Full File Eastman

8/17/2019 Full File Eastman

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PROJECT REPORT

ON

“ANAYLSIS OF WORKING CAPITAL

OF

EASTMAN CAST & FORGE LTD.”


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COMPANY PROFILE:We cast and !"#$ %td. pleasure to introduce ourselves as quality manufacturers

established since 1989. Our manufacturing is based on Taiwanese & ndian Technology to get

optimum quality and cost effectiveness. We basically deal with manufacturing all types of

handtools! agricultural tools! construction tools! automotive tools! and plumbing tools etc. We

believe in research! design! engineering! quality testing! pac"ing and then merchandising. We are

committed to assure our customers with quality tool and it is our endeavor to offer our vital

services to our esteemed customers with the superiority at very rational and competitive prices.

Our products by our valued customers in the country and abroad are gladly appreciated which

builds the pillars of encouragement to us. Our produce of goods confirms to the international

standards and we e#port them to more than $% countries of the world li"e ussia! 'outh (merica!

)entral (merica! *urope! 'outh *ast! (sian )ountries! +iddle *ast! and (frica etc.

We have an outstanding wor"manship including a dedicated team of engineers and mar"eting

professionals! firm quality control! first,rate quality produce in accordance with international

standards-/! 0'! (/'! competitive pricing! timely deliveries! customi2ed pac"ing and

branding.

3and tools are basically the types of non,powered tools! hence the tools which do not require

power to run but a torque produced by an easy manual force. 3andtools are designed for a

particular 4ob used by e#perts and are applicable in o,t,5ourself -5 pro4ects! li"e! home

repairs! general maintenance! building mechanics! woodwor"ing! and gardening. 3andtools

provide mechanical advantage in accomplishing a physical 4ob. Our produce of handtools have

high hardness even at elevated temperatures! toughness so that the tool does not chip or fracture!

machined to e#tremely stringent tolerances which ma"es it stiff and ensuring straight and

accurate wor"ing without bending and twisting! high wear and tear resistance so as to have

tolerable tool life before the requiring it to be changed! strong coated with deep chrome finish

that increases its durability and life. 3andtools are widely applicable in repair wor"s!

construction wor"s! automotive wor"s etc. *very hand tool is further categori2ed as quite a long

list as they are available according to the numerable range of typical application! design shape!

si2e etc.


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OARD OF DIRECTORS

The management team of the 6roup comprises of e#perienced professionals who have

wor"ed with the vision of ta"ing the ndustries 7imited to the top. They have always

believed in delivering the best quality products at or before the scheduled time. Our management

team has been constantly achieving its ob4ective of maintaining leadership in the target mar"ets.

*ach member of the team is dedicated to increase the financial performance of the organi2ation.

3eaded by our + +r. 'hri 0.. 'ingal! the management team comprises of following persons

S'. Ja#d(s' Ra( S(n#a% )Mana#(n# D("$ct!"*

'h. 0agdish ai 'ingal is a founder and promoter of 6roup being the highly renowned

ndustrial and the bac" born of our organi2ation. 3e believes in strong leadership movement with

e#pert guidance in the field of ndustry. nder his leadership has won $ /ational *#port

(wards during last :% years. This is an yearly award and ;% companies are honoured at national

level. The company was also awarded with the special 7atin (merican )ountries


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Ran,!d' S(n#' )Ind$-$nd$nt D("$ct!"*

+r 'ingh is an =rofessional irector -/on *#ecutivehaving >achelor of *ngineering from a well reputed

Technical nstitute of india. ( very professional & dynamic

personality whose technical e#perties & farsightdness is very beneficial for the company.

M". S'$/'a" S(n#a% )Fa0(%1 D("$ct!"*

With a people,oriented approach! +r. 'he"har 'ingal is "nown to be e#tremely resourceful and acapable administrator. 3is out, of the bo# ideas have tremendously helped us in advancement of

business. 3e is always ready to face any challenge and encourages his staff to e#cel in every

field. 3is new ideas ma"e the way easy and smooth for . With a master@s degree in

>usiness (dministration! he is also the +anaging =artner and *#ecutive irector of

(uto & =ower 7imited -sister concern of 6roup. 3e is also serving and giving his

valuable suggestions to ohit 3eritage 0ewelers -= 7td. as a irector.

M"s. Da"s'ana S(n#a% )Fa0(%1 D("$ct!"*

*nriched with years of e#perience! 'mt. arshana 'ingal has an in,depth understanding of the

industry. (t present! she is wor"ing as an *#ecutive irector in 6roup

M"s. andana A##a"2a%

-


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Our handtools are generally categori2ed as 'panners! =lumbing tools! =liers! (utomotive tools!

)arpentry tools! +asonry Tools ! 3ac" 'aws! ?ices! 'tring tools! 7ubricating Tools! =unches!

(llen "eys! 'crew rivers! 'oc"et 'panners! mpact rivers! >olt )utters! 7eather Tool (prons!

+isc Tools! /on 'par"ling Tools.

EASTMAN CAST & FORGE AT L3D4IANA PLANT

W$ 'a5$ 0an+act+"(n# ac(%(t($s at L+d'(ana !" 4and T!!%s and P!2$" T!!%s.

The *#port of Tools is directed towards ;A mar"ets out of ndia such as ussia! "raine!

>elarus! Tur"ey! =anama! =eru! >ulgaria!


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This enables the plant to have better wor"ing conditions and also increase wor" efficiency. (

copy of it also displayed at each shop and depth to motivate the employee towards healthy wor"

environment.

+eaning and benefits of C' system are as follows

7. SEIRI: t stands for D'ortingE

Ta"e out necessary items and suitably dispose with them.

$n$(ts:

1. *ffective 'pace tili2ation

;. 'top +aterial from deteriorating or getting damaged

:. educe wastage and searching items

8. SEITON t stands for D'et in OrderE

(rrange. (ll necessary items in a proper order so that they can be easily pic"ed up for use

$n$(ts:

1. educe preparation and machine setting and machine setting timings.

;. educe time in locating or waiting for Tool =arts and +achines.

9. SIIESO t stands for D'hineF)ompletely )leanE

)lean your wor"place completely so that there is no dust anywhere.

$n$(ts:

1. =romotes Orderly and 'afe Wor"ing *nvironment

;. educes >rea"down and (ccidents.

. SEIKETS3: t stands for D'tandardi2eE


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+aintain a high standard of house "eeping and wor" place organi2ational at all times

$n$(ts:

1. Guic" esponse through ?isual +anagement

;. )reate a maintenance system of 3ouse "eeping for all the times.

6. S4ITS3KE: t stands for D'elf iscipline (ttitudeE

Train =eople to follow 6ood 3ouse Heeping iscipline ndependently

$n$(ts:

1. 'elf iscipline

;. mproves ndustrial 'afety

:. )reates 3ealthy (ttitude and 3abits

Ad5anta#$s ! 6S

• 3ealthy Wor"ing *nvironment

• mproves Wor" *fficiency

• =roducing >etter Guality =roducts and 3igher =roductivity

• )utting )ost own

• *nsuring elivery on time

• 'afe Wor"ing

• 3igh +orale and >etter 7ife

G"!+- ! C!0-an($s EASTMAN 4andt!!%s


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)ast &


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O3R STRONG ROOTS 4ELP 3S AC4IEE T4E MOST DIFFIC3LT OF MILESTONES WIT4

EASE

A RIEF OERIEW OF O3R AC4IEEMENTS OER T4E YEARS:

TIMELINE

7;8*('T+(/ /'T*' 7+T*E -*..7 a corporate entity established as a first step to

professionali2e operations.

7;>? *('T+(/ )('T &


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7;;=

+a4or product and mar"et e#pansion initiated. D*('T+(/E products are available in all

ma4or mar"ets of 'outh (merica and introduced in +editerranean regions of *urope. *.). *.).


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?7( +otorcycle manufacturing at *(=7


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GEOGRAP4ICAL OERIEW


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Eastman Industries Limited, Lu

Eastman

Eastman Auto &

Power Limited

Baddi

Eastman Cast & Forge Ltd., LudhianaEAS!A" G#$%P

G"!+- St"+ct+"$


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PROD3CT PROFILE

The main products of the company are

(d4ustable Wrench /on 'par"ing Tools

(lien Heys Oil )an

(utomotive 'panners =incer

(utomotive Tools =ipe )utting Tools

>i,3e#agonal 'panners =ipe Wrench

)arpenter Tools =unches

)ombination 'panners atchet

eo 'panners 'aw

3ammer 'oc"et

0umbo 'panners 'oc"et >its

7eather (prons Tap Wrench

+ason Tools ?ice

+easurement nstrument Water =ump & =liers


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P"!d+cts

(d4ustable

Wrench (d4ustable Wrench

(d4ustable

Wrench

(llen Heys (utomotive 'panners

(utomotive

'panners

(utomotive

'panners (utomotive 'panners

(utomotive

Tools

(utomotive

Tools

>i,3e#agonal 'panners )arpenter

Tools

)arpenter

Tools )arpenter Tools

)arpenter

Tools

)ombination

'panners

oe 'panners 3ammer


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3ammer

0umbo 'panners

7eather (prons

+ason Tools +ason Tools

+easurement

nstrument

/on 'par"ing

Tools Oil )an Oil )an

=incer =incer =incer

=ipe )utting

Tools =ipe )utting Tools =ipe Wrench

=ipe Wrench =ipe Wrench =ipe Wrench


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=unches atchet 'aw

'aw 'oc"et 'oc"et >its

Tap Wrench Tap Wrench ?ice

?ice Water =ump =lier

Water =ump

=lier

MAN3FACT3RING PROCESS


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@+a%(t1 C!nt"!%The fully equipped in house 7aboratory is designed to control the Guality =rocess and give on

line test results as production goes on for +aterial testing F 3ardness testing F Torque Testing F

)rac" detector. O+" %a!"at!"1 (s $B+(--$d 2(t' !%%!2(n# Mac'(n$s.!n%1 t! na0$ a $2

TOR@3E TESTING MAC4INE )COMP3TERISED*


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T'$ @+a%(t1 T$st(n# -"!#"a0 (s %(st$d as $%!2 ..a%s! "$$" t'$ F%!2 c'a"t d(a#"a0.

RAW MATERIAL ncoming raw material is 7ab tested at entry level to the plant

LANKING The Guality of >lan"s are chec"ed for primary conformity

FORGING The forging ie is nspected for good forging out put

TRIMMING 6ood finished products are selected after Trimming stage

P3NC4ING nspection at punching stage re4ects poorly finished goods

ROAC4ING (fter broaching all spanners are chec"ed for 0aw accuracy

4EAT TREATMENT 3eat treated productMs are is inspected for proper internal

structural formation and 3ardness of the =roduct

GA3GING (ll =roducts are chec"ed with gauges for operational fitment.

S4OT ALLAST nspection at 'hot >allasting chec"s for finishing output.

ELECTRO PLATING


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"ine

Showroom

Aount & Finane

Prourement

Prodution

E'ise

(#

Audit

rator parts China $).

I

*oumentation

*elhi &

Gurgaon $).

DEPARTMENTS

Marketing


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SWOT ANALYSIS

'WOT analysis provides the information that is helpful in matching the firmMs resources and

capabilities to the competitive environment in which it operates. *nvironmental factors internalto the firm can be classified as 'trengths -' and Wea"nesses -W and those e#ternal to the firm

are classified as Opportunities -O and Threats -T. 'uch an analysis of strategic environment is

called 'WOT (/(75''.

SWOT ANALYSIS OF EASTMAN CAST & FORGE LTD L3D4IANA IS AS

FOLLOWS:

STRENGT4S:

The firmMs strengths are its resources and capabilities that can be used as competitive advantage.

The main strengths of *astman )ast &


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OPPORT3NITIES:

*#ternal environment analysis may reveal certain new opportunities for profit and growth and

the opportunities before *)


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INTROD3CTION TO

WORKING CAPITALWORKING CAPITAL


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MEANING OF WORKING CAPITAL

n simple words wor"ing capital means that which is issued to carry out the day,to,day operation

of business. )apital required for a business can be classified under two main categories.

•


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T1-$s ! 2!"/(n# ca-(ta%:

•

C!nc$-t ! t(0$:

=ermanent Wor"ing capital and

Temporary Wor"ing capital.

→ P$"0an$nt W!"/(n# ca-(ta%

=ermanent wor"ing capital refers to the minimum amount of all current assets that is required at

all times to ensure a minimum level of uninterrupted business operations. 'ome minimum

amount of raw materials! wor",in,progress! ban" balance! finished goods etc.! a business has to

carry all the time irrespective of the level of manufacturing or mar"eting operations. This level of

wor"ing capital is referred to as core wor"ing capital or core current assets. >ut the level of core

current assets is not a constant sum at all the times.


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→ T$0-!"a"1 W!"/(n# ca-(ta%

The temporary or varying wor"ing capital varies with the volume of operations. t fluctuates with

the scale of operations. This is the additional wor"ing capital required from time to time over and

above the permanent or fi#ed wor"ing capital.

uring seasons! more productionFsales ta"e place resulting in larger wor"ing capital needs. The

reverse is true during off,seasons. (s seasons vary! temporary wor"ing capital requirement

moves up and down. Temporary wor"ing capital can be financed through short term funds li"e

current liabilities. When the level of temporary wor"ing capital moves up! the business might use

short,term funds and when the level for temporary wor"ing capital recedes! the business may

retire its short,term loans. ?ariable wor"ing capital can be further classified as

• 'easonal wor"ing capital

• 'pecial wor"ing capital

+ost of enterprises have to provide additional wor"ing capital to meet the seasonal and special

needs. The capital required to meet the seasonal needs of the enterprise is called seasonal

wor"ing capital. 'pecial wor"ing capital is that part of wor"ing capital which is required to meet

special e#igencies such as launching of e#tensive mar"eting campaigns for conducting research

etc.


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>oth permanent and temporary wor"ing capitals are necessary to facilitate the sales and

production process through operating cycle.

O-$"at(n# c1c%$ and cas' c1c%$:

The primary concerns in wor"ing capital management include firms short run operating and

financing activities.


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Act(5(t1

O >uy raw material

O =ay for purchases

O +anufacture products

O 'ell the product

O )ollection for sales

.ecision

O 3ow much to order

O Whether to borrow or paycash

O )hoice of technology

O Whether to e#tend credit or tosell on cash

O 3ow to collect

These activities entail cash inflows and cash outflowsP but the cash flows are both

unsynchroni2ed and uncertain. They are unsynchroni2ed because the payment of cash for raw

materials does not ta"e place at the same time as the receipt of cash from sales of the finished

product. They are uncertain because future sales and costs cannot be precisely predicted. These

give rise to what is called as operating cycles and cash cycle.

• O-$"at(n# c1c%$:

The entire cycle! from the time the firm acquires inventory to the time it collects the cash! ta"es

1%% days. This is called the operating cycle. The operating cycle is the length of time it ta"es to

acquire inventory! sell it! and collect for it. This cycle has two distinct parts, the time it ta"es to

acquire and sell the inventoryP a K% day span in our case! is called the inventory conversion

periodP and the time it ta"es to collect cash for the sales! $% days in our caseP called as accounts

receivable -debtors conversion period. Thus! operating cycle is 4ust the sum of the inventory

conversion period and accounts receivable conversion periods

Operating Q inventory conversion R accounts receivable

)ycle period conversion period

1%% days Q K% days R $% days


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What the operating cycle describes is how a product moves through the current asset

accounts. The product begins life as inventoryP it is converted to a receivable when it is sold! and

it is finally converted to cash when we collect for the sales.


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n diagram! the short term operating activities and cash flows for a typical manufacturing firm by

way of a cash flow time line. (s shown! the need for short term financial management arises

from gap between the cash inflows and the cash outflows! which is related to the lengths of the

operating cycle and the accounts payable period.

This gap can be filled either by borrowing or by holding a liquidity reserve in the form of cash or

mar"etable securities. (lternatively! the gap can be shortened by changing the inventory!

receivable! and payable periods, all of which comprise the areas of wor"ing capital management.

CONTENTS OF WORKING CAPITAL


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C3RRENT ASSETS C3RRENT LIAILITIES

)ash in hand and ban" balance >ills payable

>ills receivables 'undry creditors

'undry debtors (ccrued loans

'hort term loans and advances 'hort term loans

nvestment of stoc" as (dvances and deposits

aw material ividend payable

Wor" in progress >an" overdraft


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'imply called wor"ing capital it is total of current assets! it refers to the firmMs investment in

current assets. )urrent assets refer to those assets! which in the ordinary course of business can

be continued into cash within an accounting year.

G"!ss W!"/(n# Ca-(ta% C+""$nt Ass$ts

NET WORKING CAPITAL

/et wor"ing capital is the difference between current assets and current liabilities. )urrent

liabilities include items payable or e#pected to be turned within one year from the date of the

balance sheet and the term is used to designate obligation whose liquidation is reasonably

e#pected require the use of e#isting resources assets or creation of other current liabilities. /et

wor"ing capital may be positive or negative.

( positive wor"ing capital arises when current assets e#ceed current liabilities a negative networ"ing capital occurs when current liabilities are more than current assets.

N$t 2!"/(n# ca-(ta% C+""$nt Ass$ts C+""$nt L(a(%(t($s

D$t!"s)R$c$(5a%$s

Cas' F(n(s'$d G!!ds

W!"/(nP"!#"$ssRa2 Mat$"(a%s


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WORKING CAPITAL CYCLE

)ash flows in a cycle into! around and out of a business. t is the business@s lifeblood and every

manager@s primary tas" is to help "eep it flowing and to use the cash flow to generate profits. f a

business is operating profitably! then it should! in theory! generate cash surpluses. f it doesn@tgenerate surpluses! the business will eventually run out of cash and e#pire.

The faster a business e#pands the more cash it will need for wor"ing capital and investment. The

cheapest and best sources of cash e#ist as wor"ing capital right within business. 6ood

management of wor"ing capital will generate cash will help improve profits and reduce ris"s.

>ear in mind that the cost of providing credit to customers and holding stoc"s can represent a

substantial proportion of a firm@s total profits.

There are two elements in the business cycle that absorb cash , nventory -stoc"s and wor",in,

progress and eceivables -debtors owing you money. The main sources of cash are =ayables

-your creditors and *quity and 7oans.

*ach component of wor"ing capital -namely inventory! receivables and payables has two

dimensions T+* and +O/*5! when it comes to managing wor"ing capital , T+* '

+O/*5. f one can get money to move faster around the cycle -e.g. collect money due from

debtors more quic"ly or reduce the amount of money tied up -e.g. reduce inventory levels

relative to sales! the business will generate more cash or it will need to borrow less money to

fund wor"ing capital. (s a consequence! you could reduce the cost of ban" interest or you@ll have

additional free money available to support additional sales growth or investment. 'imilarly! if

you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit

limitP you effectively create free finance to help fund future sales.

t can be tempting to pay cash! if available! for fi#ed assets e.g. computers! plant! vehicles etc. f

you do pay cash! remember that this is now longer available for wor"ing capital. Therefore! if

cash is tight! consider other ways of financing capital investment , loans! equity! leasing etc.

'imilarly! if you pay dividends or increase


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rawings! these are cash outflows and! li"e water flowing downs a plughole! they remove

liquidity from the business. +ore businesses fail for lac" of cash than for want of profit.

t is this importance of cash that! cash management is one of the "ey areas of wor"ing capital

management. (part from the fact that it is the most liquid asset! cash is the common denominator

to which all the current assets can be reduced because the other ma4or liquid assets! that is!

receivables and inventory eventually get converted into cash. This underlines the significance of

cash management.

The term cash with reference to cash management is used in two senses. n a narrow sense it is

used to cover currency and generally accepted equivalents of cash! such as cheques! drafts and

demand deposits in ban"s. The broad view of cash also includes! near cash assets such as

mar"etable securities and time deposits in ban"s.

( firm is well advised to hold adequate cash balances but should avoid e#cessive balances. The

firm has! therefore! to assess its need for cash properly. )ash budget is a device that helps affirm

to plan and control the use of cash. t is statement showing the estimated cash inflows and

outflows over the planning hori2on. n other words! the net cash position -surplus and deficiency

of a firm as it moves from one budgeting sub period to other is highlighted by cash budget.

NEED OF WORKING CAPITAL

1.


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♦ C3RRENT RATIO:

The current ratio is very popular financial ratio! which is used to measure the ability of a firm to

meet its current liabilities. )urrent assets are converted into cash for the payment of current

liabilities. (pparently higher is the current ratioP greater is the short,term solvency.

)urrent (ssets

)urrent ratio is given by the formula )urrent 7iabilities

♦ @3ICK RATIO )ACID TEST RATIO*:

Guic" ratio is much more e#acting measure than the current ratio. >y e#cluding inventories! it

concentrates on really liquid assets! with value fairly certain.

Guic" (ssets consist of only cash and near cash assets. nventories are deducted from current

assets on the belief that these are not near cash assetsM.

L(B+(d Ass$ts

@+(c/ "at(! (s #(5$n 1 t'$ !"0+%a:

C+""$nt %(a(%(t($s

♦ ASOL3TE LI@3ID RATIO )CAS4 RATIO*:

This ratio measures the absolute liquidity of the business. This ratio considers only the absolute

liquidity of the business and is calculated as

)ash R +ar"etable 'ecurities

UUUUUUUUUUUUUUUUUUUUUUUUU

)urrent 7iabilities.


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(ctivity ratios are also called as turnover ratios or performance ratios. These ratios are employed

to evaluate the efficiency with which the firm manages and utili2es its assets. These ratios

usually indicate the frequency of sales with respect to its assets.

C3RRENT ASSETS T3RNOER RATIO:

The idea of the current assets turnover is to ascertain the contribution of the current assets to

sales. The relationship indicates efficiency or otherwise utili2ation of current assets to attain the

ma#imum turnover sales.

WORKING CAPITAL T3RNOER RATIO:

/et wor"ing capital turnover ratio indicated the velocity of the utili2ation of wor"ing capital. (

higher ratio indicates the effective utili2ation of wor"ing capital and a low ratio indicate

otherwise.

♦ INENTORY T3RNOER RATIO:

This ratio is also "nown as stoc" turnover ratio and establishes the relationship between the cost

of goods sold during the year and average inventory held during the year. t is calculated as

follows

'ales

(verage nventory

♦ DETORHS T3RNOER RATIO:

n case firm sells goods on credit! the reali2ation of sales is delayed and the receivables are

created. The cash is reali2ed from these receivables later on. The speed with which these

receivables are collected affects the liquidity position of the firm. The debtorsM turnover ratio


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throws light on the collection and credit policies of the firm. The debtorMs turnover ratio is

calculated as follows

'ales

(verage (ccounts eceivable

CREDITORHS T3RNOER RATIO:

This ratio is calculated on same lines as receivable turnover ratio is calculated. This shows the

velocity of debt payment by the firm. ( low creditorMs turnover ratio reflects liberal terms

granted by the suppliers. While a high ratio shows the accounts are settled rapidly. t is calculated

as follows

)redit =urchases

(verage (ccounts =ayable

S(#n((canc$ O W!"/(n# Ca-(ta%:

nvestment in fi#ed assets only is not sufficient to run the business. Wor"ing capital or

investment in current assets! howsoever small it is! is a must for purchase of raw materials! and

for meeting the day,to,day e#penditure on salaries! wages! rents! advertising etc.! and for

maintaining the fi#ed assets. DThe fate of large scale investment in fi#ed capital is oftendetermined by a relatively small amount of current assets.E Wor"ing capital is 4ust li"e a heart of

industry if it is wea"! the business cannot prosper and survive! although there is a large body

-investment of fi#ed assets.


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+oreover! not only the e#istence of wor"ing capital is a must for the industry! but it must be

adequate also. (dequacy of the wor"ing capital is the lifeblood and controlling nerve center of a

business. nadequate as well as redundant wor"ing capital is dangerous for the health of industry.

t is said! nadequate wor"ing capital is disastrousP whereas redundant wor"ing capital is a

criminal wasteM. >oth situations are not warranted in a sound organi2ation.

The advantages of wor"ing capital or adequate wor"ing capital may be enumerated as below ,

1. Cas' D(sc!+nt:

f a proper cash balance is maintained! the business can avail the advantage of cash discount by

paying cash for the purchase of raw materials and merchandise. t will result in reducing the cost

of production.

;. It c"$at$s a F$$%(n# ! S$c+"(t1 and C!n(d$nc$:

The proprietor or officials or management of a concern are quite carefree! if they have proper

wor"ing capital arrangements because they need not worry for the payment of business

e#penditure or creditors.

(dequate wor"ing capital creates a sense of security! confidence and loyalty! not only throughoutthe business itself! but also among its customers! creditors and business associates.

:. M+stH !" Ma(nta(n(n# S!%5$nc1 and C!nt(n+(n# P"!d+ct(!n:

n order to maintain the solvency of the business! it is but essential that the sufficient amount t of

fund is available to ma"e all the payments in time as and when they are due. Without ample

wor"ing capital! production will suffer! particularly in the era of cut throat competition! and a

business can never flourish in the absence of adequate wor"ing capital.

$. S!+nd G!!d2(%% and D$t Ca-ac(t1:

t is common e#perience of all prudent businessmen that promptness of payment in business

creates goodwill and increases the debt of the capacity of the business. ( firm can raise funds


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in improving the overall efficiency of the business and of the person who is at the hell of fairs in

the company.

1%. Inc"$as$d P"!d+ct(!n E(c($nc1:

( continuous supply of raw material! research programme! innovations and technical

development and e#pansion programmes can successfully be carried out if adequate wor"ing

capital is maintained in the business. t will increase the production efficiency! which will! in turn

increases the efficiency and morale of the employees and lower costs and create image among

the community.

St"at$#($s t! !5$"c!0$ t'$ -"!%$0:

+anage wor"ing capital investment or financing such as

3olding additional cash balances beyond e#pected needs

3olding a reserve of short term mar"etable securities

(rrange for availability of additional short,term borrowing capacity

One of the ways to address the problem of fi#ed set,up cost may be to hold

inventory.

One or combination of the above strategies will target the problem

Fact!"s D$t$"0(n(n# W!"/(n# Ca-(ta%:

1. /ature of the >usiness

;. 'i2e of business


47/90

:. =roduction policies

$. =roduction cycle

C. )redit policy

K. apidity of turnover

A. 'easonal fluctuation

8. =rice level changes

9. Others factors

1. Nat+"$ ! t'$ A+s(n$ss:

Wor"ing capital also depends upon the nature of the business. =ublic utility concerns li"e

railway! electricity etc. have a very little need of wor"ing capital since most of their transaction

are on cash basis. On the other hand ordinary manufacturing and trading concerns require

sufficient wor"ing capital! since they have to invest substantially in inventories and debtors.

;. S($ ! +s(n$ss

'i2e of business is another influencing factor. (s si2e increases! the wor"ing capital requirement

is also more and vice versa.

:. P"!d+ct(!n -!%(c($s:

The production policies pursued by the management have a significant effect on the

requirement of wor"ing capital of the business. The decision about the management regarding

automation! etc. will also have its effect on wor" ing capital. On case of labor intensive

industries the wor"ing capital requirements will be more. While in the case of highly

automatic plant the requirement of long term funds will be more.

$. P"!d+ct(!n c1c%$


48/90

The time lapse between feeding of raw material into the machine and obtaining the finished

goods out from the machine is what is described as the length of manufacturing process. t is

otherwise "nown as conversion time. 7onger this time period! higher is the volume and value of

wor",in,progress and hence higher the requirement of wor"ing capital and vice versa.

C. C"$d(t -!%(c1:

( company which allows liberal credit to its customers may have higher sales but will need

more wor"ing capital. ( concern that purchases its requirements on credit and sells its

productsFservices on cash requires less amount of wor"ing capital.

K. Ra-(d(t1 ! t+"n!5$":

( company having high rate of turnover will need lower amount of wor"ing capital as

compared to a company which has a lower turnover.

A. S$as!na% %+ct+at(!ns:

n case of seasonal industries li"e sugar and woolen te#tiles! their wor"ing capital required

during the particular season will be higher than other periods.

8. P"(c$ %$5$% c'an#$s:

)hanges in the price level also affect the wor"ing capital requirements. 6enerally! the rising prices will require the firm to maintain larger amount of wor"ing capital as more funds will be

required to maintain the same current assets.

The effect of rising prices may be different for different firms. 'ome firms may be affected

much while some others may not be affected at all by the rise in prices.


49/90

9. Ot'$" act!"s:

)ertain other factors such as operating efficiency! management ability! irregularities of

supply! import policy! asset structure! importance of labour! ban"ing facilities! etc. also

influences the requirements of wor"ing capital.

Ec$ss O" Inad$B+at$ W!"/(n# Ca-(ta%:

*very business concern should have adequate wor"ing capital to run its business operations. t

should have neither redundant or e#cess wor"ing capital nor inadequate nor shortage of wor"ing

capital. >oth e#cess as well as shortage of wor"ing capital situations are bad for any business.3owever! out of the two! inadequacy or shortage of wor"ing capital is more dangerous from the

point of view of the firm.

D(sad5anta#$s ! R$d+ndant !" Ec$ss W!"/(n# Ca-(ta%

• dle funds! non,profitable for business! poor O.

• nnecessary purchasing & accumulation of inventories over required level.

• *#cessive debtors and defective credit policy! higher incidence of >F.

• Overall inefficiency in the organi2ation.

• When there is e#cessive wor"ing capital! )redit worthiness suffers

• ue to low rate of return on investments! the mar"et value of shares may fall


50/90

D(sad5anta#$s !" Dan#$"s ! Inad$B+at$ !" S'!"t W!"/(n# Ca-(ta%

• )anMt pay off its short,term liabilities in time.

• *conomies of scale are not possible.

• ifficult for the firm to e#ploit favourable mar"et situations

• ay,to,day liquidity worsens

• mproper utili2ation the fi#ed assets and O(FO falls sharply

The rate of return on investments also falls with the shortage of wor"ing capital.

T'$ n$$d !" !,$cts ! 2!"/(n# ca-(ta%:

The need for wor"ing capital cannot be over emphasi2ed. *very business needs some amount of

wor"ing capital. The need for wor"ing capital arises due to the gap between production and

reali2ation of cash from sales. There is an operating cycle involved in the sales and reali2ation of

cash. There are time gaps in purchase of raw materials and productionP and sales and reali2ation

of cash. Thus! wor"ing capital is needed for the following purpose

1.


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K. To maintain the inventories of raw material! wor" in progress! stores and spares and finished

stoc".

Mana#$0$nt O W!"/(n# Ca-(ta% )WCM*:

+anagement of wor"ing capital is concerned with the problems that arise in attempting to

manage the current assets! the current liabilities and the inter,relationship that e#ists between

them. n other words! it refers to all aspects of administration of )( and )7. management will

use a combination of policies and techniques for the management of wor"ing capital. The

policies aim at managing the c+""$nt ass$ts -generally cas' and cas' $B+(5a%$nts! (n5$nt!"($s

and d$t!"s and the short term financing! such that cash flows and returns are acceptable.

• Cas' 0ana#$0$nt. dentify the cash balance which allows for the business to meet day

to day e#penses! but reduces cash holding costs.

• In5$nt!"1 0ana#$0$nt. dentify the level of inventory which allows for uninterrupted

production but reduces the investment in raw materials , and minimi2es reordering costs , and

hence increases cash flow. >esides this! the lead times in production should be lowered to reduce

W!"/ (n P"!c$ss )WIP* and similarly! the F(n(s'$d G!!ds should be "ept on as low level as

possible to avoid over production , see S+--%1 c'a(n 0ana#$0$ntP J+st In T(0$ -0TP

Ec!n!0(c !"d$" B+ant(t1 -*OGP Ec!n!0(c B+ant(t1.

• D$t!"s 0ana#$0$nt. dentify the appropriate c"$d(t -!%(c1! i.e. credit terms which will

attract customers! such that any impact on cash flows and the cash conversion cycle will be offset

by increased revenue and hence eturn on )apital -or vice versaP see D(sc!+nts and

a%%!2anc$s.

http://en.wikipedia.org/wiki/Asset#Current_assetshttp://en.wikipedia.org/wiki/Asset#Current_assetshttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Debtorhttp://en.wikipedia.org/wiki/Cash_managementhttp://en.wikipedia.org/wiki/Work_in_processhttp://en.wikipedia.org/wiki/Finished_goodhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Just_In_Time_(business)http://en.wikipedia.org/wiki/Economic_order_quantityhttp://en.wikipedia.org/w/index.php?title=Economic_quantity&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Economic_quantity&action=edit&redlink=1http://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Debtorhttp://en.wikipedia.org/wiki/Cash_managementhttp://en.wikipedia.org/wiki/Work_in_processhttp://en.wikipedia.org/wiki/Finished_goodhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Just_In_Time_(business)http://en.wikipedia.org/wiki/Economic_order_quantityhttp://en.wikipedia.org/w/index.php?title=Economic_quantity&action=edit&redlink=1http://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Asset#Current_assets


52/90

• S'!"t t$"0 (nanc(n#. dentify the appropriate source of financing! given the cash

conversion cycle the inventory is ideally financed by credit granted by the supplierP however! it

may be necessary to utili2e a ban" %!an -or overdraft! or to Bconvert debtors to cashB through

Bact!"(n#B

Wor"ing )apital +anagement =olicies of a firm have a great effect on its profitability! liquidity

and structural health of the organi2ation. n this conte#t! wor"ing capital management is three

dimensioned in nature

9D Nat+"$ ! W!"/(n# Ca-(ta% Mana#$0$nt

http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Factoring_(finance)http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Factoring_(finance)


53/90

. imension first is concerned with the formulation of policies with regard to profitability! ris" and

liquidity.

. imension second is concerned with the decision about the composition and level of current

assets.

. imension third is concerned with the decision about the composition and level of current

liabilities.

D ( 0 $ n s ( ! n I I I

C ! 0 - ! s ( t ( ! n & L $ 5 $ %

! C L

D ( 0 $ n s ( ! n I I I

C ! 0 - ! s ( t ( ! n & L $ 5 $ %

! C L


54/90

A(0s ! W!"/(n# Ca-(ta% Mana#$0$nt:

1. The goal of wor"ing capital management is to manage the firmMs current assets and

current liabilities in such a way that a satisfactory level of wor"ing capital is maintained! to meet

the short,term obligations as and when they arise.

;. ( significant ob4ective of wor"ing capital management is to ensure short,term liquidity

and to see that profitability is not affected by the way current assets and current liabilities are

managed.

:. The main theme of wor"ing capital management is the interaction between the current

assets and the current liabilities and arrives at the optimum level of both. The optimum level thus

arrived must have provision for contingencies.

$. Trade,off between =rofitability and is" The level of a firmMs /et wor"ing capital has a

bearing on its profitability as well as ris". The term profitability used in this conte#t is measured

by profits after e#penses. The term ris" is defined as the probability that a firm will become

technically insolvent so that it will not be able to meet its obligations when they become due for

payment. The ris" of becoming technically insolvent is measured using /et Wor"ing )apital.

The greater the net wor"ing capital! the more liquid the firm is and therefore the less li"elihood

of it becoming technically insolvent. The relationship between liquidity! net wor"ing capital and

ris" is such that if either net wor"ing capital or liquidity increases! the firm@s ris" decreases.

C. Trade,off f a firm wants to increase its profits! it must also increase its ris". nversely! if

it decreases ris"! its profitability too tends to decrease. The trade,off between these variables is

that regardless of how the firm increases its profitability through the manipulation of wor"ing


55/90

capital! the consequence is a corresponding increase in ris" as measured by the level of /et

wor"ing capital.

K. (part from the profitability S ris" S trade,off! another important ingredient of the theory

of wor"ing capital management is determining the financing mi#.


56/90


57/90

maturities of payment to its flow of internally generated funds. +aturity pattern of various

current obligations is an important factor in ris" assumptions and ris" assessments. 6enerally!

shorter the maturity schedule of current liabilities in relation to e#pected cash inflows! the greater

inability to meet its obligations in time.

F!"$cast(n# Est(0at(!n O W!"/(n# Ca-(ta% R$B+("$0$nts:

DWor"ing capital is the life blood and controlling nerve centre of a business.E /o business can be

successfully run without an adequate amount of wor"ing capital. To avoid the shortage of

wor"ing capital at once! an estimate of wor"ing capital requirements should be made in advance

so that arrangement can be made to procure adequate wor"ing capital.

M$t'!ds ! !"$cast(n# 2!"/(n# ca-(ta% "$B+("$0$nts

The following methods are usually followed in forecasting wor"ing capital requirements of a

firm

=ercentage of sales method

egression analysis method -average relationship between sales and wor"ing capital

)ash forecasting method

WORKING CAPITAL FINANCING POLICIES:


58/90

( growing firm can be thought of as having a total assets requirement consisting of the current

assets and long term assets and long term assets for its efficient operations. The total assets

requirement may e#hibit change over time for many reasons! such as general growth trend!

seasonal variations around the trend! and unpredictable day to day and month to month

fluctuations. These fluctuations are depicted in diagram. t seldom happens that net wor"ing

capital goes to 2ero. (s discussed earlier! companies have some permanent wor"ing capital!

which is the net wor"ing capital on hand at the low point of the business cycle. Then! as sales

increase! net wor"ing capital must be increased! and this addition is the temporary part of net

wor"ing capital. The manner in which the permanent and temporary portions of net wor"ing

capital are financed is called as wor"ing capital financing policies. >roadly spea"ing! a company

can follow three approaches namely! maturity matching approach! aggressive approach! and

conservative approach. We briefly discuss each of these as follows

'easonal ?ariation

upees

Total assetsequirement

6eneral growth in7ong term assets &

=ermanent &current assets

Time

7. Mat+"(t1 Matc'(n# S$%L(B+(dat(n# A--"!ac':

+aturity matching means to match asset and liability maturities. (s shown in panel aM of figure

the maturity matching approach focuses on matching maturity of assets and liability. This

strategy minimi2es the ris" that the firm will be unable to pay off its maturing obligations. To


59/90

illustrate! suppose a company arises a one year loan to and uses the funds obtained to build and

equip a plant. Obviously! cash flow from the plant -that is profits and depreciation would not be

enough to pay off the loan at the end of only one year! therefore the firm would be force to renew

the loan. 3owever! if the lender refuses to renew the loan! the company would be in trouble.

3owever! if the plant had been financed with long term debt! the required loan payments would

have been better matched with cash flows from the plant! and the renewal would not be needed.

(s a limiting case! the company could try to match e#actly the maturity of all of its assets and

liabilities.


60/90


61/90

approach! as the name suggests! is a very safe! conservative wor"ing capital financing policy as

there is no ris" of going out of liquidity. 3owever! since long term debt is normally costlier!

investments in cash and mar"etable securities are 2ero net present value investments at best! the

safety comes at the cost of lower profits.

T'"$$ a%t$"nat(5$ 2!"/(n# ca-(ta% (n5$st0$nt -!%(c($s


62/90

=olicy ) represents conservative approach

=olicy ( represents aggressive approach

=olicy > represents a moderate approach

Policy B


63/90

OJECTIES OF ST3DY

• To analy2e the whole data of *)


64/90

• To study the profitability ratios.

• To study the liquidity position of the company.

• To measure the debtors and creditors turnover ratios.

• To measure the


65/90


66/90

suppliersP pro4ect Wor"ing )apital too" its shape. The pro4ect Wor"ing )apital was started at

73(/( plant of *)


67/90

S!+"c$s ! S$c!nda"1 Data:

'econdary data is often readily available. (fter the e#pense of electronic media and internet the

availability of secondary data has become much easier

P+%(s'$d P"(nt$d S!+"c$s

P+%(s'$d E%$ct"!n(c S!+"c$s

3n-+%(s'$d P$"s!na% R$c!"ds

G!5$"n$0$nt R$c!"ds

P+%(c S$ct!" R$c!"ds:

Data c!%%$ct$d t'"!+#' s$c!nda"1 s!+"c$s (n t'(s -"!,$ct a"$:

-1 (nnual eports of the company

-; Office manuals of the department.

-: =olicy documents of various departments.

ANALYSIS:

The data thus obtained was ready for analysis! interpretations and drawing conclusions out of it.Thus the data used for conducting the pro4ect was secondary in nature.


68/90

1. 'hortage of time available for the survey

;. The study was conducted only in 73(/(! istrict =un4ab i.e. only one =lant has been

covered therefore results evolving out may not as be true at nter,national level.

:. The use of all the accounting techniques is not possible.

$. 'tudy depends on the availability and reliability of secondary data.

ANALYSISANALYSIS


69/90

&&

INTERPRETATIONINTERPRETATION

RATIO ANALYSIS

♦ C3RRENT RATIO:

)urrent (ssets

)urrent 7iabilities


70/90

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

)urrent (ssets :$::.KK :%AK.9C ;8;;.;9 ;K%$.A% ;K8A.$K

)urrent

7iabilities

::%1.K: :%C%.$; ;9A%.8$ ;89$.11 :%89.%:

C3RRENT

RATIO

7.= 7.=7 =.;6 =.;= =.><

2012 2011 2010 2009 2008

0.75

0.8

0.85

0.9

0.95

1

1.05

Series 3

INTERPRETATION:

)urrent ratio is %.8A in ;%%8! %.9% in ;%%9! %.9C in ;%1%! 1.%1 in ;%11 and 1.%$ in ;%1;.

t is good and giving healthy signs.

♦ @3ICK RATIO ) ACID TEST OF RATIO*:

Guic" assets

UUUUUUUUUUUUUUU )urrent liabilities

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

Guic" (ssets C18:.CC :A8;.C; $1C9.1A :8;%.;; :98$.8$

)urrent

7iabilities

::%1.K: :%C%.$; ;9A%.8$ ;89$.11 :%89.%:

@3ICK RATIO 7.6< 7.8 7.= 7.98 7.8;


71/90

2012 2011 2010 2009 2008

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Series 3

INTERPRETATION:

Guic" ratio is 1.;9 in ;%%8! 1.:; in ;%%9 1.$% in ;%1%! 1.;$ in ;%11 and 1.CA in ;%1;. The

liquidity position of the company is better in comparisons with five years.

♦ ASOL3TE LI@3ID RATIO )CAS4 RATIO*:

)ash R +ar"etable 'ecurities

UUUUUUUUUUUUUUUUUUUUUUUUU

)urrent 7iabilities

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

(bsolute 7iquid

(ssets

1:;.%K 1C;.C; 118.8: 8K.8; 9;.K$

)urrent

7iabilities

::%1.K: :%C%.$; ;9A%.8$ ;89$.11 :%89.%:

ASOL3TE =.= =.=6 =.= =.=9 =.=9


72/90

LI@3ID

RATIO

2012 2011 2010 2009 2008

0

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

0.05

0.05

Column2

INTERPRETATION:

'uper quic" ratio is ;%%8 is %.%:!in ;%%9 is %.%:! in ;%1% is %.%$ !in ;%11 is %.%C !in ;%1; is %.%$

so it is good and maintained w.r.t to last five years.

C3RRENT ASSETS T3RNOER RATIO:

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

)ost of 6ood

'old

$K9A.1A K98;.9C :$CC.1$ ;9K9.:K :9C%.CA

)urrent (ssets :$::.KK :%AK.9C ;8;;.;9 ;K%$.A% ;K8A.$K

T3RNOER

RATIO

7.9? 8.8? 7.88 7.7 7.


73/90

2012 2011 2010 2009 2008

0

0.5

1

1.5

2

2.5

Column2

INTERPRETATION:

)urrent asset turnover ratio is 1.:K in ;%1;! ;.;K in ;%11! 1.;; in ;%1%! 1.1$ in ;%%9.and 1.$A in

;%%8.

♦ WORKING CAPITAL T3RNOER RATIO:

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

/et 'ale 9;C:.9: A98A.$1 K;89.:C C9:$.AK $C91.%:

/et Wor"ing

)apital

798.=9 8?.69 7>.66 8 =7.6<

WORKING

CAPITAL

T3RNOER

RATIO

9=7.=< 8.99 >8.>9 77.9


74/90

2012 2011 2010 2009 2008

0

50

100

150

200

250

300

350

Series 3

INTERPRETATION:

Wor"ing capital turnover ratio is less in ;%1; in comparison to ;%11 as it is 11.$: in ;%%8!8;.8:

in ;%%9! $;.:: in ;%1%!:%1.%A in ;%11! A%.%8 in ;%1;

♦ INENTORY T3RNOER RATIO:

)ost of 6oods 'old

(verage nventory

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

)ost of 6ood'old

$K9A.1A K98;.9C :$CC.1$ ;9K9.:K :9C%.CA

(verage

nventory

11$K.;C 1%9$.%: 11$:.9$ 1%;A.$K 11K1.9:

INENTORY

T3RNOER

.=; ?.9> 9.=8 8.>; 9.=


75/90

RATIO

2012 2011 2010 2009 2008

0

1

2

3

4

5

6

7

Series 3

INTERPRETATION:

>y )omparing the stoc" turnover ratio of current year with the previous year! the management

can assess whether stoc" has been more efficiently used or not. nventory turnover ratio is $.%9

in ;%1;! K.:8 in ;%11! :.%; in ;%1%! ;.89 in ;%%9! :.$% in ;%%8.

♦ DETORHS T3RNOER RATIO:

/et )redit 'ales

(verage (ccounts eceivable

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==> /et )redit 'ales 9;C:.9: A98A.$1 K;89.:C C9:$.AK $C91.%:

(verage (ccount

eceivable

;%A9.;1 1AAK.:: 1CAA.1; 1K1A.1% 1:A$.CC

DETOR

T3RNOER

.6 .6= 9.;> 9.?< 9.9


76/90

RATIO

2012 2011 2010 2009 2008

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Series 3

INTERPRETATION:

7ower debtor turnover ratio indicate the inefficient credit sale policy of the management. t

means that credit sale have been made to customer who do not deserve much credit. ebtor

turnover ratio is $.$C in ;%1;! $.C% in ;%11! :.98 in ;%1%! :.KA in ;%%9! :.:$ in ;%%8.

WORKING CAPITAL ANALYSIS

Pa"t(c+%a"s 8=78 8=77 8=7= 8==; 8==>

)a* C+""$nt

Ass$ts

:$::.KK :%AK.9C ;8;;.;9 ;K%$.A% ;K8A.$K

-b )urrent

liabilities

::%1.K: :%C%.$; ;9A%.8$ ;89$.11 :%89.%:

/et W) -a,b 798.=9 8?.69 7>.66 8 =7.6


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2012 2011 2010 2009 2008

-500

-400

-300

-200

-100

0

100

200

Series 3

INTERPRETATION:

n ;%1;! Wor"ing capital of the company is good as it has increased to the e#tent! t was ;K.C:

last year in comparison in ;%1; it was in good state of 1:;.%: and following years in ;%1% it was

,1$8.CC!in ;%%9 it was ,A1.8;! in ;%%8 it was ,$%1.CA.

NET PROFIT T3RNOER RATIO

/*T =O


78/90

/et =rofit $CC.1; ;1;.9K 1;$.$C 1%9.8 A$.:C

/et 'ale 9;C:.9: A98A.$1 K;89.:C C9:$.AK $C91.%:

N$t P"!(t

T+"n!5$" Rat(!

.;8 8.?< 7.;9 7.>6 7.?8

2012 2011 2010 2009 2008

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Series 3

INTERPRETATION:

/et =rofit atio is $.9; in ;%1;! ;.KA in ;%11 and 1.9: in ;%1%! 1.8C in ;%%9!1.K; in ;%%8.

t is increasing in ;%1; in comparison of ;%11.


79/90

GROSS PROFIT T3RNOER RATIO

6O'' =O


80/90

6ross =rofit atio is ;8.C: in ;%1;! ;A.89 in ;%11 and :%.;1 in ;%1%!:1.$C in ;%%9! ;A.K in ;%%8

t is ncreasing in ;%1; in comparison of ;%11.

OPERATING CYCLE

There is a difference between current assets and fi#ed assets in terms of their liquidity. ( firm

requires many years to recover the initial investment in fi#ed assets such as =lant & +achinery.

On the contrary! investment in current assets is turned over many times in a year.

Operating cycle is the time duration required to convert sales -after conversion of resources into

inventories and inventories into finished goods into cash.

The operating cycle of a manufacturing )ompany involves three phases ,

1. (cquisition of resources such as raw material labor! power and fuel etc.

;. +anufacture of the product which includes conversion of raw material into wor",in,

progress into finished goods.

:. 'ale of the product either for cash or on credit. )redit sales create boo" debts for

collection.

The length of the operating cycle of a manufacturing firm is the sum of

• nventory conversion period -)= and

• >oo" debts conversion period ->)=.

The inventory conversion period is the total time needed for producing and selling the product. t

includes ,1. aw material conversion period -+)=

;. Wor" in progress conversion period -W=)

:.


81/90

The boo" debts conversion period is the time required collecting outstanding amount from

customer. The total of inventory conversion period and boo" debts conversion period is the

ma#imum time required to collect outstanding amount from customers and sometimes it referred

to as gross operating cycle. 6enerally! a firm acquires resources on credit and temporarily

postpones payment of certain e#penses. The difference between operating cycle and payables

deferral period is net operating cycle. The length of

Operating cycle can be determined as ,

GOC ICPDCP

NOCICPDCPPDP

ICPRMCPWIPCPFGCP

Where 6O)Q6ross Operating )ycle /O)Q/et Operating )ycle

)=Qnventory )onversion =eriod >)=Q >oo" ebts )onversion =eriod

==Q =ayable eferral =eriod +)=Q aw +aterial )onversion =eriod


82/90

FINDINGSFINDINGS

&&

CONCL3SION


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MAJOR FINDINGS

)7* )urrent ratio of ;%1; is satisfactory as compared to ;%11. t is 1.%$ in ;%1; and 1.%1 in

;%11.

)8* 7iquidity position ratio is not satisfactory in ;%1; as compared to ;%11. t is %.%$ in ;%1%

and %.%$ in ;%1;.

)9* 6ross profitability ratio is also satisfactory in ;%1; as compared to ;%11. t is ;8.C: in

;%1; and ;A.89 in ;%11.

)* /et profit ratio is good in ;%1; as compared to ;%11. t is $.9; in ;%1; and ;.KA in ;%11.

)6*


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CONCL3SION

Wor"ing capital management is concerned with the problems that arise in attempting to manage

the current assets! the current liabilities and the interrelationship that e#ists between them. The

ma4or current assets are cash! mar"etable securities! accounts receivable and inventory.

)urrent liabilities are those liabilities! which are intended! at their inception! to be paid in the

ordinary course of business! within a year! out of the current assets or earnings of the concern.

The basic current liabilities are accounts payable! bills payable! ban" overdraft! and outstanding

e#penses.

The goal of wor"ing capital management is to manage the firmMs current assets and liabilities in

such a way that a satisfactory level of wor"ing capital is maintained.

The ma4ority of ndian companies maintain relatively lower cashFban" balances.

+ar"etable securities are yet to emerge as a popular means of cash management.

The e#cess cash is deployed to retire short,term debtF in short,term ban" deposits.

Though there is a notable decline over the years but yet inventory constitutes an important part of

total current assets.

ebtorsF receivables also constitute an important part of current assets. The collections are

required to be as quic" as possible and thus corporate offer cash discounts for the purpose.

(ccounts payables and short,term loanF advances are ma4or components of current liabilities.

The pro4ect Wor"ing )apital cardinally focuses on inventory and credit terms for the creditors

and debtors.


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The approach followed in the pro4ect is to reduce the inventory so as to adhere to the standard

norms of the inventory holding thereby releasing the wor"ing capital out of it.

'econdly to revise the credit terms in such a way so as to ma"e them uniform across all the sites.

Thus releasing the wor"ing capital at the sites where the credit terms were proposed to be

revised.


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RECOMMENDATIONRECOMMENDATION


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R$c!00$ndat(!ns

The result of the live pro4ect done at *)


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9. D$c"$as(n# t'$ c"$d(t -$"(!d ! D$t!"s.

=ertaining to the above three ma4or prerequisites of the pro4ect following "ey focus areas have

been suggested.

. East0an Cast & F!"#$ Ltd (s #$tt(n# (nanc$ "!0 SI an/

It s'!+%d "a(s$ (ts s!+"c$s ! (nanc$.

C#E*I

PE#I$*

C#E*IPE#I$*


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ILIOGRAP4Y

OOKS:

1 6oel! .H.! +anagement (ccounting & halla ?.H.! Wor"ing )apital +anagement! (nmol =ublication =vt. 7td.!

MAGAINE:

1 >usiness world

; >usiness time

NEWSPAPER:

1 *conomic times.

SEARC4 ENGINE:

1 www.Wi"ipedia.org

; www.nvestopedia.com


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