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c c c c c c  c c I express our deepest gratitude to whole staff of Amritsar crown caps pvt. Ltd. for his invaluable guidance and blessings and for his unwavering support during the entire course of this project work. I am very grateful to our  !" #$%cc &'()c '*) for providing an environment to complete our project successfully. I express our sincere thanks toc  c &+'()c ,&-$, for his constant encouragement and support throughout our course, especially for the useful suggestions given during the course of the project period. We are very grateful to our internal guide, Lecturer  ((c $! ,$, for being instrumental in the completion of our project with his complete guidance. We would also like to thank our Project Coordinator c -$!c for his support during the entire course of this project work. We also thank all the staff members of our college for their help in making this project a successful one. Finally, we take this opportunity to extend our deep appreciation to our .$- %/ and . '!+(, for all that they meant to us during the crucial times of the completion of our project.

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c c c Yvery day, in more than 19¦ countries, millions of people enjoy the beverages of The CocaCola Company.   These beverages are manufactured at bottling and canning plants all around the world. At every plant, the manufacturing process is a critical link in the value chain. It ensures that customers and consumers always receive the consistent high quality they expect c cccThis section gives an overview of the beverage manufacturing process, from the time the raw ingredients and empty containers arrive at the plant until the finished product is packaged and put on a pallet. ?cc 
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To provide both customers and consumers with the beverages they want, The Coca-Cola Company offers a wide variety of products and packaging. ;cccThe best-known brands are carbonated beverages such as      and   .c c0='7', ACCPL also produce non-carbonated beverages, such as |  |

ҏOrange Juice, 3 ҏ * and    c 2@cheir beverages are packaged in many different types of containers ² bottles, cans, and boxes. These containers come in sizes ranging from ü-ounce cans to ½-liter plastic bottles. c 22cSome of these containers are refillable and others arecnot. Refillable bottles made of glass can be returned to the production facility tocbe washed and refilled with product.c c 2c Non-refillable glass and plastic bottles, as well as cans, are also commonly used in most areas of the world. These containers can be recycled, when properly disposed of by consumers. c 2c The equipment and requirements may vary for each type of product and package. However, the basic production process remains the same.  c c c 1ü

c c c c c 24c

cccc This section follows the process for manufacturing our most widely recognized product ²  in refillable glass bottles. c c c 2c

cccc cIn every step of this process, as in all areas of the value chain, the focus is on quality. To guarantee the consistency of our beverages throughout the world, all plants authorized to manufacture our products build quality into every operation and procedure. c 2c

c cc c This quality depends on three critical elements« ·c The right information, 1¦

c c c ·c The right technology, and ·c The right people. These elements are evident throughout the production process.

c 
c  c c 2:c Now let¶s take a tour of a beverage manufacturing facility and see how the production process works. c 2;c)'c %%'c ccccccccccThe filler is the focal point of the process. Here two streams ² the product and the package ² meet to become the finished beverage that consumers enjoy. c 2cLet¶s follow each of these streams as they progressctoward the filler. We will start where the raw ingredients are processed and combined to create the  product.c c @c Then we will go to the production line, where we will follow the bottles through the cleaning area, into the filling room, and out to the secondary packaging area. c c $=c!1'+ '!*(c*0c 0+&"*c c 2c The taste and quality that consumers expect start with the raw ingredients. These are carefully processed and tested to ensure that they meet all of the standards of The Coca-Cola Company. c cThe raw materials go through a series of steps to become product. First water, sweetener, and concentrate are blended to produce syrup. The syrup is then proportioned with additional water, and carbon dioxide is added to create the product. c c$*'c'$*-'!*c00-cc The Coca cola company start their tour in the water treatment room. c 4cWater is one of the major ingredients in our beverages. To ensure that the raw water does not affect the taste or appearance of the product, the Company requires that it go through a multiple barrier treatment system. c c0!7'!* 0!$%c)'- "$%c'$*-'!*c cThis plant uses Conventional Chemical Treatment in which chemicals are added to raw water in a reaction tank. These chemicals cause particles in the water to stick together and settle to the bottom. Chlorine is added to disinfect any microorganisms. c c $!+c %*'c cNext, the water passes through a sand filter tocremove any remaining organic particles«c c :c$90!c %*'c cAnd then through a carbon purifier to remove all tastes and odors. c c c 16

c c c ;c 0% () !1c %*'c cFinally the water is sent through a polishing filter, which removes any small particles of carbon that may remain in the water after it leaves the carbon purifier. c c

c The treated water is now ready to be used in the beverage manufacturing process. It is also used when sanitizing the lines and tanks that come in contact with ingredients or product. c @c =''*'!'cc ‡ Dry refined sugar ‡ Liquid sugar ‡ High fructose starch syrup c Another key ingredient is the sweetener. Nutritive sweetener, such as dry refined sugar, liquid sugar, or high fructose starch syrup, is used in . c 2c &1$c *0$1'c00-cc

This plant uses dry refined sugar. In the sugar storage room, the sugar is weighed and tested. c c  -#%'c /&#c The dry sugar is delivered from sugar storage to the syrup room, where it is dissolved and filtered to remove any unacceptable odors or tastes. The dissolved and filtered sugar is called simple syrup. c c c c c 17

c c c  A !1c -#%'c /&#c Final Syrup It is pumped into another tank where it is mixed with more treated water and the key ingredient ² concentrate ² which gives  its distinctive flavor. The result is final syrup. c 4cYach stage of the syrup manufacturing process iscmonitored by quality control technicians who test for taste, odor, and color.c c

They also perform the °Brix test. This test is critical to ensure that the syrup has the correct proportions of sweetener and water. c

cOnce the final syrup is ready for production, it is pumped to the proportioner, which is usually in the filling room. c :'$*'+c$*'c !$%&#c Here final syrup and more treated water are mixed in carefully measured proportions. Although the mixing is done automatically, a technician periodically checks to make sure that the correct ratio of syrup to water is maintained. c ;cc In this process, carbon dioxide is added to give  its effervescence. The finished, carbonated product is ready for the filler c c c c c 18

c c c

)'c $",$1' c c)'c $",$1'c Now let¶s return to the production line and look at the second stream that meets at the filler ² the package. c 4@c When bottles arrive from the supplier or thec marketplace, they are received by the warehouse andc stored until they are needed at the production line.

c 42c c The returned bottles are sorted either manually orc automatically to remove any competitors¶ bottles and to separate our bottles by size and type.c c 4cAccording to production needs, a forklift operator takes the pallets of empty bottles from the warehouse« 4c '#$%%'* c The market competitiveness has an important bearing on the working capital needs of a firm. When the competition is keen, a large inventory of finished goods is required to promptly serve customers who may not be inclined to wait because other manufactures are ready to meet their needs. In view of competitive conditions prevailing in the market the firm may have to offer liberal credit terms to the customers resulting in higher debtors. Thus, the working capital requirements tend to be high because of greater investment in finished goods inventory and account receivables. On the other hand, a monopolistic firm may not require larger working capital. It may ask customer to pay in advance or to wait for some time after placing the order. 0!+ * 0!(c0.c &##%/> c The time taken by a supplier of raw materials, goods, etc. after placing an order, also determines the working capital requirement. If goods as soon as or in a short period after placing an order, then the purchaser will not like to maintain a high level of inventory f that good. Otherwise, larger inventories should be kept e.g. in case of imported goods. &( !'((c/"%'c%&"*&$* 0!(>c Different phases of business cycle i.e., boom, recession, recovery etc. also effect the working capital requirement. In case of recession period there is usually dullness in business activities and there will be an opposite effect on the level of wor¦king capital requirement. There will be a fall in inventories and cash requirement etc.

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c c c '+ *c#0% "/>c The credit policy means the totality of terms and conditions on which goods are sold and purchased. A firm has to interact with two types of credit policies at a time. One, the credit policy of the supplier of raw materials, goods, etc., and two, the credit policy relating to credit which it extends to its customers. In both the cases, however, the firm while deciding the credit policy has to take care of the credit policy o the market. For example, a firm might be purchasing goods and services on credit terms but selling goods only for cash. The working capital requirement of this firm will be lower than that of a firm, which is purchasing cash but has to sell on credit basis. #'$* !1c/"%'>c Time taken from the stage when cash is put into the business up to the stage when cash is realized. Thus, the working capital requirement of a firm is determined by a host of factors. Yvery consideration is to be weighted relatively to determine the working capital requirement. Further, the determination of working capital requirement is not once a whole exercise; rather a continuous review must be made in order to assess the working capital requirement in the changing situation. There are various reasons, which may require the review of the working capital requirement e.g., change in credit policy, change in sales volume, etc.




 cc c c c

Working capital management refers to the administration of all components of working capital ± cash, marketable securities, debtors (receivables), and stock (inventories) and creditors (payables). The financial manager must determine levels and composition of current assets. He must see that right sources are tapped to finance current assets, and that current liabilities are paid in time. There are many aspects of working capital management which make it an important function of the financial manager. ·c  -'. Working capital management requires much of the financial manager¶s time. ·c !7'(*-'!*. Working capital represents a large portion of the total investment in assets. Actions should be taken to curtail unnecessary investment in current assets. ·c  * "$% */. Working capital management has great significance for all firms but it is very critical for small firms. Small firms in India face a severe problem of collecting their dues debtors. Further, the role of current liabilities is more significant in case of small firms, as, unlike large firms, they face difficulties in raising long-term finances. ·c 0=*). The need for working capital is directly related to the firm¶s growth. As sales grow, the firm needs to invest more in inventories and debtors. Continuous growth in sales may also require additional investment in fixed assets.

 6& + */c7(c 0. *$9 % */>c (,'*&!c$+'0..c A large investment in current assets under certainty would mean a low rate of return on investment for the firm, as excess investment in current assets will not earn enough return. A ¦1

c c c smaller investment in current assets, on the other hand, would mea interrupted production and sales, because of frequent stock-outs and inability to pay creditors in time due to restrictive policy. Given a firm¶s technology and production policy, sales and demand conditions, operating efficiency etc., its current assets holdings will depend upon its working capital policy. These policies involve risk-return trade-offs. A conservative policy means lower return and risk, while an aggressive policy produces higher return and risk. The two important aims of the working capital management are: profitability and solvency. 0%7'!"/, used in the technical sense, refers to the firm¶s continuous ability to meet maturing obligations. If the firm maintains a relatively large investment in current assets, it will have no difficulty in paying claims of creditors when they become due and will be able to fill all sales orders and ensure smooth production. Thus, a liquid firm has less risk of insolvency; that is, it will hardly experience a cash shortage or a stock-out situation. However, there is a cost associated with maintaining a sound liquidity position. A considerable amount of the firm¶s will be tied up in current assets, and to the extent this investment is idle, the firm¶s profitability will suffer. To have higher profitability, the firm may sacrifice solvency and maintain a relatively low level of current assets. When the firm does so, its profitability will improve as fewer funds are tied up in idle current assets, but its solvency would be threatened and would be exposed to greater risk of cash shortage and stock-outs.

c   cc c c ·c &'!*c (('*(c 0%+ !1c ' 0+. To estimate working capital requirement on the basis of average holding period of current assets and relating them to costs based on the company¶s experience in the previous years. This method is essentially based on the operating cycle concept. ·c $* 0c 0.c $%'(. To estimate working capital requirements as a ratio of sales on the assumption that current change with sales ·c $* 0c 0.c c c  A'+c !7'(*-'!*. To estimate working capital requirements as a percentage of fixed investment.

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A firm can adopt different financing policies vis-à-vis current assets. Three types of financing may be distinguished: ·c 0!1*'-c  !$!" !1. The sources of long-term financing include ordinary share capital, preference share capital, debentures, long-term borrowings from financial institutions and reserves and surplus (retained earnings).

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c c c ·c )0*'-c  !$!" !1. The short-term financing is obtained for a period less than one year. It is arranged in advance from banks and other surplus of short-term finance in the money market. It includes working capital funds from banks, public deposits, commercial paper, factoring of receivables etc ·c

#0!*$!'0&(c !$!" !1. It refers to the automatic sources of short-term funds arising in the normal course of a business. Trade (supplier¶s) credit and outstanding expenses are examples of spontaneous financing.

The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long-term and short-term sources of finance. Depending on the mix of short-term and long-term financing, the approach followed by a company may be referred to as: ·c Matching approach ·c Conservative approach ·c Aggressive approach

c $*") !1c##0$")c The firm following matching approach (also known as hedging approach) adopts a financial plan which matches the expected life of the sources of funds raised to finance assets. For e.g., a ten-year loan may be raised to finance a plant with an expected life of ten years. The justification for the exact matching is that, since the purpose of financing is to pay for the assets, the source of financing for short-term assets is expensive, as funds will not be utilized for the full period. Similarly, financing the long-term assets with short-term financing is costly as well as inconvenient as arrangement for the new short-term financing will have to be made on a continuing basis. 0!('7$* 7'c$##0$")c Under a conservative plan, the firm finances its permanent assets and also a part of temporary currents assets with long-term financing. In the periods when the firm has no need for temporary current assets, the idle long-term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long-term financing and, therefore, the firm has less risk of facing the problem of shortage of funds.

11'(( 7'c$##0$")c An aggressive approach policy is said to be followed by the firm when it uses more shortterm financing than warranted by the matching plan. The firm finances a part of its permanent current assets with short term financing. The relatively more use of short-term financing makes the firm more risky. c ¦½

c c c ?c c —c 
: Inventories constitute the most significant part of current assets of a; large number majority of companies in India. On an average, inventories are approximately 60 of current assets in public limited companies in India. Because of the large size of the inventories maintained by the firm, a considerable amount of funds is required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company are: —c Raw materials are those basis inputs that re converted into finished product through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future productions. —c Work-in-progress inventories are semi-manufactured products. They represent those products that need more work before they become finished products for sale. —c Finished goods inventories are those completely manufactured products, which are ready for sale. Stocks of the raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations. Thus the inventories serve as a link between the production and the consumption of goods. The levels of the three kinds of inventories for the firm depend on the nature of the business. A manufacturing firm will have substantially high level of finished goods inventories and no raw material and work-in progress inventories within manufacturing firm, there will be differences.

c  cc c c cc The working capital requirement of a firm depends, to a great extent up on operating cycle of the firm. The operating cycle may be defined as the time duration starting from the procurement of goods or raw material and ending with the sales realization the length and nature of the operating cycle may differ from one firm to another depending on the size and nature of the firm. The investment in working capital is influenced by four key events in the production and sales cycle form: —c Purchase of raw materials —c payment of raw materials —c sale of finished goods —c collection of cash for sales

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c c c #'$* !1c "/"%'c #' 0+: the firm begins with the purchase of raw material, which are paid for after a delay, which represents the accounts payable period. The firm converts raw material into finished goods and then sell the same. The time that, elapses between the purchase of raw material and the collection of cash for the sales is referred to as the operating cycle. The length or time duration of the operating cycle of any firm can be defined as the sum of its inventory conversion period and the receivables conversion period. A)c !7'!*0/c 0!7'( 0!c #' 0+c E ): The time lag between the purchase of raw material and the sale of finished goods is the inventory conversion period. In the manufacturing firm ICP consists of raw materials conversion period (RPCP), work-in-progress conversion period (WPCP), and the finished goods conversion period (FGCP). RMCP refers to the period for which the raw material is generally kept in stores before it is used by the production department. The WPCP refers to the period for which the raw material remains in the production process before it is taken out s a finished product. The FGCP refers to the period for which finished goods remain in stores before being sold to a customer. Gc'"' 7$9%'(c"0!7'( 0!c#' 0+cE G> It is the time required to convert the credit sales into cash realization. It refers to the period between the occurrence of credit sales and collection from debtors. The total of ICP and RCP is also known as Total Operating Cycle period (TOCP). The firm might be getting some credit facilities from the supplier o a material, wage earners, etc. this period for which the payment of these parties are deferred or delayed is known as Deferral Period (DP). The Net Operating Cycle (NOC) of the firm is arrived at by deducting the DP from the TOCP. NOC is also known as cash cycle. RMCP = (AVG. raw material stock/ Total raw materials stock)*½6¦ WPCP = (avg. work-in process/ Total work-in-process)*½6¦ FGCP = (Avg. finished goods/ Total cost of goods sold)*½6¦ RCP = (Avg. receivables / Total credit purchase)*½6¦ DP = (Avg. creditors / Total credit purchase)*½6¦ c In respect of these formulations, the following points are note worthy: a)c The ³Average´ value in the numerator is the average of opening balance and closing balance of the respective item. However, if only the closing balance is available, then even the closing balance may be taken as the ³Average´. b)c The figure ³½6¦´ represents number of days in a year. It may also be taken as ³½60´ for the ease of calculation. c)c The ³total´ figure in the denominator refers to the total value of the item in a particular year. d)c In the calculation of RMCP, WPCP, ad FGCP. The denominator is calculated at costbasis and the profit margin has been excluded. The reason big that there is no investment of funds in profit as such.

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c c c The working capital ratios are calculated for the Coca Cola Company and final holding month for the inventories, debtors and creditors are given below in the table. c 0, !1c$# *$%c ccccccccccccccccccccccccccccccccccccccc 0c*)'c/'$c@@c c 0*$%c#'$* !1c/"%'cLc cIc 8  cIc

= .ü8 + .½7 + 1.79 = Ô.6ü '*c#'$* !1c/"%'cLcc3c c = Ô.6ü - .¦7 = Ô.07

 c c c c 
 c   c c c c 1.c  c 8  c : The cash credit facility is similar to the overdraft arrangement. It is the most popular method of bank finance for working capital in India. Under the cash credit facility, a borrower is allowed to withdraw funds from the bank up to the cash credit limit. He is not required to borrow the entire sanctioned credit once, rather, he can draw periodically to the extent of his requirement and repay by depositing surplus funds in his cash credit account. Cash credit is sanctioned against the security of current assets. Cash credit is the most flexible arrangement from the borrower¶s point of view. c  
 cc  c Under the purchase or discounting of bills, a borrower can obtain credit from a bank against its bills. The bank purchase or discounts the borrower¶s bills. He amount provided under this agreement is covered within the overall cash credit or overdraft limit Before purchasing or discounting the bills, the bank satisfies itself as credit worthiness of the drawer. Though, the item ³bills purchased´ implies that the bank becomes owner of the bill. In practice, bank hold bills as security for the credit. When a bill is discounted, the borrower is paid he discounted amount of the bills, (visa, full amount of bill minus the discount charged by the bank). The bank collects full amount on maturity. The major part of bank borrowings comes through Discounting Bills. On this firm has to pay interest of 1Ô . c 
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c c c c

2c cc c Commonly used in international trade, the letter of credit is now used in domestic trade as well. A letter of credit, or L/C, is used by a bank on behalf of its customers (buyer) to the seller. As per this document, the bank agrees to honour drafts on it for the supplies made to the customer if the seller fulfills the conditions laid down in the L/C. The L/C serves several useful functions: (i)c (ii)c (iii)c

It virtually eliminates credit risk, if the bank has a good standing. It reduces uncertainty, as the seller knows the conditions that should be fulfilled receive payment. It offers safety to the buyer who wants to ensure that payment is made only in conformity with the conditions of the L/C.

Letter of credit is non-fund based source credit that is why it is available at very low rate i.e. 0.¦ . c c
c Bank Guarantee is very similar to Letter of Credit but it is provided for much longer period compared to letter of credit. Very small portion of working capital is funded by Bank Guarantee.

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Ô.8ü Ô.07

Ystim. Ô009

Projn. Ô010

Ô.89 Ô.ÔÔ

Ô.9½ Ô.Ô7

—c Coca Cola Company is having low holding period for the inventories which shows that it is following aggressive policy, which might result in loss of sales. Therefore, in my opinion the firm should try to shift towards more ³conservative policy´. The selection of right kind of policy is very necessary for the full utilization of fixed assets. Because of low inventory level, the firm may not be able to fulfill its customers¶ instantaneous needs.

Average collection period/debtors holding period (days)

Ô008 69.¦ü

Ô009 ¦0.¦6

Ô010 ¦0.¦6

—c The firm should try to reduce its debtor holding period especially domestic debtor holing period which is slightly high. By this, the funds, which are blocked with the customers, and hence are becoming idle, can be reduced and that money can be utilized for other profitable purposes.

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c c c Ô008 Ô7.91

creditor days/ credit holding period

Ô009 ü8.¦

Ô010 ½½.¦½

—c The firm is having low credit holding period it can try to increase is so that, those funds can remain with it for a longer period n can be utilized for fulfilling the working capital requirements. For this purpose firm can be little strict credit standards it can also adopt discount policy.

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c5c  c c c &'!*c$(('*(c*0c. A'+c$(('*(c$* 0c Coca Cola Company should determine the optimal level of current assets so that the wealth of the shareholder¶s is maximized. It needs current assets and fixed assets to support a particular level of current assets. As the firm¶s output and sales are increasing and will also increase in projected year Ô010, it shows that company needs to increase the current assets. The level of current assets can be measured by relating current assets to fixed assets. Dividing current assets by fixed assets vs. CA/FA ratio. Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative assets policy and a lower CA/FA ratio means an aggressive current policy other factors remaining constant.

Year

audited Ô008

estimated Ô009

projn. Ô010

Current assets

780½

8778

96½Ô

Fixed assets

Ô0698

Ô1½0ü

ÔÔ096

CA/FA

0.½8

0.ü1

0.üü

Company has an aggressive policy till Ô008. This implies that company is incurring high risk and low liquidity but in projected year Ô009 company is moving from aggressive policy to conservative policy in which there will be greater liquidity and lower risk. So I would suggest the company to maintain conservative policy rather than the aggressive one so as to cope up with the anticipated changes and operating condition. &'!*c$(('*(c. !$!" !1c 0% "/c Two types of policies- conservative which depends upon long-term sources like debentures and aggressive which depends heavily upon short term bank finance and seek to reduce dependence on long term financing are suggested. The following table shows the ratio between the long term and short term sources for Coca Cola Company Conservative policy on one hand reduces the risk that the firm will be unable to repay or replace its short-term debt periodically. It, however, enhances the cost of financing because the long term sources of finance, debt and equity, have a higher cost associated with them. In Ô008 the financial charges were Rs. ÔÔ8ü lacks in Ô009 it is estimated to be Rs. ÔÔ61 lacks. Hence it would be suggested to go for more short- term financing as it may reduce the interest cost which will increase profitability in return. 60

c c c )'c0(*c$+'c..c It is a different way of looking into risk-return trade off in terms of the cost of maintaining a particular level of current assets. There are two types of cost involved²the cost of liquidity and the cost of illiquidity If the firm¶s level of current assets is very high, then it has excessive liquidity. Its return on assets will be low, as funds tied up in idle cash and stocks earn nothing and high level of debtors reduces profitability. Thus, the cost increases with the level of current assets. The cost of illiquidity is the cost of holding insufficient current assets. Coca Cola Company is presently not in a position to honour its obligations because it carries too little cash. This may force Coca Cola Company to borrow at high rate of interest. This will adversely affect the credit worthiness of Coca Cola Company. Thus company should maintain its current assets at the level where the sum of both-cost of liquidity and cost of illiquidity is minimized. %'A 9 % */c It is relatively easy to refund short-term funds when for funds diminishes. Long-term funds such as debenture loan or preference capital cannot be refunded before time. Hence, Coca cola company. Should try to anticipate more in short-term funds than long-term funds as it will reduce the interest rate and will increase the liquidity. '+&"'c*)'c#'$* !1c"/"%'c Coca cola Company. Should try to reduce its operating cycle. In year ended Ô009 company debtor collection period is ¦0 days. It shows that company collecting period is very high. That¶s why unnecessarily company blocked its money with debtors. Hence company should try to adopt new policies like cash credit policy and discount credit policy. c c c c c c c c 61

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