Final 333 = = Working Capital Management s n s Limited

8/13/2019 Final 333 = = Working Capital Management s n s Limited

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CONTENTS

S.N Chapter Name Page no

1 Introduction of the topic

2 Objectives Of The Training

3 Research Methodology

4 profile of the Organization

!ata "nalysis and Interpretation

# $uggestions

% $u&&ary and 'onclusion

( )ibliography

* "nne+ure

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Chapter I:

Introduction of the topic

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CHAPTER I :

INTRODUCTION O THE TOPIC

,or-ing capital Manage&ent has its effect on li.uidity as /ell as on profitability of the

fir&00 "lso a detailed study of the $ $ MIR"5$6 5IMIT! in ter&s of their cash

&anage&ent inventory &anage&ent and receivable &anage&ent has been done and an

effort has been &ade to analyze the facts0 The ratios thus obtained have correlated /ith the

rule of thu&b and interpretations have been &ade on the basis of the sa&e0 " co&parative

study of the selected $ $ MIR"5$6 5IMIT! /as unable to conduct because of the

fir&s7 difference in their nature of business0 )ut all effort has &ade to find out the /or-ing

capital position of the fir&s0 $ $ MIR"5$6 5IMIT! is the largest engineering and&anufacturing enterprise in India in energy related 8 infrastructure sector0

Many studies have been conducted till no/ on $ $ MIR"5$6 5IMIT! and a

nu&ber of co&&ents /ere &ade by the researchers for the i&prove&ent of the financial

condition of $ $ MIR"5$6 5IMIT!0 a -een analysis has been done to find out the

e+act financial position of the $ $ MIR"5$6 5IMIT! in ter&s of cash &anage&ent

receivable &anage&ent and inventory &anage&ent0 The result sho/s that there is strong

negative relationship bet/een the variables of /or-ing capital &anage&ent and profitability

of the fir&0 it &eans that as the cash conversion cycle increases it /ill lead to less

profitability of the fir& the &anagers can create a positive value for the share holders by

reducing the cash conversion cycle to a possible &ini&u& level0 i have found that there is

significant negative relationship bet/een li.uidity and profitability and also it has found that

there is positive relationship bet/een the size of the fir& and its profitability0 There is also a

significant negative relationship bet/een debt used by the fir& and its profitability0

ecessary suggestions have &ade on the basis of the research study0

Need for !or"ing capita#.

Manage&ent of /or-ing capital is very &uch i&portant for every &anufacturing

concern0 The current assets of a typical &anufacturing fir& account for over half of its total

assets0 +cessive levels of current assets can easily result in substandard return on

invest&ent0

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The &ain ai& of ,'M is to &anage the fir&7s current assets and liabilities in an

efficient /ay such that a satisfactory level of /or-ing capital is upheld0 Insufficient /or-ing

capital &ay lead the fir& slo/ly into ban-ruptcy or insolvency0 Many factors influence the

need of /or-ing capital0 It differs fro& fir& to fir&0 The factors li-e general nature of thebusiness production policy credit policy gro/th and e+pansion availability of ra/

&aterials profit level level of ta+es dividend policy depreciation policy price level

changes operating efficiency etc usually affects the need for /or-ing capital0

$.$ Re%ie! of #iterature

" very fe/ research has been conducted till no/ in /or-ing capital &anage&ent0

$pecifically studies at the &icro9level or at the understanding level are .uite inade.uate0

The &ain objective of this study /as to analyze the e+tent to /hich the volu&e of

/or-ing capital in these industries had been utilized effectively and efficiently0 The study

had de&onstrated that ,or-ing 'apital loc-ed up in &ost of these industries had been

e+cessive and there /as an enor&ous scope for econo&y in use of /or-ing capital0

$han-er Thappa /or-ing capital &anage&ent in $un :har&aceutical Industry 5td

case study technical ;ournal of Manage&ent studies volu&e02 o01 "pril 2sep 2


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and "llied Machinery 'orporation 5i&ited0 "fter &easuring the financial perfor&ance he

concluded that the size of /or-ing capital had gro/n continuously and in ter&s of ade.uate

standards /or-ing capital tended to be high in the enterprises studied0

In this light /e are proceeding this research study on the topic C,or-ing 'apital

Manage&ent of &anufacturing industries 9 " case study of $ $ MIR"5$6 5IMIT!D

/hich are highlighting cash position inventory position advance position receivable

position etc0 This study /ill also cover ho/ far li.uidity has effect on profitability or

relationship bet/een li.uidity and profitability0 This is helpful to all public enterprises

/hich are engaged in the &anufacturing of heavy &achineries0

I1PORTANCE OR AD2ANTA(ES O ADE3UATE 4OR5IN(

CAPITA&

,or-ing capital is the life blood and nerve centre of a business0 ;ust as circulation

of blood is essential in the hu&an body for &aintaining life /or-ing capital is very essential

to &aintain the s&ooth running of a business0 o business can run successfully /ithout an

ade.uate a&ount of /or-ing capital0 The &ain advantages of &aintaining ade.uate a&ount

of /or-ing capital are as follo/sE

$.So#%enc0 of the )u*ine**0 "de.uate /or-ing capital helps in &aintaining solvency of

the business by providing uninterrupted flo/ of production0

-. (ood!i##0 $ufficient /or-ing capital enables a business concern to &a-e pro&pt

pay&ents and hence helps in creating and &aintaining good/ill0

6.Ea*0 #oan*0 " concern having ade.uate /or-ing capital high solvency and good credit

standing can arrange loans fro& ban-s and others on easy and favourable ter&s0

7. Ca*h di*count*0 "de.uate /or-ing capital also enables a concern to avail cash discount

on the purcha*e* and hence it reduce* co*t*.

0 Regular supply of ra/ &aterials . Sufficient !or"ing capita# en*ure*

regu#ar *upp#0 of ra! materia#* and continuou* production.


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/. Regu#ar pa0ment of *a#arie*8 !age* and other da0toda0 commitment*0 " co&pany

/hich has a&ple /or-ing capital can &a-e regular pay&ent of salaries /ages and other

day9to9day co&&it&ents /hich raises the &orale of its e&ployees increase their

efficiency reduces /astages and costs and enhances production and profits0

,. E'p#oitation of fa%oura)#e mar"et condition*. Only concerns /ith ade.uate /or-ing

capital can e+ploit favourable &ar-et conditions such as purchasing its re.uire&ents in )ul-

/hen the prices are lo/er and by holding its inventories for higher prices0

9. A)i#it0 to face cri*i*. "de.uate /or-ing capital enables a concern to face business crisis

in e&ergencies such as depression because during such periods generally there is &uch

pressure on /or-ing capital0

+. 3uic" and regu#ar return on in%e*tment*. very Investor /ants a .uic- and regular

return on his invest&ents0 $ufficiency of /or-ing capital enables a concern to pay .uic-

and regular dividends to its investors as there &ay not be &uch pressure to plough bac-

profits0

$. High mora#e. "de.uacy of /or-ing capital creates an environ&ent of security

confidence high &orale and creates overall efficiency in a business0

E;CESS OR INADE3UATE 4OR5IN( CAPITA&

Di*ad%antage* of Redundant or E'ce**i%e 4or"ing Capita#

10 +cessive ,or-ing 'apital &eans idle funds /hich earn no profits for the

business and hence the business cannot earn a proper rate of return on its

invest&ents0

20 ,hen there is a redundant /or-ing capital it &ay lead to unnecessarypurchasing and accu&ulation of Inventories causing &ore chances of theft

/aste and losses0

30 +cessive /or-ing capital i&plies e+cessive debtors and defective credit

policy that &ay cause higher incidence of bad debts0

40 ,hen there is e+cessive /or-ing capital relations /ith ban-s and other

financial institutions &ay not be &aintained0

0 !ue to lo/ rate of return on invest&ents the value of shares &ay also fall0

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Di*ad%antage* or Danger* of Inadee of =u*ine**?Sca#e of Operation*.The /or-ing capital re.uire&ents of a

concern are directly influenced by the size of its business /hich &ay be &easured in ter&s

of scale of operations0 Areater the size of a business unit generally larger /ill be the

re.uire&ents of /or-ing capital0

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6. Production Po#ic0. In certain industries the de&and is subject to /ide

fluctuations due to seasonal variations0 The re.uire&ents of /or-ing capital in such cases

depend upon the production policy0 If the policy is to -eep production steady by

accu&ulating inventories it /ill re.uire higher /or-ing capital

@. 4or"ing Capita# C0c#e. In a &anufacturing concern the /or-ing capital cycle

starts /ith the purchase of ra/ &aterial and ends /ith the realisation of cash fro& the sale

of finished products0 This cycle involves purchase of ra/ &aterials and stores its

conversion into stoc-s of finished goods through /or-9in9progress /ith progressive

incre&ent of labour and service costs conversion of finished stoc- into sales debtors and

receivables and ulti&ately realisation of cash and this cycle continues again fro& cash to

purchase of ra/ &aterial and so on0

/. Rate of Stoc" Turno%er. There is a high degree of inverse co9relationship

bet/een the .uantu& of /or-ing capital and the velocity or speed /ith /hich the sales are

effected " fir& having a high rate of stoc- turnover /ill need lo/er a&ount of /or-ing

capital as co&pared to a fir& having a lo/ rate of turnover0

,. Credit Po#ic0. The credit policy of a concern in its dealings /ith debtors and

creditors influence considerably the re.uire&ents pf /or-ing capital0

9. Rate of (ro!th of =u*ine**. The /or-ing capital re.uire&ents of a concern

increase /ith the gro/th and e+pansion of its business activities0 "lthough it is difficult

to deter&ine the relationship bet/een the gro/th in the volu&e of business and the

gro/th in the /or-ing capital of a business yet it &ay be concluded that for nor&al rate

of e+pansion in the volu&e of business /e &ay have retained profits to provide for &ore

/or-ing capital but in

+. Earning Capacit0 and Di%idend Po#ic00 $o&e fir&s have &ore earning

capacity than others due to .uality of their products &onopoly conditions etc00 The

dividend policy of a concern also influences the re.uire&ents of its /or-ing capital0

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$. Price &e%e# Change*0 'hanges in the price level also affect the /or-ing capital

re.uire&ents0 The effect of rising prices &ay be different for different fir&s0 $o&e fir&s

&ay be affected &uch /hile so&e others &ay not be affected at all by the rise in prices0

MANAGEMENT OF WORKING CAPITAL

,or-ing 'apital in general practice refers to the e+cess of current assets over

current liabilities0 Manage&ent of /or-ing capital therefore is concerned /ith the

proble&s that arise in atte&pting to &anage the current assets the current liabilities and

the inter9relationship that e+ists bet/een the&0

The basic goal of /or-ing capital &anage&ent is to &anage the current assets

and current liabilities of a fir& in such a /ay that a satisfactory level of /or-ing capital

is &aintained i.e., it is neither inade.uate nor e+cessive0 ,or-ing capital &anage&ent

policies of a fir& have a great effect on its profitability li.uidity and structural health of

the organisation0 In this conte+t -working capita !anage!ent i" t#ree $i!en"iona in natureE

i6 !i&ension I is concerned G/ith the for&ulation of policies /ith regard to profitability

ris- and li.uidity0

ii6 !i&ension II is concerned /ith the decisions about the co&position and level of current

assets0

iii6 !i&ension III is concerned /ith the decisions about the co&position and level ofcurrent 5iabilities0

$. Share*. Issue of shares is the &ost i&portant source for raising the per&anent or

long9ter&

capital0 " co&pany can issue various types of shares as e.uity shares preference

shares and

deferred shares0 "s far as possible a co&pany should raise the &a+i&u& a&ount

of per&anent capital by the issue of shares

$. De)enture*0 " debenture is an instru&ent issued by the co&pany

ac-no/ledging its debt to

its holder0 The debenture9holder are the creditors of the co&pany0 " fi+ed rate of

interest is

paid on debentures0 The interest on debentures is a charge against profit and loss

account0

The debentures are generally given floating charge on the assets of the co&pany0,hen the

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debentures are secured they are paid on priority to other creditors0 The debentures as

a source of

finance have a nu&ber of advantages both to the investors and the co&pany0 The fir&

issuingdebentures also enjoys a nu&ber of benefits such as tra$ing on e%&it', retention of

control ta+

benefits etc0

6. Pu)#ic Depo*it*0 :ublic deposits are the fi+ed deposits accepted by a business

enterprise directly fro& the public0 This source of raising short ter& and &ediu&9

ter& finance /as very popular in the absence of ban-ing facilities0 :ublic deposits

asF a source of finance have a large nu&ber of advantages such as very si&ple and

convenient source of finance ta+ation benefits trading on e.uity no need of

securities and an ine+pensive source of finance0 on9ban-ing concerns cannot

borro/ by /ay of public deposits &ore than 2H of its paid9up capital and free

reserves0

7. P#oughing =ac" of Profit*. :loughing bac- of profits &eans the reinvest&ents by

concern of its surplus earnings in its business0 This &ethod of finance has a nu&ber

of advantages as it is the cheapest rather cost9free source of finance there is no

need to -eep securities there is no dilution of control it ensures stable dividend

policy and gains confidence of the public0

@. &oan* from inancia# In*titution*0 Binancial institutions such as 'o&&ercial )an-s

5ife Insurance'orporation Industrial Binance 'orporation of India $tate Binancial

'orporations $tate Industrial !evelop&ent 'orporations Industrial !evelop&ent

)an- of India etc0 also provide short9ter& &ediu&9ter& and long9ter& loans0

INANCIN( O TE1PORAR8 2ARIA=&E OR SHORTTER1 4OR5IN(

CAPITA&

The main *ource of *hortterm !or"ing capita# are a* fo##o!*

$. Indigenou* =an"er*

:rivate &oney9lenders and Fother country ban-ers used to be the only source of

finance prior to the establish&ent of co&&ercial ban-s0 o/9a 9days /ith the

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develop&ent of co&&ercial ban-s they have lost their &onopoly0 )ut even today

so&e business houses have to depend upon indigenous ban-ers for obtaining loans

to &eet their /or-ing capital re.uire&ent

-. Trade Credit

Trade credit refers to the credit e+tended by the suppliers of goods in the nor&al course

of business0 "s9present day co&&erce is built upon credit the trade credit

arrange&ent of a fir& /ith its suppliers is an i&portant source of short9ter& finance

The &ain advantages of trade credit as a source of short9ter& finance

includeE

(i) It is an easy and convenient &ethod of finance0

(ii) It is fle+ible as the credit increases /ith the gro/th of the fir&0

(iii) It is infor&al and spontaneous source of finance0

6. In*ta##ment Credit

This is another &ethod by /hich the assets are purchased and the possession of

goods is ta-en i&&ediately but the pay&ent is &ade in install&ents over a pre9

deter&ined period of ti&e0

7. Ad%ance*

$o&e business houses get advances fro& their custo&ers and agents against orders

and this source is a short9ter& source of finance for the&0 It is a cheap source of

finance and in order to &ini&ize their invest&ent in /or-ing capital so&e fir&s

having long production cycle specially the fir&s &anufacturing industrial products

prefer to ta-e advances fro& their custo&ers0

@. actoring or Account* Recei%a)#e Credit.

"nother &ethod of raising short9ter& finance is through accounts receivable credit

offered by co&&ercial ban-s and factor0 " factor is a financial institution /hich offers

services relating to &anage&ent and financing of debts arising but of credit sales0

"t present factoring in India is rendered by only a fe/ financial institutions on a

recourse basis @o/ever the Report of the ,or-ing Aroup on Money Mar-et >aguely

'o&&ittee6 constituted by the Reserve )an- of India has reco&&ended that ban-s

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should be encouraged to set up factoring divisions to provide speedy finance to the

corporate entities0

Inspire of &any services offered by factoring it suffers fro& certain li&itations0 The

&ost critical fall outs of factoring include (i) the90high cost of factoring as co&paredto other sources of short9ter& finance (ii) the perception of financial /ea-ness about

the fir& availing factoring services and adverse i&pact of tough stance ta-en by

factor against a defaulting buy upon the borro/er resulting into reduced future

sales0

/. Accrued E'pen*e*

"ccrued e+penses are the e+penses /hich have been incurred but not yet due and

hence not yet paid also0 The &ost i&portant ite&s of accruals are /ages and

salaries interest and ta+es0 ,ages and salaries are usually paid on &onthly

fortnightly or /ee-ly basis for the services already rendered by e&ployees0 ven

inco&e ta+ is paid periodically &uch after the profits have been earned0 5i-e ta+es

interest is also paid periodically /hile a fir& uses the funds continuously0 Thus all

accrued e+penses can be used as a source of finance0

,. Deferred Income*

!eferred inco&es are inco&es received in advance before supplying goods or

services0 They represent funds received by a fir& for /hich it has to supply goods or

services in future0 These funds increase the li.uidity of a fir& and constitute an i&portant

source of short9ter& finance0

9. Commercia# Paper

'o&&ercial paper represents unsecured pro&issory notes issued by fir&s to raise short9

ter& funds0 The Reserve )an- of India has laid do/n a nu&ber of conditions to deter&ine

eligibility of a co&pany9for the issue of co&&ercial paper0

'o&&ercial paper is a cheaper source of raising short9ter& finance as co&pared to the

ban- credit and proves to be effective even during period of tight ban- credit @o/ever

it can be used as a source of finance only by large co&panies enjoying high credit

rating and sound financial health0 "nother disadvantage of co&&ercial paper is that it

cannot be redee&ed before the &aturity date even if the issuing fir& has surplus funds to

pay bac-0

+. 4or"ing Capita# inance =0 Commercia# =an"*

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'o&&ercial ban-s are the &ost i&portant source of short9ter& capital0 The &ajor portion

of /or-ing capital loans are provided by co&&ercial ban-s0 They provide a /ide

variety of loans tailored to &eet the specific re.uire&ents of a concern0

The different for&s in /hich the ban-s nor&ally provide loans and advances are asfollo/s E

(a) 5oans

(*) 'ash 'redits

(c) Overdrafts

($) :urchasing and !iscounting of bills0

4OR5IN( CAPITA& ANA&SIS OR 1EASURIN( THE 4OR5IN( CAPITA&

,or-ing capital is the lifeblood and nerve centre of a business0 o business can run

successfully /ithout an ade.uate a&ount of /or-ing capital0 Thus concept of /or-ing

capital has its o/n i&portance in a going concern0 " going concern usually has a positive

balance of /or-ing capital i.e., the e+cess of current assets over current liabilities but

so&eti&es the uses of /or-ing capital &ay be &ore than the sources resulting into a negative

value of /or-ing capital0 This negative balance is generally offset soon by gains in the

follo/ing periods0 " study of changes in the uses and sources of /or-ing capital is necessary

to evaluate the efficiency /ith /hich the /or-ing capital is e&ployed in a business0 This

involves the need of /or-ing capital analysis0

The analysis of /or-ing capital can be conducted through a nu&ber of devices such as E

10 Ratio "nalysis

20 Bunds Blo/ "nalysis

30 )udgeting

$. Ratio Ana#0*i*0 " ratio is a si&ple arith&etical e+pression of the relationship

of one nu&ber to another0 The techni.ue of ratio analysis can be e&ployed for

&easuring short9ter& li.uidity or /or-ing capital position of a fir&0 The

follo/ing ratios &ay be calculated for this purpose E

(a) 'urrent Ratio

(*) "cid Test Ratio

(c) "bsolute 5i.uid Ratio or 'ash :osition Ratio

($) Inventory Turnover Ratio

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(e) Receivables Turnover Ratio

(+) :ayables Turnover Ratio

(g) ,or-ing 'apital Turnover Ratio

(#) ,or-ing 'apital 5everage(i) Ratio of 'urrent 5iabilities to Tangible et ,orth

-. und* #o! Ana#0*i*.Bunds flo/ analysis is a technical device designated to study

the sources fro& /hich additional funds /ere derived and the use to /hich these sources

/ere put0 It is an effective &anage&ent tool to study changes in the financial position

/or-ing capital6 of a business enterprise bet/een beginning and ending financial

state&ents dates0 The funds flo/ analysis consists ofE (i)preparing schedule of changes in

/or-ing capital and (ii) state&ent of sources and application of funds0

6. 4or"ing Capita# =udget" budget is a financial and8or .uantitative e+pression of

business plans and policies to be pursued in the future period of ti&e0 ,or-ing capital

budget as a part of total budgeting process of a business is prepared esti&ating future

long9ter& and short9ter& /or-ing capital needs and the sources to finance the& and then

co&paring the budgeted figures /ith the actual perfor&ance for calculating variances if

any so that corrective actions &ay be ta-en in the future0 The successful i&ple&entationof /or-ing capital budget involves the preparing of separate budgets for various ele&ents

of /or-ing capital such as cash inventories and receivables etc0

1EANIN( O 4OR5IN( CAPITA&

'apital re.uired for a business can be classified under t/o &ain

categories i.,

i6 Bi+ed 'apital and ii6 ,or-ing 'apital0

very business needs funds for t/o purposes9for its establish&ent and to carry out its day9

to9day operations0 5ong9ter& funds are re.uired to create production facilities through

purchase of fi+ed assets such as plant and &achinery land building furniture etc0

Invest&ents in these assets represent that part of fir&Fs capital /hich is bloc-ed on a

per&anent or fi+ed basis and is called fi+ed capital0 Bunds are also needed for short9ter&

purposes for the purchase of ra/ &aterials pay&ent of /ages and other day9to9day

e+penses etc0 These funds are -no/n as /or-ing capital0

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"ccording to Gene" ten *erg, G'irculating capital &eans current assets of a

co&pany that are changed in the ordinary course of business fro& one for& to

another another as for e+a&ple fro& cash to inventories to receivables into cash0G

CONCEPTS O 4OR5IN( CAPITA&

There are t/o concepts of /or-ing capital E

"6 )alance $heet 'oncept

)6 Operating 'ycle or 'ircular Blo/ 'oncept

BA =a#ance Sheet Concept

There are t/o interpretations of /or-ing capital under the balance sheet concept E

(i) Aross ,or-ing 'apital0

(ii)et ,or-ing 'apital0

In the broad sense the ter& /or-ing capital refers to the gro"" working capita

an$ repre"ent", t#e a!o&nt o+ +&n$" ine"te$ in c&rrent a""et".

In a narro/ sense the ter& /or-ing capital refers to the net /or-ing capital0 et

/or-ing capital is the e+cess of current assets over current liabilities or say E

Net 4or"ing Capita# Current A**et* Current #ia)i#itie*.

et /or-ing capital &ay be positive or negative0 ,hen the current assets e+ceed the

current liabilities the /or-ing capital is positive and the negative /or-ing capital results

/hen the current liabilities are &ore than the current assets0 'urrent liabilities are those

liabilities /hich are intended to be paid in the ordinary course of business /ithin a short

period of nor&ally one accounting year out of the current assets or the inco&e of the

business0

The gross /or-ing capital concept is financial or going concern concept /hereas net

/or-ing capital is an accounting concept of /or-ing capital0 These t/o concepts of /or-ing

capital are not e+clusiverather both have their o/n &erits0

The gro** concept i* *ometime* preferred to the net concept of !or"ing capita# for the

fo##o!ing rea*on*:

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10 It enables the enterprise to provide correct a&ount of /or-ing capital at the

right ti&e0

20 very &anage&ent is &ore interested in the total current assets /ith /hich it

has to operate than the sources fro& /here it is &ade available0

30 The gross concept ta-es into consideration the fact that every increase in the

funds of the enterprise /ould increase its /or-ing capital0

40 The gross concept of /or-ing capital is &ore useful in deter&ining the rate of

return on

invest&ents in /or-ing capital0

The net !or"ing capita# concept8 ho!e%er8 i* a#*o important for the fo##o!ing

rea*on*:

10 It is a .ualitative concept /hich indicates the fir&Fs ability to &eet its

operating e+penses and short9ter& liabilities0

20 It indicates the &argin of protection available to the short9ter& creditors i0e.,

t#ee+cess of current assets over current liabilities0

30 It is an indicator of the financial soundness of an enterprise0

40 It suggests the need for financing a part of the /or-ing capital re.uire&ents out

of per&anent sources of funds0

To conclude it &ay be said that both gross and net concepts of /or-ing capital are

i&portant aspects of the /or-ing capital &anage&ent0 The net concept of /or-ing capital

&ay be suitable only for proprietary for& of organisations such as sole9trader or partnership

fir&s0 )ut the gross concept is very suitable to the co&pany for& of organisation /here

there is a divorce bet/een o/nership &anage&ent and control0

B= Operating C0c#e or Circu#ar #o! Concept

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"s discussed earlier /or-ing capital refers to that part of fir&Fs capital /hich is re.uired for

financing short9ter& or current assets such as cash &ar-etable securities debtors and

inventoriesE Bunds thus invested in current assets -eep revolving fast and are being

constantly converted into cash and this cash flo/s out again in e+change for other currentassets0 The circular flo/ concept of /or-ing capital is based upon this operating or /or-ing

capital cycle of a fir&0 The cycle starts /ith the purchase of ra/ &aterial and other

resources and ends /ith the realisation of cash fro& the sale of finished goods0 It involves

purchase of ra/ &aterial and stores its conversion into stoc- of finished goods through

/or-9in9progress /ith progressive incre&ent of labour and service costs conversion of

finished stoc- into sales debtors and receivables and ulti&ately realisation of cash and this

cycle continues again fro& cash to purchase of ra/ &aterial and so on0

C&ASSIICATION OR 5INDS O 4OR5IN( CAPITA&

,or-ing capital &ay be classified in t/o /aysE

(a) On the basis of concept0

(*) On the basis of ti&e0

On the basis of concept /or-ing capital is classified as gro""

working capita an$ net working capita as discussed earlier0 This

classification is i&portant fro& the point of vie/ of the financial

&anager0

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On the basis of ti&e /or-ing capital &ay be classified asE

10 :er&anent or fi+ed /or-ing capital0

20 Te&porary or variable /or-ing capital0

$.Permanent or i'ed 4or"ing Capita#0 :er&anent or fi+ed /or-ing

capital is the &ini&u& a&ount /hich is re.uired to ensure effective

utilisation of fi+ed facilities and for &aintaining the circulation of

current assets0 There is al/ays a &ini&u& level of current assets /hich

is continuously re.uired by the enterprise to carry out its nor&al

business operations0

-. Temporar0 or 2aria)#e 4or"ing Capita#0 Te&porary or variable

/or-ing capital is the a&ount of /or-ing capital /hich is re.uired to

&eet the "ea"ona $e!an$" an$ "o!e "pecia eigencie". /aria*e

working capita can *e +&rt#er ca""i+ie$ a" "ea"ona working capita

an$ "pecia working capita

I1PORTANCE OR AD2ANTA(ES O ADE3UATE 4OR5IN(

CAPITA&

,or-ing capital is the life blood and nerve centre of a business0 ;ust as

circulation of blood is essential in the hu&an body for &aintaining life

/or-ing capital is very essential to &aintain the s&ooth running of a

business0 o business can run successfully /ithout an ade.uate a&ount

of /or-ing capital0 The &ain advantages of &aintaining ade.uate

a&ount of /or-ing capital are as follo/sE

$. So#%enc0 of the )u*ine**0 "de.uate /or-ing capital helps in

&aintaining solvency of

the business by providing uninterrupted flo/ of production0

-. (ood!i##0 $ufficient /or-ing capital enables a business concern to

&a-e pro&pt

pay&ents and hence helps in creating and &aintaining good/ill0

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6. Ea*0 #oan*0 " concern having ade.uate /or-ing capital high

solvency and good credit

standing can arrange loans fro& ban-s and others on easy and

favourable ter&s0

7. Ca*h di*count*0 "de.uate /or-ing capital also enables a concern to

avail cash discount

on the purchases and hence it reduces costs0

@. Regu#ar *upp#0 of ra! materia#*0 $ufficient /or-ing capital

ensures regular supply of

ra/ &aterials and continuous production0

/. Regu#ar pa0ment of *a#arie*8 !age* and other da0toda0

commitment*0 " co&pany

/hich has a&ple /or-ing capital can &a-e regular pay&ent of salaries

/ages and other

day9to9day co&&it&ents /hich raises the &orale of its e&ployees

increase their efficiency reduces /astages and costs and

enhances production and profits0

,. E'p#oitation of fa%oura)#e mar"et condition*. Only concerns /ith

ade.uate /or-ing

capital can e+ploit favourable &ar-et conditions such as purchasing its

re.uire&ents in

)ul- /hen the prices are lo/er and by holding its inventories for

higher prices0

9. A)i#it0 to face cri*i*. "de.uate /or-ing capital enables a concern

to face business crisis

in e&ergencies such as depression because during such periods

generally there is

&uch pressure on /or-ing capital0

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+. 3uic" and regu#ar return on in%e*tment*. very Investor /ants a

.uic- and regular

return on his invest&ents0 $ufficiency of /or-ing capital enables a

concern to pay

.uic- and regular dividends to its investors as there &ay not be &uch

pressure to plough

bac- profits0

$. High mora#e. "de.uacy of /or-ing capital creates an environ&ent

of security confidence high &orale and creates overall efficiency in a

business0

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E;CESS OR INADE3UATE 4OR5IN( CAPITA&

Di*ad%antage* of Redundant or E'ce**i%e 4or"ing Capita#

10 +cessive ,or-ing 'apital &eans idle funds /hich earn no profits

for the business and hence the business cannot earn a proper rate of

return on its invest&ents0

20 ,hen there is a redundant /or-ing capital it &ay lead to

unnecessary purchasing and accu&ulation of Inventories causing &ore

chances of theft /aste and losses0

30 +cessive /or-ing capital i&plies e+cessive debtors and defective

credit policy that &ay cause higher incidence of bad debts0

40 ,hen there is e+cessive /or-ing capital relations /ith ban-s and

other financial institutions &ay not be &aintained0

0 !ue to lo/ rate of return on invest&ents the value of shares &ay also

fall0

Di*ad%antage* or Danger* of Inade


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ACTORS DETER1ININ( THE 4OR5IN( CAPITA&

RE3UIRE1ENTS

The /or-ing capital re.uire&ents of a concern depend upon a

large Fnu&ber of factors such as nature and size of business thecharacter of their operations the length of production cycles the rate of

stoc- turnover and the state of econo&ic situation0@o/ever the

follo/ing are i&portant factors generally influencing the /or-ing

capital re.uire&ents0

$. Nature or Character of =u*ine**0 The /or-ing capital

re.uire&ents of a fir& basically depend upon the nature of its business0

:ublic utility underta-ings li-e lectricity ,ater $upply and Rail/ays

need very li&ited /or-ing capital because they offer cash sales only

and supply services not products and as such no funds are tied up in

inventories and receivable0

-. Si>e of =u*ine**?Sca#e of Operation*. The /or-ing capital

re.uire&ents of a concern are directly influenced by the size of its

business /hich &ay be &easured in ter&s of scale of operations0

Areater the size of a business unit generally larger /ill be the

re.uire&ents of /or-ing capital0

6. Production Po#ic0.In certain industries the de&and is subject to

/ide fluctuations due to seasonal variations0 The re.uire&ents of

/or-ing capital in such cases depend upon the production policy0 If

the policy is to -eep production steady by accu&ulating inventories it

/ill re.uire higher /or-ing capital

7. 4or"ing Capita# C0c#e. In a &anufacturing concern the /or-ing

capital cycle starts /ith the purchase of ra/ &aterial and ends /ith the

realisation of cash fro& the sale of finished products0 This cycle

involves purchase of ra/ &aterials and stores its conversion into stoc-s

of finished goods through /or-9in9progress /ith progressive incre&ent

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of labour and service costs conversion of finished stoc- into sales

debtors and receivables and ulti&ately realisation of cash and this cycle

continues again fro& cash to purchase of ra/ &aterial and so on0

@. Rate of Stoc" Turno%er. There is a high degree of inverse co9

relationship bet/een the .uantu& of /or-ing capital and the velocity or

speed /ith /hich the sales are effected " fir& having a high rate of

stoc- turnover /ill need lo/er a&ount of /or-ing capital as co&pared

to a fir& having a lo/ rate of turnover0

/. Credit Po#ic0. The credit policy of a concern in its dealings /ith

debtors and creditors influence considerably the re.uire&ents pf

/or-ing capital0

9. Rate of (ro!th of =u*ine**. The /or-ing capital re.uire&ents of

a concern increase /ith the gro/th and e+pansion of its business

activities0 "lthough it is difficult to deter&ine the relationship

bet/een the gro/th in the volu&e of business and the gro/th in the

/or-ing capital of a business yet it &ay be concluded that for nor&al

rate of e+pansion in the volu&e of business /e &ay have retained

profits to provide for &ore /or-ing capital but in

+. Earning Capacit0 and Di%idend Po#ic00 $o&e fir&s have &ore

earning capacity than others due to .uality of their products

&onopoly conditions etc00 The dividend policy of a concern also

influences the re.uire&ents of its /or-ing capital0

$. Price &e%e# Change*0 'hanges in the price level also affect the

/or-ing capital re.uire&ents0 The effect of rising prices &ay be

different for different fir&s0 $o&e fir&s &ay be affected &uch /hile

so&e others &ay not be affected at all by the rise in prices0

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1ANA(E1ENT O 4OR5IN( CAPITA&

,or-ing 'apital in general practice refers to the e+cess of current

assets over current liabilities0 Manage&ent of /or-ing capital

therefore is concerned /ith the proble&s that arise in atte&pting to

&anage the current assets the current liabilities and the inter9

relationship that e+ists bet/een the&0

The basic goal of /or-ing capital &anage&ent is to &anage

the current assets and current liabilities of a fir& in such a /ay that a

satisfactory level of /or-ing capital is &aintained i.e., it is neither

inade.uate nor e+cessive0 ,or-ing capital &anage&ent policies of a

fir& have a great effect on its profitability li.uidity and structural

health of the organisation0 In this conte+t -working capita

!anage!ent i" t#ree $i!en"iona in natureE

(i) !i&ension I is concerned G/ith the for&ulation of policies /ith

regard to profitability

ris- and li.uidity0

(ii) !i&ension II is concerned /ith the decisions about the

co&position and level of currentassets0

(iii) !i&ension III is concerned /ith the decisions about the

co&position and level of current 5iabilities0

-. Share*. Issue of shares is the &ost i&portant source for

raising the per&anent or long9ter&

capital0 " co&pany can issue various types of shares as e.uity

shares preference shares anddeferred shares0 "s far as possible a co&pany should raise the

&a+i&u& a&ount

of per&anent capital by the issue of shares

6. De)enture*0 " debenture is an instru&ent issued by the

co&pany ac-no/ledging its debt to

its holder0 The debenture9holder are the creditors of the

co&pany0 " fi+ed rate of interest is

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paid on debentures0 The interest on debentures is a charge

against profit and loss account0

The debentures are generally given floating charge on the assets

of the co&pany0 ,hen thedebentures are secured they are paid on priority to other

creditors0 The debentures as a source of

finance have a nu&ber of advantages both to the investors and

the co&pany0 The fir& issuing

debentures also enjoys a nu&ber of benefits such as tra$ing on

e%&it', retention of control ta+ benefits etc0

6. Pu)#ic Depo*it*0 :ublic deposits are the fi+ed deposits accepted

by a business enterprise directly fro& the public0 This source of

raising short ter& and &ediu&9terrn finance /as very popular

in the absence of ban-ing facilities0 :ublic deposits asF a source

of finance have a large nu&ber of advantages such as very

si&ple and convenient source of finance ta+ation benefits

trading on e.uity no need of securities and an ine+pensive

source of finance0 on9ban-ing concerns cannot borro/ by /ay

of public deposits &ore than 2H of its paid9up capital and free

reserves0

7. P#oughing =ac" of Profit*. :loughing bac- of profits &eans

the reinvest&ents by concern of its surplus earnings in its

business0 This &ethod of finance has a nu&ber of advantages

as it is the cheapest rather cost9free source of finance there is no

need to -eep securities there is no dilution of control it ensuresstable dividend policy and gains confidence of the public0

@. &oan* from inancia# In*titution*0 Binancial institutions such

as 'o&&ercial )an-s 5ife Insurance 'orporation Industrial

Binance 'orporation of India $tate Binancial 'orporations

$tate Industrial !evelop&ent 'orporations Industrial

!evelop&ent )an- of India etc0 also provide short9ter&

&ediu&9ter& and long9ter& loans0

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INANCIN( O TE1PORAR8 2ARIA=&E OR SHORTTER1

4OR5IN( CAPITA&

The main *ource of *hortterm !or"ing capita# are a*

fo##o!*

$. Indigenou* =an"er*

:rivate &oney9lenders and Fother country ban-ers used to be

the only source of finance prior to the establish&ent of

co&&ercial ban-s0 o/9a 9days /ith the develop&ent of

co&&ercial ban-s they have lost their &onopoly0 )ut even

today so&e business houses have to depend upon indigenous

ban-ers for obtaining loans to &eet their /or-ing capital

re.uire&ent

-. Trade Credit

Trade credit refers to the credit e+tended by the suppliers of

goods in the nor&al course of business0 "s9present day

co&&erce is built upon credit the trade credit arrange&ent of

a fir& /ith its suppliers is an i&portant source of short9ter&finance

The &ain advantages of trade credit as a source of

short9ter& finance includeE

(i) It is an easy and convenient &ethod of finance0

(ii) It is fle+ible as the credit increases /ith the gro/th

of the fir&0

(iii) It is infor&al and spontaneous source of finance0

6. In*ta##ment Credit

This is another &ethod by /hich the assets are purchased and

the possession of goods is ta-en i&&ediately but the pay&ent is

&ade in instal&ents over a pre9deter&ined period of ti&e0

7. Ad%ance*

$o&e business houses get advances fro& their custo&ers and

agents against orders and this source is a short9ter& source of

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finance for the&0 It is a cheap source of finance and in order to

&ini&ize their invest&ent in /or-ing capital so&e fir&s having

long production cycle specially the fir&s &anufacturing

industrial products prefer to ta-e advances fro& their custo&ers0

@. actoring or Account* Recei%a)#e Credit.

"nother &ethod of raising short9ter& finance is through accounts

receivable credit offered by co&&ercial ban-s and factor0 "

factor is a financial institution /hich offers services relating to

&anage&ent and financing of debts arising but of credit sales0

"t present factoring in India is rendered by only a fe/ financial

institutions on a recourse basis @o/ever the Report of the

,or-ing Aroup on Money Mar-et >aghul 'o&&ittee6

constituted by the Reserve )an- of India has reco&&ended that

ban-s should be encouraged to set up factoring divisions to

provide speedy finance to the corporate entities0

Inspite of &any services offered by factoring it suffers fro&

certain li&itations0 The &ost critical fall outs of factoring

include (i) the90high cost of factoring as co&pared to other

sources of short9ter& finance (ii) the perception of financial

/ea-ness about the fir& availing factoring services and adverse

i&pact of tough stance ta-en by factor against a defaulting buy

upon the borro/er resulting into reduced future sales0

/. Accrued E'pen*e*

"ccrued e+penses are the e+penses /hich have been incurred

but not yet due and hence not yet paid also0 The &ost i&portant

ite&s of accruals are /ages and salaries interest and ta+es0

,ages and salaries are usually paid on &onthly fortnightly or

/ee-ly basis for the services already rendered by e&ployees0

ven inco&e ta+ is paid periodically &uch after the profits have

been earned0 5i-e ta+es interest is also paid periodically /hile a

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fir& uses the funds continuously0 Thus all accrued e+penses

can be used as a source of finance0

,. Deferred Income*

!eferred inco&es are inco&es received in advance before

supplying goods or services0 They represent funds received by a

fir& for /hich it has to supply goods or services in future0 These

funds increase the li.uidity of a fir& and constitute an i&portant

source of short9ter& finance0

9. Commercia# Paper

'o&&ercial paper represents unsecured pro&issory notes issued

by fir&s to raise short9ter& funds0 The Reserve )an- of India

has laid do/n a nu&ber of conditions to deter&ine eligibility of

a co&pany9for the issue of co&&ercial paper0

'o&&ercial paper is a cheaper source of raising short9ter&

finance as co&pared to the ban- credit and proves to be effective

even during period of tight ban- credit @o/ever it can be used

as a source of finance only by large co&panies enjoying high

credit rating and sound financial health0 "nother disadvantage of

co&&ercial paper is that it cannot be redee&ed before the

&aturity date even if the issuing fir& has surplus funds to pay

bac-0

+. 4or"ing Capita# inance =0 Commercia# =an"*

'o&&ercial ban-s are the &ost i&portant source of short9ter&

capital0 The &ajor portion of /or-ing capital loans are

provided by co&&ercial ban-s0 They provide a /ide variety of

loans tailored to &eet the specific re.uire&ents of a concern0

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The different for&s in /hich the ban-s nor&ally provide loans

and advances are as follo/s E

(a) 5oans

(*) 'ash 'redits(c) Overdrafts

($) :urchasing and !iscounting of bills0

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4OR5IN( CAPITA& ANA&SIS OR 1EASURIN( THE

4OR5IN( CAPITA&

,or-ing capital is the lifeblood and nerve centre of a business0 o

business can run successfully /ithout an ade.uate a&ount of

/or-ing capital0 Thus concept of /or-ing capital has its o/n

i&portance in a going concern0 " going concern usually has a

positive balance of /or-ing capital i.e., the e+cess of current

assets over current liabilities but so&eti&es the uses of /or-ing

capital &ay be &ore than the sources resulting into a negative

value of /or-ing capital0 This negative balance is generally offset

soon by gains in the follo/ing periods0 " study of changes in the

uses and sources of /or-ing capital is necessary to evaluate the

efficiency /ith /hich the /or-ing capital is e&ployed in a

business0 This involves the need of /or-ing capital analysis0

The analysis of /or-ing capital can be conducted through a

nu&ber of devices such as E

10 Ratio "nalysis

20 Bunds Blo/ "nalysis30 )udgeting

$. Ratio Ana#0*i*0 " ratio is a si&ple arith&etical e+pression of the

relationship of one nu&ber to another0 The techni.ue of ratio analysis

can be e&ployed for &easuring short9ter& li.uidity or /or-ing capital

position of a fir&0 The follo/ing ratios &ay be calculated for this

purpose E(a) 'urrent Ratio

(*) "cid Test Ratio

(c) "bsolute 5i.uid Ratio or 'ash :osition Ratio

($) Inventory Turnover Ratio

(e) Receivables Turnover Ratio

(+) :ayables Turnover Ratio

(g) ,or-ing 'apital Turnover Ratio

(#) ,or-ing 'apital 5everage

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(i) Ratio of 'urrent 5iabilities to Tangible et ,orth

-. und* #o! Ana#0*i*.Bunds flo/ analysis is a technical device

designated to study the sources fro& /hich additional funds /ere

derived and the use to /hich these sources /ere put0 It is an effective

&anage&ent tool to study changes in the financial position /or-ing

capital6 of a business enterprise bet/een beginning and ending

financial state&ents dates0 The funds flo/ analysis consists ofE (i)

preparing schedule of changes in /or-ing capital and (ii) state&ent

of sources and application of funds0

6. 4or"ing Capita# =udget" budget is a financial and8or

.uantitative e+pression of business plans and policies to be pursued in

the future period of ti&e0 ,or-ing capital budget as a part of total

budgeting process of a business is prepared esti&ating future long9

ter& and short9ter& /or-ing capital needs and the sources to finance

the& and then co&paring the budgeted figures /ith the actual

perfor&ance for calculating variances if any so that corrective

actions &ay be ta-en in the future0 The successful i&ple&entation of

/or-ing capital budget involves the preparing of separate budgets for

various ele&ents of /or-ing capital such as cash inventories and

receivables etc0

The follo/ing ratios are of interest to those &anaging /or-ing capitalE ,OR=IA '":IT"5 R"TIO

5IJ?I! ITR>"5 M"$?R

$TO'= T?RO>R

!)TOR$ R"TIO

'R!ITOR$ R"TIO

4OR5IN( CAPITA& RATIO Current A**et*

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Current &ia)i#itie*

The /or-ing capital ratio or current ratio6 atte&pts to &easure the level

of li.uidity that is the level of safety provided by the e+cess of current

assets over current liabilities0The G.uic- ratioG a derivative e+cludes inventories fro& the current

assets considering only those assets &ost s/iftly realizable0 There are

also other possible refine&ents0

There is no particular bench&ar- value or range that can be

reco&&ended as suitable for all govern&ent depart&ents0 @o/ever if a

depart&ent trac-s its o/n /or-ing capital ratio over a period of ti&e the

trends9the /ay in /hich the li.uidity is changing9/ill beco&e apparent0

&I3UID INTER2A& RATIO

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Most depart&ents do not hold significant inventories of finished goods

so this ratio /ill have only li&ited relevance0

DE=TOR RATIOThere is a close relationship bet/een debtors and credit sales to third

parties that is sales other than to the 'ro/n60 If sales increase debtors

/ill increase and conversely if sales decrease debtors /ill decrease0

The best /ay to e+plain this relationship is to e+press it as the nu&ber of

days that credit sales are carried on the boo-sE

Credit *a#e* per period ' da0* per period

A%erage De)tor*

,here trading ter&s are 3< days net cash and custo&ers buy

fro& day9to9day during the 3< day period and pay 3< days after a

state&ent is rendered a collection period of 4 days the average

bet/een 3< and #< days6 /ould be satisfactory0

CREDITOR RATIO

This ratio is &uch the sa&e as the debtor ratio0 It e+presses the

relationship bet/een credit purchases and the liability to creditors0 It can

be stated as the nu&ber of days that credit purchases are carried on the

boo-s0

Credit purcha*e per period ' da0* per period

A%erage Creditor*&IST O CURRENT OR

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Chapter II

O)ecti%e* of the *tud0

34


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CHAPTER II:

O=FECTI2ES O THE STUD

O)ecti%e* of the re*earch *tud0

Manage&ent of /or-ing capital is very essential in &odern business0

$ince the ulti&ate ai& of any fir& is to increase or &a+i&ize its profit

the objectives of this research study have set as follo/sE

The follo/ing are the &ain objectives of &y research study0

10 To e+a&ine the profitability of the co&pany

20 To e+a&ine the /or-ing capital of the co&pany0

30 To e+a&ine the li.uidity position of the $ $

MIR"5$6 5IMIT! under study0

40 To provide the necessary suggestions on the basis of the

research study0

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Chapter III

Re*earch

1ethodo#og0

3#


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RESEARCH 1ETHODO&O(

The &ost syste&atic /ay to solve a research proble& is the research

&ethodology0 Research &ethodology is the science of studying ho/ aparticular proble& is done scientifically and syste&atically0 The

researcher &ust -no/ the research &ethods or techni.ues and the

&ethodology of the sa&e0 Research &ethodology has &any di&ensions

and research &ethods do constitute a part of research &ethodology0 Thus

the research &ethodology includes the research &ethods the logic

behind the &ethods /e use in the conte+t of our research study and

e+plain /hy /e are using a particular &ethod or techni.ue and /hy /e

are not using other &ethods0

The purpose of this research is to contribute to/ards a very i&portant

aspect of financial &anage&ent -no/n as /or-ing capital &anage&ent

/ith reference to the under &entioned $ $ MIR"5$6 5IMIT!0

In this research study CThe ,or-ing 'apital Manage&ent in $

$ MIR"5$6 5IMIT! a case study of selected unitsD the /or-ing

capital &anage&ent of $ $ MIR"5$6 5IMIT! has studied

carefully0 >arious techni.ues have used to -no/ about the cash position

of the three units their inventory &anage&ent and their receivable

&anage&ent00

Data Co##ection

Bro& the various &ethods pertaining in data collection the secondary

data collection &ethod is used in this research study0 " careful and

co&plete observation of the secondary data is &ade for this study0 The

/or-ing capital &anage&ent of $ $ MIR"5$6 5IMIT! /ere

studied carefully for a period of five years0 The reason for restricting to

this period /as that the latest data for investigation /as available for this

period0 The study is based on secondary data0 The data has collected

fro& the annual reports i0e0 balance sheets profit and loss account audit

reports and sources and uses of funds of $ $ MIR"5$65IMIT!0

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!ifferent ratios that e+plain the effectiveness of the /or-ing

capital &anage&ent of the fir&s are studied here0 They are in ter&s of

cash &anage&ent receivable &anage&ent and inventory &anage&ent

of the fir&s0 Many ratios /ere calculated to &easure about the cash&anage&ent policy of the fir& and interpretation of the sa&e has given

/ith a graphical representation0 "nd in the sa&e /ay their receivable

&anage&ent policy and inventory &anage&ent policy /ere studied and

interpreted very clearly0 $uggestions have also &ade on the basis of this

study0 )oth tabular representation of the data and the graphical

representations of the sa&e add the effectiveness of the ratios calculated0

Scope of the *tud0

The scope of this research study relates to the /or-ing capital

&anage&ent of $ $ MIR"5$6 5IMIT!0 The analysis of

/or-ing capital has &ade against the financial perfor&ance status in the

present day /orld0 The i&portant aspects of /or-ing capital

&anage&ent /hich have received ade.uate attention are production

policies size of the business and length of &anufacturing cycle credit

policy and turnover of circulating capital econo&ies of scale current

asset policies and other factors0

&imitation

very research study has to encounter so&e constraints0 The

&ajor constraints /hich present day study &ay face are non9availability

of sufficient data0 This study is based on analysis of the published annual

reports of last five years only and the secondary data collection &ethod

is used to study0 @ence the li&itations of the secondary data /ill be the

li&itation of this research study0 @o/ever &uch effort is &ade to

beco&e very near to the fact and actual position0 Bor the revie/ of the

literature it beca&e very difficult to get the details of the present study

&ade0 Infor&ation collected fro& the various boo-s available here in

various libraries of this particular state and the related &aterial /hich

3(


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are available in different Internet sites has only used for this research

study0

3*


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Chapter I2

profi#e of theOrgani>ation

4


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PROI&E O THE OR(ANIGATION

S N S (MINERALS) LIMITED

'o&pany :rofileManufacturers e+porters and suppliers of decorative li&e stones

dolo&ite hydrated li&e calcined li&e blac- slate stone chocolate slate

stone calcite dolo&ite .uartz li&estone li&e talc dolo&ite &inerals

forest bro/n li&e stone hydrated li&e china clay po/ders &ineral talc

dolo&ite po/der potassiu& iodide cobalt sulphate0

$ $ &inerals6 5i&ited /as registered on 1 March 1*#*0 $ $

&inerals6 5i&itedFs 'orporate Identification u&ber 'I6 is

51*


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Director Name

$anjiv )eri

"nil =u&ar )erry

@i&anshu =othari

=ui#ding Con*truction 1ateria#8 E


43/62

Chapter 2

Data Ana#0*i* and

Interpretation

43


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CHAPTER 2:

DATA ANA&SIS AND INTERPRETATION

In this fast gro/ing Indian cono&y there are &any financial &atters

/hich affects directly and indirectly to the ,or-ing 'apital of the

organization0 $o the organization &ust be very vigilant in &anage&ent

of internal e+ternal and environ&ental develop&ents and financial

plans and in revie/ of it7s /or-ing in ti&e to ti&e0 " progressing

organization &ust -no/ /hen to loo- for ,or-ing 'apital funds ho/ to

use the& ho/ to &easure plan and control the&0 Bor an effective

&anage&ent of ,or-ing 'apital it re.uires a clear &ission and vision0

'ash Manage&ent Inventory Manage&ent and Receivable

Manage&ent are the three i&portant areas of ,or-ing 'apital

Manage&ent0 The t/in objectives of ,or-ing 'apital &anage&ent can

be ter&ed as profitability and li.uidity0 If there is increased profitability

it /ill enable the shareholders to get &a+i&u& return on their

invest&ent0 In the run of &a-ing &ore profits &any li.uidity proble&

&ay arise0 Over concentration on li.uidity /ill dilute the profitability0

$o the &anage&ent of ,or-ing 'apital gives a proper solution and

establishes the best possible trade off bet/een the profitability of net

assets e&ployed and the ability to pay current liabilities as they fall due0

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Data Ana#0*i* and Interpretation

4OR5IN( CAPITA& CURRENT ASSETS CURRENT

&IA=I&ITIES

4OR5IN( CAPITA&

Bin R*. -+ -$ -$$ -$- -$6

'urrent "ssets 1*3#*


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!hich i* a not good *ign for the compan0 and it financia# po*ition i*

%er0 !ea".

4#


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CURRENT ASSETS

CURRENT ASSETS

Bin R*. -+ -$ -$$ -$- -$6

Inventories 4(%3


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CURRENT &IA=I&ITIES

Current &ia)i#itie*

Bin R*. -+ -$ -$$ -$- -$6

5iabilities 3112113 2**(2* 3


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compan0 i* increa*ing 0ear )0 0ear !hich i* a not a good *ign for

the compan00

4*


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CURRENT RATIO

The current ratiois a financial ratiothat &easures /hether or not a fir&

has enough resources to pay its debts over the ne+t 12 &onths0 It

co&pares a fir&Fs current assetsto its current liabilities0It is e+pressed

as follo/sE

CURRENT RATIO CURRENT ASSETS ? CURRENT

&IA=I&ITIES

Bin R*. -+ -$ -$$ -$- -$6

'urrent "ssets 1*3#*


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#i


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4OR5IN( CAPITA& TURNO2ER RATIO

NET SA&ES ? 4OR5IN( CAPITA&

Bin R*. -+ -$ -$$ -$- -$6

et $ales 12(2*%12 11(%3*34 1#4(


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IN2ENTOR TURNO2ER RATIO

NET SA&ES ? IN2ENTOR

Bin R*. -+ -$ -$$ -$- -$6

et $ales 12(2*%12 11(%3*34 1#4(


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DE=TORS TURNO2ER RATIO

NET SA&ES ? DE=TORS

Bin R*. -+ -$ -$$ -$- -$6

et $ales 12(2*%12 11(%3*34 1#4(


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O=SER2ATIONS

INDIN(S


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O=SER2ATIONS INDIN(S

10 ,or-ing capital of the co&pany is decreasing and negative

/hich sho/s that co&pany do not has sufficient funds to &eet

out its liabilities0 In the year 2


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CONC&USION

%


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CONC&USION

,or-ing capital is one of the i&portant aspects of operational

efficiency of business0 )oth the current assess and current

liabilities are very &uch influencing /or-ing capital of

organization0

,or-ing capital is the e+cess of current "ssets over current

liabilities0

,or-ing capital is i&portant to the co&pany is i&portant to

co&pany therefore to -eep ade.uate /or-ing capital /ith the

co&pany

?nderstanding 'o&pany7s cash flo/ health is essential to

&a-ing invest&ent decision0

" good /ay to judge a co&pany7s cash flo/ prospects is to loo-

at its /or-ing capital &anage&ent0

(


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*


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Sugge*tion*

#


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SU((ESTIONS

$. It is suggested that the financial &anager &ust be very vigilant in

the &anage&ent of /or-ing capital as it significantly affect the

profitability of the fir&

-. Binance &anager &ust consider the variables that affect the

profitability of the fir& directly or indirectly and proper attention

&ust be given to control these variables0

6. Manage&ent &ust provide proper training to its finance

&anagers to strengthen their -no/ledge in &anaging the

different areas of /or-ing capital &anage&ent li-e cash

&anage&ent inventory &anage&ent receivable &anage&ent

and &ar-etable securities &anage&ent etc0

7. It is suggested that the co&panies &ust give a better presentation

of creditors for the relative period and for the earlier periods

separately0

@. The co&panies &ust encourage and support the outside scholars

/ho /ant to conduct research studies on their co&panies7

financial perfor&ance and other relevant areas of &anage&ent0

/. Manage&ent of the co&pany should revie/ the credit policy so

as to reduce account receivable0 This could be done by ta-ing

into the consideration of follo/ing &easuresE

It should increase the collection efforts0 This could be done by

planning the collection0

The co&pany should classify its dealers on the bases of ris-

categories and should set different ter&s and conditions for

different dealers0

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The fir& allo/ a longer debtors collection period and enjoy a

very short pay&ent period due to /hich the funds of the

co&pany are unnecessarily engaged0

,. It is suggested that co&parison of the result of one industry /ithanother si&ilar industry /ill help to bring proper conclusions of

the study and also it adds effectiveness to the results0

9. " -een probe into the financial para&eters of each $ $

MIR"5$6 5IMIT! and their difficulties in arranging the

/or-ing funds /ill give a clear picture about the present day

condition of the $ $ MIR"5$6 5IMIT! overall0

+. The scope of further research can be e+tended to other -een areas

of /or-ing capital &anage&ent including cash &ar-etable

securities receivables and inventory0

$. " further intense e+ploration of the variables selected for this

research study can be done to find out the e+tend of deviations

happen in the /or-ing capital of any fir& so that the finance

&anagers can be very vigilant in their policies and can e+ercise a

good control over all those variables /hich directly or indirectly

affect the life of the fir&0

If the &anage&ent of $ $ MIR"5$6 5IMIT!

follo/ the suggestions &entioned above /hich have &ade on

the basis of the conclusion of this detailed research study they

can i&prove the financial condition of their concerns /ith

&ini&u& level of /or-ing fund0

Final 333 = = Working Capital Management s n s Limited

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