the business and
industry norms.

Credit Standards

Credit terms

Collection efforts.

Credits terms are meant to decide the type of customers to whom goods could be sold on
credit. If a firm has more slow paying customers, investment in accounts of receivable will
increase. Customers will also expose the firm to higher risk of default of the credit items
especially the deviation of credit and terms of payment. Investment in accounts receivable will
be high of customers are allowed time period extended for making payments. Collection efforts
determine the actual collection period. The lower collection period, then lower the investment in
accounts receivables and likewise.

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MANAGEMENT OF INVENTORY

Inventories are the stock of the product of a company, raw material and components that
makeup the product. Inventories constitute the most significant part of current assets of a large
majority of companies in India.

On an average, inventories are approximately 60 percent of current assets in public

limited companies in India. Because of the large size of inventories maintained by a firm, a
considerable amount of funds is required to be committee in them. It is therefore, absolutely
imperative to manage inventories effectively in order to avoid unnecessary investment in them.
An undertaking neglecting the management of inventories will be jeopardizing its long - run
profitability and may fail ultimately.

Managing inventory is a juggling act. Excessive stock can place a heavy burden on the
cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc.

They key is to know how quickly your overall stock is moving or, put another way, how
long each item of stock sit on shelves before being sold. Obviously, average stock holding
periods will be influenced by the natures of the business. For example, a fresh vegetable shop
might turn over its entire stock every few days while a motor factor would be much slower as it
may carry a wide range of rarely used spare parts in case somebody needs them.

Now a days, many large manufacturers operate on a just in time (JIT) basis where by
all the components to be assembled on a particular today, arrive at the factory early that morning,
no earlier no later.

This helps to minimize manufacturing costs as JIT stocks take up little space, minimize
stock holding and virtually eliminate the risks of obsolete or damaged stock. They because JIT
manufacturers hold stock for a very short time, they are able conserve substantial cash. JIT is a
good model to strive for as it embraces all the principles of prudent stock of the management.

The key issue for a business is to identify the fast and slow stock movers with the
objectives of establishing optimum stock levels for each category and, thereby, minimize the
cash tied up in stocks. Factors to be considered with determining optimum stock level include.
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Need for Holding Inventories The question managing inventories arises only when the
company holds inventories. There are three motives for holding inventories, they are same like
in cash i.e., Transaction, precautionary and speculative.

Objectives of Inventory Management

The basic objective of Inventory Management is to maintain an adequate level of

inventory for the smooth production and sales operations. Maintaining both Excessive and
Inadequate level of inventories dangerous.

The Major Dangers of Over Investment are

Excessive carrying costs.

The risk of liquidity.

Types of Inventory

Inventories are stocks of the product of a company, manufactured for sale and components that
make up the product. Inventories can be classified into four categories namely.

Raw Materials

Work in progress

Finished Goods

Supplier

Techniques of Inventory Management

For an efficient inventory management of the following techniques are used

Determination of E.O.Q.

Determination of optimum production quantity.

Determination of Re Order Level.

ABC Analysis
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 Inventory Turnover

Ageing Schedule of Inventory.

Economic Order Quantity: The E.O.Q defined as that level inventory order that minimizes the
total cost associated with inventory management. The costs with inventory are;

a. Ordering Costs: Costs associated with Purchasing/Ordering materials. Ex:-

Transportation, Stationary etc,

b. Carrying Costs: Costs associated With holding the inventory, Ex:-warehousing storage
costs.

By mathematical approach EOQ is calculated by the following equation.

EOQ= 2AO/C

Where as

A=Annual consumption in rupees

O=Cost of placing an order

I=Inventory carrying cost per unit

ABC Analysis:

It is generally seen that some inventory contribute a large percentage value of

consumption and a large percentage of items. Contribute a small Percentage of value in between
these two limits there are some items which have all most equal percentage of value of material
under ABC analysis the material are divided into three categories A,B,C and generally 10% of
items contribute 170% of value of consumption. This is called category A about @)% value of
consumption categorys about 70% of the items contribute 10% value of consumption category
C.

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RATIO ANALYSIS: A TOOL FOR WORKING CAPITAL MANAGEMENT

Ratio analysis is a powerful tool of analysis. A ratio is defined as "The indicated

quotient of two mathematical expressions" and as "the relationship between two or more
things". In financial analysis, ration is used as an index or yardstick for evaluating the financial
position and performance of a firm. A ratio helps the analyst to make qualitative judgment
about the firm's financial position and performance.

Thus the relationship between two accounting figures, expressed mathematically is

known as a financial ratio. Financial analysis is the process of identifying the financial strengths
and weaknesses of the firm by properly establishing relationships between the items of the
balance sheet and the profit & loss account. Financial Statements analysis may be done for a
variety of purposes, which may range from a simple analysis of the short term liquidity position
of the firm to a comprehensive assessment of the strengths and weakness of the firm in various
areas. The principal tool of financial statement analysis is financial ratio analysis. This project
report explores this tool in detail. The ratio analysis involves comparison for a useful
interpretation of the financial statements. A single ration in itself does not indicate favorable or
unfavorable condition.

It should be compared with some standards. Some of the "standards of comparison are:

Ratios calculated from the past financial statements of the same firm.
Ratio developed using the projected or preformed financial statement of the same
firm.
Ratios of some selected firms, especially the most progressive and successful at
the same point in time.
Ratios of the industry to which the firm belongs.

SIGNIFICANCE OF RAITO ANALYSIS:

The ratio analysis is the most powerful tool of the financial analysis as started earlier
with the help of ratios, one can determine:

The ability of the firm to meet its current obligations.

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 The efficiency with which the firm is utilizing its various assets in generating sales
revenue.
The extent to which the firm has used its long term solvency by borrowing funds and
The overall operating efficiency and performance of the firm.

The ratio of a firm in itself does not reveal anything. For meaningful interpretation the
ratios of a firm should be compared with the ratio of similar firms and industry. This comparison
will reveal whether the firm is significantly out of line, the firm should undertake a detailed
analysis to spot out the trouble areas.

The ratio analysis will reveal the financial condition of the firm more reliably when
trends in ratios overtime are analyzed. Ratios at appoint can mislead the analyst, because they
may be high or low for some exceptional circumstances at the point. An impressive present
financial position may really be eroding overtime, while a weak position may be improving at a
rapid rate over time. Thus the trend analysis of the ratios adds considerable significance to the
financial analysis because it studies ratios of several years and isolates the exceptional instances
occurring in one or two periods.

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TYPES OF RATIO ANALYSIS:

The ratio analysis is a widely used technique to evaluate the financial position and
performance of a business. But there are certain problems in using ratios. The following are
some of the limitations of the ratio analysis:

It is difficult to decide on the proper basis for comparison.

The comparison is rendered difficult because of differences in situations of two
companies or of one company over years.
The price level changes make the interpretation of ratios valid.
The differences in the definitions of items in the balance sheet and the income statement
make the interpretation of ratios difficult.
The ratios calculated at a point of time are loss informative and defective as they suffer
from short-term changes
TYPES OF RATIOS

11 Types of ratios are used in calculating Working Capital. They are:

1. CURRENT RATIO

Current ratio is the ratio of total current assets to total current liabilities. Current ratio is
useful to assess the ability of the company to meet its short-term obligations and is, therefore,
mostly used as an analytical tool by short-term creditors. This ratio is also used for finding out
the adequacy of working capital. Current ratio represents the margin of safety for current ratio
of 2: 1 is considered to be ideal.

2. QUICK RATIO

It is the ratio between the quick current assets to current liabilities. It is also known as
ACID TEST RATIO. Quick assets are current assets excluding inventory and prepaid expenses.
These assets are converted into cash in the very near future. The rule of thumb is 1:1. This ratio
is used in combination with ratio can be a very good assets may not cover the payments due and
if it is more than 1, it may indicate ideal funds.

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3. ABSOLUTE LIQUID RATIO

This ratio is calculated by dividing the absolute liquid assets by the current liabilities. The
ratio determines the liquidity of the firm in the best from as if takes into consideration the most
liquid assets i.e. cash and bank balance. This ratio is also nearer to the optimum level of 0.5 but
the ratio can be better analyzed considering the movement of other component of current assets

4. INVENTORY TURNOVER RATIO

It is calculated by dividing the sales by the average inventory. This ratio indicates the efficiency
of the company's inventory management. Higher ratio does not necessary result in more cash
generation. Higher turnover ratio should also be investigated further. A low turnover ratio
indicates excessive investment in inventories.

5. INVENTORY CONVERSION PERIOD

Inventory conversion period indicates the time taken for the inventory to get converted into
receivables through sales. A low conversion period represents a fast moving stock.

6. DEBTORS CONVERSION PERIOD

The analysis of the debtor's turnover ratio supplements the information regarding the
liquidity of one item of current assets of the firm. The ratio measures how rapidly debts are
collected. A high ratio is indicative of shorter time lag between credit sales and cash collection.
A lower ratio shows that the debtors are not collected rapidly.

7. AVERAGE COLLECTION PERIOD

The average collection period represents the average number of days for which a firm
has to wait before its receivables are converted into cash. It measures the quality of debtors of a
company. Generally the shorter the average collection period the better is the quality of debtors.

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8. CREDITORS TURNOVER RATIO

This ratio is the relationship between trade creditors or payables and the credit
purchases. This ratio indicates the place at which the creditors are paid a higher ratio. It
indicates that creditors are paid in time where as a low ratio gives an idea that the firm is
availing the credit period in full. Generally a credit period of 60 to 90 days is safer.

9. AVERAGE PAYMENT PERIOD

The average payment period represents the average number of days taken by the firm to
pay its creditors. Generally lower the ratio the better is the liquidity position and vice versa.

10. WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utilization of net working capital. The
ratio indicates the number of times the working capital is turned over in the course of a year. A
higher ratio indicates greater profits with a lesser investment in working capital.

11. RATIO OF INVENTORY TO WORKING CAPITAL

The ratio of inventory to working capital indicates whether there is any over stock in
relation to working capital even though increase in size of inventory is needed to increase the
sales, inventory should not exceed the amount of working capital.

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MANAGEMENT OF CASH

Cash is the basic input needed to keep the business running on a continuous basis. The
firm should keep sufficient cash neither more or less. Some times near cash items such as
marketable securities or bank time deposits are also included in cash.

Cash Management is concerned with the Managing of

Cash inflow and outflows of the firm

Cash flow within the firm

Cash balances held by the firms at a point of time by financing deficit or investing
surplus cash.

Management of cash is also seeks to achieve liquidity and control of the firm. The main
aim of cash management is to maintain adequate control over cash position to keep their firm
sufficient liquid and to use cash in a profitable way.A firm should develop strategies for cash
management through in the following way.

Cash Planning

Relates to planning cash inflows cash inflows and out flows and projections for cash
surplus or deficit for each period.

Optimum Cash Level

The firm should decide the optimum level of cash. The cost of excess and danger of
deficiency should be matched to determine the optimum level of cash balances

Need for Cash

The firm considers the determination of each to the following purpose.

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 To meet day to day operations of business and other payments on due date and sufficient
for this cash inflows. For precautionary motive to meet contingencies in future. For ability to
take advantage of opportunities.

Cash Forecasting and Budgeting

For forecasting the cash requirements of a firm, cash flow statements and cash budgets
are prepared.

Cash Flow Statement

Cash flow statement is prepared to know the flow of cash in or out of business. It may
either projecting statement or a record or analyzing strength and weakness of the short terms
financial position.

A cash flow statement shows the sources and applications of funds. This statement is
also known as HOW COME WHERE GONE Statement explains how they come and where
they have gone.

Cash Budget

Cash Budget is the most significant devise plan for control cash receipts and payments. A
cash budget is a summary statement of the firm expected cash inflow and outflows over a project
time period. The time Horizon of cash budget is different from firm to firm.

Firms having seasonal affected variations prepared monthly cash budget. Daily or
weekly cash budgets should prepare for determining the cash requirements.

Managing the Cash Flows

It is the duty of financial manager he should ensure that there doesnt exit a significant
deviation between projected cash flows and actual cash flows.

The twin objective in managing cash flows should be accelerate cash collection and to
decelerate cash disbursement

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Decentralized Collection

A decentralization collection procedure called concentration banking. In this system

operating through a number of centers, instead of single center at firms head office. The basic
purpose of the decentralization collection is the minimize the lag between the mailing time from
customers to firms. All branches not have collection centers. Selection of centers will depend
upon threw volume of billing.

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 CHAPTER-V
DATA ANALYSIS AND INTERPRETATION

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 FINANCIAL ANALYSIS AND INTERPRETATION OF RATIOS

The liquidity position of the organization can be found by using these ratios. These ratios
are mainly attributable to the simplicity in calculation and indication of the direction in which
further probing necessary.

Current Ratio
Current Ratio is the ratio of current assets to current liabilities which can be represent as
follows

CurrentAssets
Current Ratio = ______________
CurrentLiabilities
A firm having this ratio in 2:1 said to be perfectly good. A high ratio indicates that the
firm is having more ideal cash and a low ratio indicates inadequacy of cash. The following table
explains the short-term liquidity position of Vamsadhara Paper Mills Ltd., during 2011-2016.
Current Assets:
Cash, bank,debtors,billsreceivable,loans and advances, inventories.

Current Liabilities:
Bills payable, outstanding expenses, bank overdraft and short term provisions.

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Table 1CURRENT RATIO DURING 2011 2016

YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO

2011 2012 23,174.08 15,995.13 1.45

2012 2013 34,132.38 32,320.68 1.05

2013 2014 39,866.35 35,419.47 1.13

2014 2015 41,694.12 34,582.12 1.21

2015 2016 43,792.24 33,564.02 1.30

Figure 1

Current Ratio
1.6
1.45
1.4 1.3
1.21
1.2 1.13
1.05
1

0.8
Current Ratio
0.6

0.4

0.2

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation

From the above table 4.1 it is clear that the current ratio in the year 2011-2012 is 1.45 and
in the year 2015-2016 it was found to be 1.30 from this we can concluded that the liquidity
position the company is satisfactory. VPML should have to increase its current assets and
decrease it is the current liabilities so as to reach the current ratio at 2:1 from the table through
the current assets of increased to 43,792.24(in lakes) the current ratio increased to 1.30, this was
the effect of decrease in the current liabilities in the year 2015-2016. i.e., 33,564.02(in lakes)

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 Quick or Acid Test Ratio

This is the ratio of quick assets to current liabilities, which gives exact liquidity position
of the organization. Quick assets are obtained after deducting inventory from current assets.

This is represented as follow

Quick Assets
Quick Assets = ----------------------------------------
Current Liabilities
An increase in ration indicates the increased liquidity position of the organization and
decrease in ration indicates inability to meet its payments. The following is the quick ratio for the
past 5 year.

Quick Assets:
Current assets excluding stock and prepaid expenses.
Current Liabilities:
Bills payable, outstanding expenses, bank overdraft and short term provisions.

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Table 2Quick (or) Acid Test Ratio during 2011-2016

YEAR Quick Assets Current Liabilities RATIO

2011 2012 22,342.24 15,995.13 1.40

2012 2013 33,553.73 32,320.68 1.04
2013 2014 39,144.09 35,419.47 1.10
2014 2015 40,781.71 34,582.12 1.18
2015 2016 41,381.08 32,564.02 1.27

Figure 2

Quick or Acid Test Ratio

1.6
1.4
1.4 1.27
1.18
1.2 1.1
1.04
1

0.8
Quick or Acid Test Ratio
0.6

0.4

0.2

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

(Note: Quick Assets = Current Assets Inventory)

Interpretation

From Table 4.2 it was found that the quick ratio in the year 2011 2012 is 1.40 and in the year
2012- 2013 ,the quick ratio is 1.04 and in the year 2013-2014 it was found as1.10 and in 2014-
2015 it was found as 1.18and in the year 2015 2016 the quick ratio is [Link] Quick
ratio of 1:1 is considered to be a satisfactory financial condition.

104 | P a g e
CREDITOR TURNOVER RATIO

This ratio is the relationship between trade creditors or payables and the credit purchases.
This ratio indicates the place at which the creditors are paid a higher ratio. It indicates that
creditors are paid in time where as a low ratio gives an idea that the firm is availing the credit
period in full. Generally a credit period of 60 to 90 days is safer.

It is also an important tool in the analysis of financial position of a firm. It is the

ratioBetween Net Annual purchases & average creditors. Normally, lower the ratio better is
theliquidityposition firm&vice [Link] case the ratio is higher it implies that greater credit
period enjoyed by the credit suppliers.

Purchases
Creditor Turn over Ration = -----------------------------------------------
Average Creditors

105 | P a g e
Table 3 Creditors Turnover Ratio During 2011 - 2016

YEAR Purchases Average Creditors RATIO

2011 2012 3,123.67 654.71 4.77

2012 2013 4,488.46 712 6.30
2013 2014 3,921.11 826.72 4.74

2014 2015 4,826.23 998.18 4.83

2015 2016 5,123.35 1012.36 5.06

Figure 3

Creditors Turnover Ratio

7
6.3
6
5.06
4.77 4.74 4.83
5

4
Creditors Turnover Ratio
3

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation

Table 4.3 reflects that the creditors turnover Ratio is 4.77 in the year 2011 2012 and it
has been constantly increasing & it come up to 6.30 in the year 2012 2013,this shows the
efficient credit management of the organization. But in the year 2015 2016 it decreased to

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5.06, which is the result of increase in credit purchases from 3,123.67 (in Lakes) to Rs. 4,488.46
(in Lakes).

INVENTORY TURNOVER OR STOCK TRUNOVER RATIO

It is calculated by dividing the sales by the average inventory. This ratio indicates
the efficiency of the company's inventory management. Higher ratio does not necessary result in
more cash generation. Higher turnover ratio should also be investigated further. A low turnover
ratio indicates excessive investment in inventories.

This ration indicates the efficiency of the firm in transforming the inventories
Into sales. This ratio shows the relationship between inventory at the business and the overall
turnover. A higher ratio indicates high degree of solvency and vice versa.

Cost of goods sold

Inventory Turnover Ratio = -------------------------------------------

Average Stock

(C.G.S. = Opening Balance + Purchases = Closing Balance)

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Table 4 Inventory Turnover Ratio during 2011 2016

YEAR C.G.S. Average Stock RATIO

2011 2012 2,827.89 946.75 2.98

2012 2013 4174.31 705.25 5.92
2013 2014 3550.99 650.46 5.46
2014 2015 4851.82 817.52 5.93

2015 2016 4968.92 829.14 5.99

Figure 4

Inventory Turnover Ratio

7
5.92 5.93 5.99
6 5.46

4
2.98 Inventory Turnover Ratio
3

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation

From the table 4.4it was found Inventory turnover indicates the number of times the stock is turn over
into sales in a year. A high stock turnover indicates that the stocks fast moving & getting converted
into sales quick. The inventory turnover ratio in the first two years is uniform & next two it was
increased. Though, the ratio is ranging from 2.98 to 5.92 from 2011 2012 to 2012 2013 but it is
significantly higher in the year 2015 2016 with 5.99.

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DEBTORS TURNOVER RATIO

A concern may sell goods on cash as well as credit. Credit is one of the important sales
promotions. The volume of sales can be increased by following a liberal credit policy.

The effort of a liberal credit policy may result in tying up substantial funds of a firm in
the form of a trade debtors. Trade debtors are expected to be converted in cash within a short
period of time and included in current assets.

The debtors turnover ratio is found out by dividing credit sales by debtors. The debtors
indicate the number of items on the average that Debtors turnover each year. Generally, the high
the value of the debtors turnover ratio, the more efficient is the management of credit.

Credit Sales
Debtors Turn Over Ratio = ------------------------------------------------
Average Debtors

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Table 5 Debtor Turnover Ratio 2011 2016

YEAR Sales Debtors RATIO

2011 2012 50,187.45 7,339.87 6.84
2012 2013 52,845.78 9,306.82 5.68
2013 2014 53,374.60 7,139.08 7.48
2014 2015 54,263.29 8,954.61 6.06
2015 2016 55,624.92 9,549.52 5.82

Figure 5

Debtor Turnover Ratio

8 7.48
6.84
7
6.06
5.689 5.82
6

4
Debtor Turnover Ratio
3

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation

Table 4.5 reflects that the creditors In Vamsadhara Paper Mill Ltd., the Debtors turnover ratio has
different Position for various years. The debtors turnover ratio in the first three years is in an
increasing position and the follows year it was decreased and again it was increased in the next year.

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Table 6Sundry debtors

Years Amount ([Link] Lakhs)

2011 2012 -1471.14

2012 - 2013 +1966.95
2013 2014 0
2014 2015 -986.99
2015 2016 +1173.56

Figure 6

Sundry Debtors
2500
1966.95
2000

1500 1173.56
1000

500
0 Sundry Debtors
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-500

-1000
-986.99
-1500
-1471.14
-2000

111 | P a g e
Table 7bank balances

Years Amount ([Link] Lakhs)

2011 2012 -342.6

2012 - 2013 6408.57
2013 2014 0
2014 2015 1008.01
2015 2016 1002.21

Figure 7

Bank Balances
7000 6408.57

6000

5000

4000

3000 Bank Balances

2000
1008.01 1002.21
1000
0
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-342.06
-1000

112 | P a g e
Table 8 Other liabilities
Years Amount ([Link] Lakhs)

2011 2012 -88.31

2012 2013 -368.98
2013 2014 0
2014 2015 23.94
2015 2016 299.4

Figure 8

Other Liabilities
400
299.4
300

200

100
23.94
0
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Other Liabilities
-100
-88.31
-200

-300

-400 -368.98
-500

113 | P a g e
Table 9Loans and advances

Years Amount ([Link] Lakhs)

2011 2012 4502.46

2012 2013 2100.47
2013 2014 0
2014 2015 2958.99
2015 2016 4100.4
Figure 9

Loans and Advances

5000
4502.46
4500 4100.4
4000
3500
2958.99
3000
2500 2100.47 Loans and Advances
2000
1500
1000
500
0
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

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Table 10COMPARATIVE STATEMENT OF WORKING CAPITAL

Year Effect on Working Capital Amount ([Link] Lakhs)

2011 2012 Increase 2,991.09

2012 2013 Decrease 5,367.26
2013 2014 Increase 2.455.92
2014 2015 Decrease 6,206.08
2015 2016 Increase 8,275.87

Figure 10

Amount (In Lakhs)

10000
8275.87
8000

6000

4000 2991.09
2455.92
2000
Amount (In Lakhs)
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-2000

-4000

-6000 -5367.26
-6206.08
-8000

Interpretation

The4.10 table gives a glance of change in working capital position of the VPML for the
year under study. Changes in working capital will reflect financial position of the company either
as inflow (or) outflow. As shown from the above table 2009-10 of working capital changes have
shown an increase trend which means it is source of funds. The same trend is also found in 2011-
2012. However during the years 2010-11 and 2012-13 there is decreasing in working capital
due to increased volume of activities by VPML therefore VPML is having a diversified working
capital policy to show an impact on financial position of the
115 | P a g e
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THEYEAR 2011 2012

Working capital in = 4,187.86

Working capital in = 7,718.95

Increasing working capital = 2991.09

INTERPRETATION:

In the year 2012 the working capital is 4,187.86. in the year 2013 the working capital is 7,718.95. The

Change in the working capital in (2011-2012) are increased working capital is 2991.09

116 | P a g e
 SCHEDULE OF CHANGES IN WORKIN CAPITAL FOR THE YEAR 2012-2013

Particulars Changes in Working

Capital
31 - 03 - 12 31 - 03 - 13
Increase Decrease

Current Assets
Accrued Interest 2,039.79 2,775.31 735.52
Inventories 832 578.64 253.20
Sundry Debtors 7,339.86 9,306.81 1,966.95
Balance Cash at bank 1,247.95 7,656.52 6,408.57
Loans and advances 11,714.61 13,815.08 2,100.47
Total (C.A.) 23.174.05 34,132.36
Current Liabilities
Provident & Funds 442.35 595.31 152.96
Sundry Creditors 694.51 729.48 34.97
Advanced Payments 1,505.57 2,091.90 586.33
Misc Creditors and
Credit balance 6,211.12 16,337.41 10,126.29

Accured Interest 3,503.35 3,511.39 8.04

Other Liabilities 3,638.20 4,007.18 368.98
Provisions
Provision for Tax 0.00 5,048.00 5,048.00
Provision for
Contingencies 0.00 0.00
Other Provision 0.00 0.00
Total (C.L.) 15,995.13 32,320.67
Working Capital
(C.A. - C.L.) 7,178.95 1,811.69
Decrease in working
in Working
Capital 5,367.26 5,367.26
7,178.95 7,178.95 16,578.77 16,587.77

117 | P a g e
Working capital in = 7,178.95

Working capital in = 1,811.69

Increasing working capital = 5,367.26

INTERPRETATION:

In the year 2012 the working capital is 7,178.95. in the year 2013 the working capital is 1,811.69 . The

Change in the working capital in (2012-2013) are increased working capital is 5,367.26

118 | P a g e
Statement of Changes in Working Capital for the year 31-03-13 to 31-03-14

(rs. In lakhs)

Particulars 31-03-13(Rs) 31-03-14(Rs) Change in net working capital

Current assets Increase Decre5ase
Inventories 1094 1508 9434
Sundry debtors 1123 1254 1305
Cash and bank
Balance 6781 7958 1168
Other current Assets
Loans and advances 4941 4602 3386
Total current assets(A) 2070 1211 8583
Current liabilities
Current liabilities 1176 1773 9990
Provisions 2507 1938 5689
Total current liabilities(B) 1201 1967 1004

Net working capital(A-B) 5676 1000

Change in working capital

Net decrease 4333 4333
1000 1000 1339 1339

Working capital in 2013 = 5676

Working capital in 2014 =1000

Decreasing working capital =4675

INTERPRETATION:

In the year 2013 the working capital is 5675. In the year 2014 the working capital is 1000. The
change in the working capital in (2013-2014) is decrease working capital is 4675.

119 | P a g e
Statement of Changes in Working Capital for the year 31-03-14 to 31-03-15

Particulars 31 - 03 -14 31 -03 15 Changes in Working Capital

Increase Decrease
Current Assets
Inventories 722.63 825.65 103.02
Sundry Debtors 7,139.08 6,152.09 986.99
Cash and Bank 8,142.14 9,150.15 1008.01
balances
Loans and Advances 20,691.36 23,650.35 2958.99
Total ( C.A.) 36,695.21 39,778.24
Current Liabilities
Sundry Creditors 923.96 1,016.05 92.09
Interest Accrued but
not
due on loans 3,502.72 3,592.05 89.33
Creditors for expenses 8,747.20 7,540.32 1206.88
Advancesfrom
Customers 5,732.21 7,132.18 1399.97
Other Liabilities 4,573.21 4,601.15 27.94
Provisions
Provision for Tax 8,591.25 12,201.01 3609.76
Total (C.L.) 32,070.55 36,082.76
Working Capital
( C.A. - C.L.) 4,624.66 3,695.48
Decreasing in Working
Capital 929.18 929.18
4,624.66 4,624.66 6,206.08 6,206.08

Working capital in 2014 =4,624.66

Working capital in 2015 =3695.48

Decreasing working capital = 928.18

INTERPRETATION:

In the year 2014 the working capital is 4,624.66. in the year 2015 the working capital is
3695.48. The change in the working capital in (2014-2015) is decrease working capital is 928.18.

120 | P a g e
Statement of Changes in Working Capital for the year 31-03-15 to 31-03-16

Particulars 31 - 03 -15 31 -03 16 Changes in Working Capital

Increase Decrease
Current Assets
Inventories 825.65 1035.55 209.9
Sundry Debtors 6,152.09 7,325.65 1,173.56
Cash and Bank
9,150.15 10,152.36 1,002.21
balances
Loans and Advances 23,650.35 27,750.75 4,100.4
Total ( C.A.) 39,778.24 46,264.31
Current Liabilities
Sundry Creditors 1,016.05 2,225.05 1209
Interest Accrued but
not
due on loans 3,592.05 4,605.35 1013.3
Creditors for
7,540.32 5,750.52 .1,789.8
expenses
Advancesfrom
7,132.18 8,650.51 1,518.33
Customers
Other Liabilities 4,601.15 4,900.55 299.4
Provisions
Provision for Tax 12,201.01 14,501.25 2,300.24
Total (C.L.) 36,082.76 40,633.23
Working Capital
( C.A. - C.L.) 3,695.48 5,631.08
Decreasing in
Working
Capital 1,935.6 1,935.6
5,631.08 5,631.08 8,275.87 8275.87

Working capital in 2015 = 3,695.48

Working capital in 2016 = 5,631.08

Increasing working capital = 1935.6

INTERPRETATION:

In the tear 2015 the working capital is 3695.48. in the year 2016 the working capital is
[Link] change in the working capital in (2015-2016) are increased working capital is
1935.6.

121 | P a g e
 CHAPTER VI
SUMMARY FINDINGS &
SUGGESTIONS

122 | P a g e
6.1 SUMMARY

Financial management is important because it has an impact on all the activities of a

firm. Its primary responsibility is to discharge the finance function successfully. It touches on all
the other business functions. Financial performance is a managerial activity, which is concerned
with the panning and controlling the financial sources of firm. Financial sources are of the life
blood of the business organizations. We cannot imagine a business without finance because it
is the central point of all business activities because of all decisions are financial implications. It
is essential for any type of business big or small government, semi-government and non-
government. The finance function of the management is equally important for profit and non-
profit organizations.

The project entitled Working capital management in VPML was divided into four
chapters.

The first chapter deals with Introduction of the Working capital management and
Introduction of paper industry need for the study, objectives, methodologies scope and
limitations.

The second chapter deals with the Industry Profile of Paper Mills and Overview of
VPML, organization structure and various functional departments. The organization structure
includes various functional departments headed by Managing Director and functional
departments are, Accounts Departments, Production Department and Personnel Department
headed by Managers.

It implies a formalized international structure of rotes of positions. Hence international

structure means, people working together must fill certain roles. The peoples are asked to till
should be intentionally designed to ensure that required activities are done and that activities fit
together that people can work smoothly effectively and efficiently in groups.

The third chapter deals with theoretical background of Working capital management
which includes introduction, definitions, needs Working capital management, objectives of

123 | P a g e
Working capital management, methods Working capital management, process of Working
capital management, problems of Working capital management.

Finance plays an important role in any organization. The dictionary meaning of finance is
money affairs or the art of managing or administrating the public money. Hence the name
financial management could be referred to as money management. The function of finance is not
arranging funds for the business organization but also it includes planning, forecasting of cash
flow, both receipts and payments, raising the funds, allocation of funds and financial control.

The fourth chapter includes calculation of different ratios and schedule of changes in
working capital for 2011-2012,2012-2013,2013-2014,2014-2015 and [Link] following
suggestions were given in the fifth chapter based on those findings.

The fifth chapter contains summary, findings and suggestions. In the VPML the findings
are like the net working capital and net profit ratio are decreasing year by
year.

124 | P a g e
6.2 FINDINGS

It is found that current ratio of the Vamshadhara Paper Mill Ltd. Was not considered
satisfactory. From the year 2011 12, it is satisfactory in the year 2010 2011,
according to thumb rule, a current ratio 1.5:1 considered satisfactory.
The Quick Ratio of Vamshadhara paper Mill Ltd. Considered satisfactory form the year
2011 2016.
The net working capital position is not considered satisfactory because every year
the differences between is decreasing.
The debt equity ratio of Vamshadhara Paper Mill Ltd. Is not considered satisfactory
because every year the percentage is decreasing.
The gross profit ratio of Vamshadhara Paper Mill Ltd. Considered satisfactory from
2011 2016. It is more than on or above 50 percent this means that cost of operating
income is equal to are less than 50 percent.
The net profit ratio of Vamshadhara Paper Mill Ltd. Is not considered satisfactory,
because it is decreasing year by year, in the last two year that is 2011 & 2012.
It was observed that total net profit available for purchasing of new asset up to 13 percent
because net profit position is decreasing year by year, in all the years operating & non
operating expenses is nearest to the rural operation.

125 | P a g e
6.3 SUGGESTIONS

VPML has to take measures to update the data available in the internet.
Tie-up with other Companies for further Development.
VPML has to give some discounts to the customers to attract sales to increase the
profitability of the organization.
VPML has to develop proper strategy to face this competition.
It also has to take measures to provide training facilities to the workers in the
organization.
To improve the long term stability the rate of growth and profitability, it is necessary
to induce cost reduction techniques.

126 | P a g e
BIBLIOGRAPHY

[1] Tulsian. P.C. (2009) Financial Management, 2nd Revised Edition, New Delhi,
[Link] & Company Ltd.
[2] Chandra Prasanna (2007) Financial Management-Theory and Practice, 7th
Edition, New Delhi, Tata Mc Graw-Hill
[3] Pandey. I.M.(2010) Financial Management, 10th Edition, Vikas Publishing house
Pvt. Ltd
[4] Khan M.Y Jain.P.K Financial Management-Text,Problems and cases, 4th edition,
New Delhi, Tata McGraw-Hill
[5] Kothari. C.R. Research Methodology, New Age Publishers, New Delhi

Websites:

[Link]

127 | P a g e
 ANNEXURES
BALANCE SHEET/POSITION STAMENT OF VAMSHADARA PAPER MILLPVT LTD AS ON 31-03-2011 TO31-03-2016
[Link] PARTICULARS 31-03-2011 31-03-2012 31-03-2013 31-03-2014 31-03-2015 31-03-2016
A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT
1 SOURCE OF FUNDS
(A)share capital 18906 20622 23077 24545 26591 29564
(B) reserve and 56641 84402 65843 74821 69382 65972
surplus
75547 86465 88920 99366 95973 95536
2 LOANS OF FUNDS
A)secured loans 29302 35462 37024 31909 21154 19754
B)un secured loans 65001 61002 75854 94276 56612 49682
94303 96464 112878 126185 77766 69436
TOTAL 169850 201488 201798 227551 173739 164972
3 APPLICATION OF
FUNDS
FIXED ASSETS
A)Gross block 67919 85450 82651 93736 91334 89654
B)depreciation 43065 51065 47992 56857 52486 49587
C)capital work in 24854 34385 34658 36879 38848 3978
progress
CURRENT ASSETS
LOANS&
A)inventories 32696 32800 31452 35995 46453 48235
B)sundry debtors 79549 13311 15005 12359 52421 53859
C)cash & bank 50182 34339 45291 32231 11491 11025
balance
D)loans and bank 75107 59735 65709 61516 50588 49865
TOTAL 237534 140185 157457 284202 149462 325968
Current liability 21212 28741 30848 33542 37622 39541
&prior
NET CURRENT 216322 109337 126609 250660 111840 246886
ASSETS
Miscellaneous 2535 2768 2956 2562 2453 2215
expenditure (to the
extent not written
off of adjusted)
preliminary
expenses
Debit balance in 19626 67856 98567 61577 22504 29856
profit & loss
account
TOTAL 169850 201488 201798 227551 173739 164972

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 P & L INCOME STAMENT OF VAMSHADARA PAPER MILLPVT LTD AS ON 31-03-2011 TO31-03-2016
[Link] PARTICULARS 31-03-2011 31-03-2012 31-03-2013 31-03-2014 31-03-2015 31-03-2016
A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT A MOUNT
1 INCOME
sales 14024 25095 25776 27899 31519 34512
Other income 21701 81548 54782 76521 62485 59628
Increase/decrease in 31290 44857 52461 64234 56852 51982
Inventory

TOTAL 67015 151500 306258 168654 150856 146122

2 EXPENDITURE
Manufacturing 10965 20659 22025 23715 24726 26584
expenses
Payment & benefits 22458 33676 22444 31265 56564 59874
To employee

Administrative 60836 91455 70198 82145 95142 94581

charges
depreciation 39404 45782 53475 58246 58246 77842
TOTAL 133663 191572 168142 195371 234678 258881
3 Profits/loss before 66648 40072 138116 26717 83822 112759
taxation
Provision for taxies
A)current tax 66132 34339 45291 32231 11491 11025
B)differed tax 65232 59735 65709 61516 50588 49865
(assets/liability)
C)fringe benefits 55136 140185 157457 284202 149462 325968
tax
Profit/loss after 253148 274331 282268 404666 295363 1224245
taxation
TOTAL 453826 617403 756668 768691 680897 1632248

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130 | P a g e