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INDEX

Chapter TITAL Page No.

1 Introduction to Organization

2 Objectives & Scope of Study

3 Methodology of the Study

4 Working Capital Management

5 Working Capital Trends & Liquidity Analysis

6 Receivable Management

7 Cash Management

8 Data Interpretation

9 Conclusion & suggestion

10 Bibliography

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WORKING CAPITAL MANAGEMENT 2011

B.D, C.O.E. SEVAGRAM, MBA Page 2

Report Writing:-

The complete research for project report is properly designed into

chapters as under

Chapter-1 Introduction to organization:-

a. Company profileb. Executive summaryc. Product profile

Chapter- 2 Objectives & Scope of the study:-

Chapter- 3 Methodology of the study:-

Chapter- 4 Working Capital Management:-

THEROTICAL FRAMEWORK

Introduction of Working Capital

1. Meaning and Definition2. Concept of Working Capital3. Importance of Working Capital4. Types of Working Capital5. Operating Cycle of Working Capital6. Problems of Inadequate Working Capital7. Problems of Excessive Working Capital8. Determinant of Working Capital9. Working capital Financing10. Computation of Working capital Components11. Working Capital Management

Chapter-5 Working capital trend and liquidity analysis:-

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Working Capital Trends and Liquidity Analysis

1. Working Capital Trends an Introduction

2. Calculate of working capital

3. Size of working capital4. Current assets Trends

5. Current liabilities Trends

6. Working capital Turnover Ratio

7. Liquidity Analysis

8. Current Ratio

9. Quick Ratio

Chapter - 6 Receivables management:-

Chapter- 7 Cash Management:-

Chapter- 8 Data Analysis and Interpretation of Ratio:-

Chapter- 9 Conclusion and suggestions:-

Chapter- 10 Bibliography:-

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Introduction to organization:-

MAHALAXMI TMT.PVT,LTD

CORPORATE HISTORY

LOCATION

INFRASTRUCTURE

CORPORATE GOAL

OBJECTIVES

ACHIVEMENT

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Company Information

Date of incorporation

Date of commencement of

production

Factory and registered

office

Contact person

Company Profile

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PRODUCTION AND CAPACITY

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Performance for Last Five Years

Rs. in lakes.

PRODUCT PROFILE

Year

Production

Sales of

Product

Turnover

Rs. Lakes

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Features of Project.

Objectives & Scope of the study:-

Objectives of the Study

1. To identify the financial strengths & weakness of the company.

2. Understand the Profitability of the company through the profit ratio.3. To evaluate efficiency and liquidity of working capital management in

Mahalaxmi tmt.pvt.ltd

4. To examine the pattern of management of working capital and to analyze theworking capital trends.

5. To analyze receivable management in company.6. To examine cash management practice in company.

Scope of the Study

For the sake of convenience of the study, the scope of the project is restricted as

followed-

Temporal Scope

The scope of the study broadly covers the period from 2005-10. However, while

studying the history of the organization. The date of formation of the organization is

also covered.

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Functional scope

There are various managerial aspects of Mahalxmi Ltd, such as marketing, sales,

human resource management is available for study. Considering the requirement of

the course and significance of subject only aspect of Working Capital Management of

the organization is selected for the study.

Sources of Information

There are mainly two sources of data and information i.e.

a) Primary Sources and

b) Secondary Sources.

a) Primary Sources

There are various methods of collecting the primary data i.e. Observation Method, etc.

In this case it is the study of a single organization; financial record is used for

collecting the necessary information and data. For this purpose, at the time of every ,

Managing Director, Secretary, Accounts Officer are taken, through which points like

requirement of working capital, sources of working capital, history of organization

etc. And other relevant issues are discussed and the required information is collected

and inserted at appropriate places in this project report.

b) Secondary Sources

This study is based on facts and figures for which secondary sources are also used for

collecting the data and information for this project. The secondary sources of data

consists of-

i) Published Annual Reports of Mahalaxmi Limited.

ii) Theoretical base regarding working capital managements in various books

available in library.

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B.D, C.O.E. SEVAGRAM, MBA Page

10

Methodology of the Study:-

RESEARCH & METHODOLOGY

TOOLS OF ANALYS

It is essential to use a systematic research methodology for the assessment of project

because without the use of a research methodology analysis of any company or

organization will not be possible it is worth a while to mention that I have the

following type of published data :

Balance sheet

Profit &loss a/c

Prospectus of the company

General body report

Schedules

Preloads of Study

The financial data for the financial year have been taken to analysis and interpret the

data for the year 2009-2010.

Area of the study

The study covers the analysis of working capital of Mahalxmi limited.

Analysis and Interpretation of Data for the Study

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Data and information collected for the study through primary and secondary source

are arranged and tabulated properly, while tabulating the data bare amounts, figures

and information of percentages, index number, proportions and ratios are used. For

effective presentation of data, the technique of graphs is also used in the project repot.

In this way various statistical tools are used in this study.

On the basis of presentation of information and data as above, necessary comments

are made on the basis of trends shown by the figures in sorted in the tables.

Accordingly appropriate remarks are drawn.

Hypothesis:-

The study is based on the following hypothesis:-

The organization is raising finance for meeting the working capital requirements.

The well experienced and qualified staff is working in organization.

There is major impact; of provisions and rules in the companies Act 1956.

Maintain the up-to-date records of Working capital.

Organization maintain the reco

Utility of the Study

This study is useful to the various factors as under-

a) To Directors

The members of Board of Directors will be able to study the details regarding

management of working capital in the organization. They will study the trends of

working capital during the last five years. It is helpful for them while financial

planning and polity making for the future period.

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b) To the staff

The officers and employees working in the organization use the study for

implementing the financial policies and making optimum use of financial sources.

c) To Students and Researchers

The persons who are interested in study the management of working capital in same

company. Can refer the data and information included in this projects report and the

conclusions made in the study.

d) To Government Departments

The personnel for government departments may also get valuable information from

this report while framing the schemes and plans related with such organizations.

Limitations of the Study

. The limitations are under -

1) The project report is prepared for the postgraduate level course ofThe university;

Study is carried out according to that level only.

2) The study is to be completed within a period of 50days, so the scope of

Study is determined in such a way that it will be completed successfully

In such time limit.

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3) The study is limited only to working capital management aspect of Mahalaxmitmt.ltd

4) The information and data, which is made available by personnel working

in the organization is; only used for this study.

Working Capital Management:-THEROTICAL FRAMEWORK

12. Introduction of Working Capital13. Meaning and Definition14. Concept of Working Capital

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15. Importance of Working Capital16. Types of Working Capital17. Operating Cycle of Working Capital18. Problems of Inadequate Working Capital19. Problems of Excessive Working Capital20. Determinant of Working Capital21. Working capital Financing22. Computation of Working capital Components23. Working Capital Management

THEROTICAL FRAMEWORK

Introduction

The financial management of business firms involves: the management of long term

assets, fixed assets, management of capital and management of short term assets and

liabilities. The first of three functions is the capital budgeting, the second is the

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management of capital structure and the last but not the least is the management of

working capital.

Working capital is one of the most fundamental measures of a firms financial

strength. If a firm possesses a significant value of liquid assets, it can easily fund its

day to day business obligations.

Meaning & Definition

Working capital management is the process of planning and controlling the level and

mix of the current assets of the firm as well as financing these assets.

The portion of firms current assets which are financed with long term funds

-L.G.Gitamann

Working capital is defined as the excess of current assets over -

The Current liabilities and provision that is, the amounts of surplus of current assets,

which remain after deducting current liabilities from, total current assets. This

amount is equal to the amount invested in working capital.

Working capital is the amount of funds necessary for the cost of operating theenterprise.

-Shubi

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Concepts of Working Capital

The concept of working capital has been a matter of great controversy among the

financial experts.

There are two concepts of working capital i.e.

a) Gross Concepts

b) Net concepts

a) Gross Concepts

The Gross concept of working capital deals with firms current assets. The sum total

of current assets of firm is termed as working capital.

From the perspective of working capital needs, Gross concept of working capital is

the investment in circulating assets or in inventory and accounts receivables,

comprising the operating cycle of a manufacturing firm. Investment in assets which

be converted in cash within an accounting year, which includes cash, short term

securities, debtor, bills receivable and inventories. In short, according to gross concept

working capital refers to the sum total of all current assets of the firm employed in the

business process.

b) Net Concept

Net concept of working capital refers to current assets less current liabilities. That

means, working capital is the difference between resources in cash or readily

convertible into cash i.e. current assets land organization commitments for which cash

will soon be required i.e. current liabilities.

Thus:

Working Capital = Current Assets Current Liabilities

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Current liabilities are those claims of outsiders which are expected to nature for

payment within an accounting year and include creditors, bills payable, bank

overdraft and outstanding expenses

Thus, according to net concepts of working capital that is accepted widely. Some

have made it quite simple stating it is the difference between current assets and

current liabilities. Others consider it as being equal to the total of current assets.

Importance of Working Capital

The management of working capital plays an important role in to maintain the

financial health of the firm during the normal course of business.

A study of working capital is of major importance of internal and external analysis

because of its relationship with the current day to day operations of business. The

study of management of working capital covers areas like cash management,

Accounts receivables, inventory and other concerned areas. Thus, working capital is

of paramount importance to a firms financial performance.

Working capital is significance because of

1. Adequate working capital is required to continue uninterrupted businessoperations.

2. It is essential to run the day-to day business operations.3. Greater volume of working capital required investing in current assets for the

success of sales activities.

4. To ensure the maximizing the wealth of a firm.5.

To increase the rate of return on investment.

6. To meet the short-term obligation of a business enterprise.7. To make the optimum utilization of resource.

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Types of Working Capital

The term working capital is broadly classified under two heads as under:

a) On the basis of concepts.

b)On the basis of time.

a) On the basis of concepts

On the basis of concepts the working capital is divided in two types. They are:-

I. Gross Working capital

The gross working capital refers to investment in all the current assets taken together.

The total of investment in all current assets is known as gross working capital.

II. Net working capital

The term net working capital refers to excess of total current assets

Over total current liabilities

b) On the basis of time

From the point of view of time, the working capital can be divided into two

categories:-

i. Permanent working capital

It also refers to Hard core working capital. It is that minimum levels of investment in

the current assets that is carried by the business at all the times to carry over minimum

level of its activities.

ii. Temporary working capital

It refers to that part of working capital, which is required by a business over & above

permanent working capital. It is also called variable working capital. Since the

volume of temporary working capital keeps on fluctuating from time to time

according to business activities it may be financed from short-term sources.

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iii. Operating Cycle

The term operating cycle is also known as Cash

Cycle. The term capital cycle or operating cycle

refers to the length of time between the Firm paying cash

for raw materials, applying those materials into production process, stock and inflow

of cash from debtors.

The operating cycle is the average time between purchasing or acquiring inventory

and receiving cash proceeds from the sale of finished products.

The operating cycle consists of the following events which continues throughout thelife of business-

Conversion of cash into raw materials; Conversion of raw materials into work in progress; Conversion of work in progress into finished products; Conversion of Finished products account receivables

through sales:

Conversion of Account receivables into cash

Account Receivables Sales

Cash Finished Products

Raw Material Work In process

Cash finished products Raw materials Work in process.

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Operating cycle of Working CapitalThus there is complete cycle form cash to cash to cash wherein cash gets converted

into raw materials, work-in-progress, finished products, debtors and finally into cash

again.

The operating cycle of working capitals will repeat again and again over the period

depending upon the nature of business. The determination of operating cycle helps

in forecast control and management if working capital.

Problems of inadequate Working Capital

When working capital is inadequate the company faces the following problems-

1. The growth of company is stagnant. Because the firm to undertake profitableprojects for non availability of working capital funds.

2. Inadequate working capital is difficult to implement operating plans andachieve the firms profit target.

3. Inadequate working capital is difficult to meet day to day commitments.4. Fixed assets are not efficiently utilized for the lack of working capital funds.5. Inadequate working capital funds the firm has unable to avail attractive credit

opportunities.

6. The firm loses its reputation when it is not in a position to honor its short termobligations.

Problems of Excessive Working Capital

The firm maintains a sound working capital position it should have adequate working

capital to run its business operations but excessive working capital position is

dangerous to a business enterprises as follows.

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It results in unnecessary accumulation of inventories. Thus chances ofinventory mishandling, waste, theft and losses increase.

It is an indication of defective credit policy and slack collection period.Consequently higher incidence of bad debts results which adversely affects

profits.

Excessive working capital makes management complacent whichdegenerates into managerial inefficiency.

Tendencies of accumulating inventories tend to make speculative profits grow. This

may tend to make dividend policy liberal and difficult to cope with in future when the

firm is unable to make speculative profits.

Determinants of Working Capital

The total working capital requirement is determined by a wide variety of factors. It

should be noted that these factors affect different enterprises differently. The

following is the description of the factors, which generally influence the working

capital requirements of the firms.

A.Internal Factors :-

1) Nature of Enterprise

The working capital requirements of enterprise are basically related to the conduct of

business. Public utilities have certain features which have a bearing on their working

capital needs. The two relevant features are-

i.

The cash nature of business (cash sales).ii. Sale of services rather than commodities.

In view of these features they do not maintain big inventories and have therefore

probably the least requirement of working capital. The nature of business is such that

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they have to maintain a sufficient amount of cash inventories and book debts. They

have necessarily to invest proportionately large amount in working capital.

The working capital requirements of a firm basically influence by the nature of its

firm. For example, trading and financial firm require a lower investment in working

capital but in the case of manufacturing concern have to invest substantially in

working capital.

2) Production Cycle

The working capital requirement is also depends upon the production or

manufacturing cycle. These cycle are covers the time span between the procurement

of raw materials and the completion of the manufacturing process leading to theproduction of finished goods. Funds have to be necessarily tied up during the process

of manufacture necessitating unbalanced working capital. In other words, there is

some time gap before raw materials become finished goods.

3) Business Cycle

The working capital requirements are also determined by the nature of the businesscycle. Business fluctuations lead to cyclical and seasonal changes which, is turn cause

a shift in the working capital position. The variations in business conditions may be in

two directions a) upward phase when boom conditions prevail and b) Downswing

phase when the economic activity is marked by a decline. During the upswing of

business activity, the need for working capital is likely to grow to cover the lag

between increased sales and receipt of cash as well as to finance purchases of

additional material to cater to the expansion of the level of activity.

4) Sales and Demand Conditions

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Sales depend on demand conditions mostly firms are experience seasonal and cyclical

fluctuations in the demand for their products and services. These business variations

affect the working capital requirement.

Seasonal fluctuations not only affect working capital requirement but also create

production problems for the firm, during periods of peak demand increasing

production may be expensive for the firm. Similarly, it will be expensive during slack

periods when the firm has to sustain its working force and physical facilities without

adequate production and sales.

5) Credit Policy

The level of working capital is also determined by credit policy, which relates to sales

and purchases. The credit policy influences the requirement of working capital in two

ways:

i) Credit allowed by firm to its customers.ii) Credit given to firm by its suppliers.

The credit terms granted to customers have a bearing on the magnitude of working

capital by determining the level of books debts. On the other hand, if liberal credit

terms are available to firm by its suppliers, the requirements of working capital will

be less.

6) Availability of Credit

The working capital requirements of a firm are also affected by credit terms granted

by its creditors. A firm will need less working capital if liberal credit terms are

available to it. Similarly, the availability of credit from banks also influences the

working capital needs of the firm. A firm, which can get bank credit easily on

favorable conditions, will operate with less working capital than a firm without such a

facility.

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7) Availability of Raw Material

The availability of a continuous basis without interruption would sometimes affect the

requirement of working capital. There may be some materials which cannot be

procured easily either because of their sources are few or they are irregular. The

procurement of some essential raw materials is difficult because of their sporadic

supply. This happens very often with raw materials which are in short supply and are

controlled to ensure equitable distribution. The buyer has in such cases very limited

options as to the quantum and timing of procurement. It may so happen that a bulk

consignment may be available but the firm may be short of funds, while when surplus

funds are available the commodities may be in short supply. This element of

uncertainty would lead to a relatively high level of working capital. Finally, some raw

materials may be available only during certain seasons.

8) Price Level Changes

Changes in the price level also affect the requirements of working capital. Rising

prices necessitate the use of more funds for maintaining an existing level of activity

for the same level of current assets. Higher cash outlays are required. The effect of

rising process is that a higher amount of working capital is needed.

The implications of changing price levels on working capital position vary from

company to company depending on the nature of its operations, its standing in the

market and other relevant considerations.

9) Operating Efficiency

The operating efficiency of the management is also an important determinant of the

level of working capital. The management can contribute to a sound working capital

position through operating efficiency. Although the management cannot control the

rise in prices, it can ensure the efficient utilization of resources by eliminating waste,

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improving co-ordination and a fuller utilization of existing resources, and so on.

Efficiency of operations accelerates the pace of cash cycle and improves the working

capital turnover. It releases the pressure on working capital by improving profitability

and improving the internal generation of funds.

10)Growth and Expansion Activities

It is obvious that, as business expands, it requires more working capital in terms of

sale or fixed assets. In the case of growth, there will be an all round increase in

investment. That is to say, with the increase in fixed assets for increasing sales the

requirement of working capital will be expanded not only for financing increased

volume of raw materials but also to finance maintenance of inventory stock and grant

credit to customers.

11)Depreciation Policy

Depreciation policy also exerts an influence on the quantum of working capital.

Depreciation charges do not involve any cash outflows. The effect of depreciation

policy on working capital is, therefore, indirect in the first place depreciation affects

the tax liability and retention of profits. In the second place, the selection of the

method of depreciation has important financial implications. Depreciation policy is

relevant to the planning of working capital.

B.External Factors :-

1) Business Cycle Fluctuations

Business fluctuations lead to cyclical and seasonal change in production and sales and

affect the working capital requirement. Most firms experience seasonal and cyclical

fluctuation in the demand for their products and services. These business variations

affect specially the temporary working capital requirements of the firm.

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2) Supply Conditions

The inventory of raw materials, spares and stores depends on the condition of supply.

If the supply is prompt and adequate the firm can manage with small inventory hence

the firm can manage with small inventory hence the lower requirements of working

capital. If supply is unpredictable and carry the inventory for longer period. This

policy is followed when the raw material is available only seasonally.

3)Technological Development

Changes in technologies may lead to improvements in processing raw materials,

minimizing wastages, greater productivity, more speed of production. All these

improvements may enable the firm to reduce investments in inventory .Thus changes

in technology affect the requirements of working capital.

4)Government Policies

The policy and decision of government also affect working capital. Government

controls and regulates the prices and supply of some essential products, which are

very important from the point of view of general public.

5)Level of Taxes

The amount of taxes to be paid is determined by the prevailing tax regulations the

management has no discretion in this respect, very often taxes have to be paid in

advance on the basis of the profit of the preceding year. Tax liability is, in a sense,

short term liability payable in cash an adequate provision for tax payments is,

therefore, an important aspect of working capital planning. It tax liability increases, it

leads to an increase in the requirement of working capital and vice-versa.

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6)Dividend Policy

The payment of dividend consumes cash resources and there by, affects working

capital to that extent. Conversely, if the firm does not pay dividend but retains the

profits, working capital increases. In planning working capital requirements,

therefore, a basic question to be decided is whether profit will be retained or paid out

of shareholders. In the firm should retain profits to preserve cash resources and at the

same time, it must pay dividends to satisfy the expectations of investors. When profits

are relatively small, the choice is between retention and payment. The choice must be

made after taking into account all the relevant factors.

Working Capital Financing:-

1)Trade Credit

Trade credit represents the credit extended by the supplier of goods and services. It is

a spontaneous source of finance in the sense that it arises in the normal transactions of

the firm without specific negotiations. Provided the firm is considered credit worthy

by its suppliers. It is an important source of finance representing 25 percent to 50percent of short term financing.

2)Accrued Expenses and Deferred Income

Accrued Expenses:-

Accrued expenses represent a liability that a firm has to pay for the services which it

has already received. Thus they represent a spontaneous, interest free sources of

financing the most important component of accruals are wages and salaries, taxes and

interest.

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Deferred Income:-

Deferred income represents funds received by the firm for goods and services which

it has agreed to supply in future these receipts increase the firms liquidity in the form

of cash. Advance payments made by customers constitute the main item of deferred

income.

3)Regulation of Bank Finance

Traditionally industrial borrows enjoyed a relatively easy access to bank finance formeeting their working capital needs. Further, the cash credit arrangement the principal

device through which such finance has been provided is quite advantageous from the

point of view of borrowers. Ready availability of finance in a fairly convenient form

led to in the opinion of many informed observers of the Indian banking scene, over

borrowing by industry and deprivation of other sectors.

4)Public Deposits

Many firms large and small, have solicited unsecured deposits accept from the public,

to meet the finance of working capital requirements. Advantages of the firm-

The procedure for obtaining public deposits is fairly simple

No restrictive covenants are involved

No security is offered against public deposits.

Hence the margin able assets of the firm are conserved.

The post tax cost is fairly reasonable.

5)Inter- Corporate Deposits

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A deposit made by one company with another, normally for a period up to six months,

is referred to as an inter corporate deposit. Mainly three types of deposits-

I. Call Deposits-

A call deposit is withdrawal by the lender on giving a days notice the lender has to wait for

at least three days the percentage of interest rate is 12.

II. Three-Months Deposits-

These deposits are taken by borrowers to tide over a short-term cash inadequacy that

may because by one or more of the following factors- disruption in production,

excessive imports of raw material, tax payment delay in collection, dividend payment,

and unplanned capital expenditure.

III. Six- Months Deposits-

Normally, lending companies do not extend deposits beyond this time frame such

deposits. Usually madden with first-class borrowers.

6)Short-Term loans from Financial Institutions

The life Insurance Corporation of India, General Insurance Corporation of India, and

Unit Trust of India, provide short term loans to manufacturing companies with an

excellent track record.

7)Rights Debentures for Working Capital

Public limited companies can issue rights debentures to their share holders with the

object of augmenting the long term resources of the company for working capital

requirements.

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Computation of Working Capital Components:-

1) Computation of Current Assets Components2) Computation of Current Liabilities Components

1) Computation of Current Assets Components

Raw Materials Inventory:-

Budgeted Production X Cost of Raw Material X Average Inventory \

Holding Period

(In units) (Per unit) (Months/days)

12 Months / 365 days

Work in process Inventory:-

Budgeted Production X Estimated WIP Cost X Average time span of

WIP Inventory



Finished Goods Inventory :-

Budgeted Production X Cost of goods produced X Finished

Goods holding period

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Debtors:-

Budgeted credits Sales X Cost of sales per unit X

Avg. debt collection period

(In units) excluding Depreciation (Month /days)


Cash and Bank Balance:-

Now firm has maintained minimum desired cash and bank balance to computation of

working capital.

2) Computation of Current Liabilities Components

Trade Creditor:-

Budgeted Yearly Production X Raw Material Cost X

Credit Period allowed by Creditors



Direct Wages:-

Budgeted Yearly Production X Direct Labour Cost X Avg.

Time lag in Payment of wages

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12 Months / 365 day

Overheads:-

Budgeted Yearly Production X Overhead Cost X Avg.

Time lag in Payment of Overhead



WORKING CAPITAL MANAGEMENT

Working Capital Management plays a vital role in area of financial management of an

enterprises it is concerned with the problems that arise in attempting to manage the

current assets, and current liabilities. The current assets refer to those assets which in

the ordinary course of business can be, will be converted into cash within one year.

The current liabilities are those liabilities which are intended, at their inception to be

paid in the ordinary course of business, within a year.

The key of Working Capital Management is to manage the firms current assets and

current liabilities in such a way that a satisfactory level of working capital is

maintained.

The current assets should be large enough to cover its current liabilities in order to

ensure a reasonable margin of safety each of the current assets must be managed

efficiently in order to maintain the liquidity of the firm.

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Working Capital Trends and Liquidity Analysis:-

1. Working Capital Trends An Introduction2. Calculate of working capital3. Size of working capital4. Current assets Trends5. Current liabilities Trends6. Working capital Turnover Ratio7. Liquidity Analysis8. Current Ratio9. Quick Ratio

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Working Capital Trends and Liquidity Analysis

1.Working Capital Trends: An Introduction

In working capital analysis the direction of change over a period of time is of crucial

importance. Working capital is one of the important fields of management. It is

therefore very essential for the analyst to make a study about the trend and direction

of the working capital. The working capital trend analysis represents a picture of

variation in current assets, current liabilities and its effect on the working capital

position.

In the words ofS.P.Gupta: The term trends is very commonly used in day-to-day

conversation. Trends, also called secular or long term trend, is the basic tendency of

population, sales, income, current assets and current liabilities etc., to grow or decline

over a period of time

According to R.C.Gulezian, The trend is defined as a smooth irreversible movement

in the series. It can be increasing or decreasing. Pointing out the factors responsible

for secular trend, D.N.Elhance observes: Secular trend is the effect of such factors,

which are more or less constant for a long time or which changes very gradually or

slowly. Such factors are changes in population or tastes and habits of people etc.

However, it depends on the nature of data, whether it can be regarded as long-term

or short-term. It is also not necessary that the rise and fall continue in the same

direction throughout a very long period of time.

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Emphasizing the importance of analysis of working capital trends, Man Mohan and

GoyalS have pointed out that, Analysis of working capitals trends provides a base to

judge whether the practice and prevailing policy of the management with regard to

working capital is good enough or an improvement is to be made in managing the

working capital funds. Further, any one trend by itself is not very information and,

therefore comparison with illustrated their idea in these words: An upward trend for

inventories, bills

Receivables and sundry debtors coupled with downward trends of sales, accompanied

by a marked increase in plant investment especially if the increase in plant investment

by incurring fixed interest obligation

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2.Calculate of working capital :-

Statement of Working Capital

(2005-06 to 2008-09)

Rs in

Particular

A. Current

Assets

-Inventories

-Receivable

-Cash &

Bank

-Loan &Advance

Total A

B. Current

liabilities

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Interpretation of current Assets :-

Interpretation Current Liabilities

3.Size of working capital :-

Working Capital Indices

Rs. in lakhs.

Particular

Working

Capital

A-BIndices

Working Capital Ratio :-

A. Liquidity Analysis

A sound liquid position is of primary concern to management from the point of view

of meeting current liabilities as and when they mature as well as for answering

continuity of operations. Thus liquidity is the base of continuous business operations.

The important of adequate liquidity in the sense of the ability of a firm to meet current

or short-term obligations when they become due for payment can hardly be over

stressed. In fact liquidity and profitability is required for efficient financial

management. The liquidity ratios measure the ability of a firm to meet its short-term

obligations and reflect the short-term financial strength of a firm.

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I. Current Ratio

The most widely used measure of liquid position of a firm is the current ratio. This

ratio is also known as the ratio of current assets to current liabilities or workingcapital ratio. The current ratio is computed by dividing current assets by current

liabilities. Current assets include cash and these assets, which can be converted into

cash within a year, such as marketable securities, debtors and inventories etc.

The current ratio gives the analyst a general picture of the adequacy of the working

capital of a company and of the companys ability to meet its day-to-day payment

obligations. It likewise, measures the margin of safety provided for paying current

debts in the event of a reduction in the value of current assets. The current ratio can

be computer as follows:

Current Assets

Current ratio = ------------------------

Current Liabilities

A relatively high value of the current ratio is considered as an indication that the firm

is liquid and has the ability to pay its bills. On the other hand, a relatively low value

of the current ratio is considered as an indication that the firm will find difficulty in

paying its bills. As a conventional rule a current ratio of 2:1 or more is considered to

be satisfactory.

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Current Ratio

Rs. in lakhs.Particular

Current

Assets

Current

Liabilities

Current

Ratio

II. Quick Ratio

The quick ratio is another widely used device for judging the short-term debts

repaying ability of the business in the near future. The ratio is designed to show the

amount of cash available for meeting immediate payment. The quick ratio is the

ratio between quick assets and quick liabilities and it is calculated by dividing the

quick assets by the quick liabilities.

The formula for calculating this ratio is as follows-

Quick Assets Inventory

Quick Ratio = -------------------------------

Quick Liabilities

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The term quick assets refer to current assets, which can be converted into, cash

immediately or at a short notice without diminution of value. It includes cash and

bank balance, marketable securities and debtors.

Generally a quick ratio of 1to1 is considered to represent to slowly recover

satisfactory current financial position. When it is not it implies that the quick assets

do not cover current liabilities, and therefore steps should be taken for additional cash.

The fundamental object of calculating this ratio is to enable the finance officer to

ascertain as to what would happen if the current creditors pressed for immediate

payment.

Quick Ratio

Rs.in lakhs

Particular

A. Quick

Assets

-Receivable

-Cash Bank

-Loan

& Advance

Total A

B.Quick

liabilities

Total B

Quick Ratio

(A-B)

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3. Working Capital Turnover Ratio

This ratio establishes a relationship between net sales and working capital this ratio is

to determine the efficiency with which the working capital is utilized.

Net Sales

WCT Ratio = --------------------------

Net Working Capital

Rs. in lakhs.

Particular

Net Sales

Net

Working

CapitalWCT

Ratio

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Interpretation:-

Receivable Management

Introduction:-

The receivables represent an important component of the current assets of the firm.

The amount of investment in accounts receivable for most firms. The amount of

investment in accounts receivable for most firms also represents a very substantial

portion of current assets. According to I.M.Pandey:Trade credit is the most

prominent force of the modern business. It is considered as an essential marketing

tool, acting as a bridge for the movement of goods from production and distribution

stages to customers finally.

The interval period between the date of sale and the date of receipt of payment has to

be financed out of working capital funds. Thus, trade debtors represent investment.

As substantial amount are tied-up in trade debtors or receivables, it needs careful

analysis and proper management.

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Meaning of Receivables:-

Emerson as has defined the term receivables: when goods or services are sold

under an arrangement permitting the customers to pay for them at a letter date, the

amount due from the customer is recorded receivable . This is an asset account,

representing claim to future payment of cash from the customer.

Objectives of Receivables Management:-

The basic objective of receivables management is to maximize the value of the firm

by achieving a tradeoff between liquidity and profitability. In fact, the firm should

manage its credit in such a way that sales are expanded to an extent to which risk

remains within an acceptable limit. Thus, to achieve the objective to maximizing the

vale, the firm should manage its credit:

(i) To obtain optimum volume of sales.(ii) To control the cost of credit and keep it at minimum.(iii) To maintain investment in debtors at optimum level.

The purpose of credit management is not sales maximization. But efficient and

effective credit management does help to expand sales and can prove to be an

effective credit management does help to expand sales and can improve to be an

effective tool of marketing, thus, the objective of receivables management is to

promote sales and profits until that pint is reached where the return on investment infurther funding of receivables is less than the cost of funds raised to finance that

additional credit.

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Size of Receivables:-

The size of receivables is closely linked with a firms trade terms, which includes the

period of credit, the rate of discount and collection policies etc. But the most

important factor in determining the volume of receivables is the level of a firms

credit sales. With an increase in the size of sales, it may decide to bring about a

proportionate increase in the magnitude of receivables.

Size of Receivables

Rs. in lakhs.

Particular

Receivable

Indices

Receivables Turnover Ratio:-

The accounts receivables turnover ratio shows the relationship between net sales andaverage accounts receivables of a company. It is calculated as follows-

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Net Sales

Receivables Turnover Ratio = ------------------------------

Average Receivables

Net sales consist of gross sales minus returns, if any, from customers. Average

receivables are the simple average of receivables at the beginning and at the end of

the year. The receivables, without corresponding increase the total current assets,

may imply decrease in the volume of investment in other components of current

assets.

Receivables Turnover Ratio

Rs.In lakhs

Particular

Net Sales

Average

Receivable

Receivable

Turnover

ratio

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Receivable

Turnover ratio

Interpretation:-

A high ratio is indicative of shorter time lag between cash sales and cash collection.

A low ratio shows that debts are being collected rapidly. The objective if the accounts

receivables turnover ratio is to judge how old the accounts and to know how fast cash

will high from collections.

Average Collection Period:-

The average collection period ratio measures the quality of debtors since it indicated

the rapidity or slowness of their collectibles. According to P.L.Ercites: The average

collection period is a significant measure of the collection period the better the quality

of receivables (Management since a short collection period means that the firms

Customer are prompt payer. On the hand, high collection period indicates a slow

collection process and low liquidity of trade credit. It is calculate as under-

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365

Average Collection Period = ---------------------------

Receivables Turnover

This ratio is calculated by dividing the days in a year by the receivables turnover.

Donald E. Miller points out: The collection period ratio thus provides the analyst

with two significant measurements of receivables.

Collection period

Particular

Average

collection

period

Cash Management

Introduction:-

Cash is an important component of current assets and is most essential for business

operations. Cash is the basic input needed to keep the business running on a

continuous basis. It is also the ultimate output expected to be realized by selling the

service and product manufactured by the firm.

Cash is both the beginning and the end of the working capital cycle i.e. cash,

inventories, receivables and cash. While the management of all the firms should

strive hard to secure larger cash at the management of all the firms should strive hard

to secure larger cash at the end of the working capital cycle than what had been

invested into; it at its beginning, they must also make it a best possible minimum.

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This is required to optimally utilize the cash and to avoid the situation of idea cash

balances.

Its effective management is the key determinanant of sufficient working capital. In the

key determinant of sufficient working capital. In the words ofP.V.Kulkarni Cash

in the business enterprise may be compared to the blood of the human body; blood

gives life and strength profits and solvency to the business organization. Hence,

every enterprise has to hold to hold necessary cash for is existence.

In a business firm, ultimately, a transaction results in either an inflow or outflow of

cash. In an efficient managed business, static cash balance situation generally does

not exist. A firm should keep sufficient cash, neither more nor less. Cash shortage

will disrupt the firms manufacturing operation; while excessive cash will simply

remain idle. Therefore, for its smooth running and maximum in a business is of

paramount importance.

Motive For Holding Cash:

J.M.Keynes a prominent economist pointed out three primary motives for holding

cash

(i) The transaction motive;

(ii) The precautionary motive; and

(iii) The speculative motive; these motive are explained as under-

(i) The Transaction Motive:-

The transaction motive requires a firm to hold cash to conduct its business in the

ordinary course. The firm needs cash primarily to make payment for purchases,

wages, operating expenses, taxes etc. A firm needs a pool of cash because its receipts

and payment are not perfectly synchronized. A pool of cash is also known as

transaction balance.

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(ii) The Precautionary Motive:-

The precaution motive is to hold cash to meet any contingencies in future. It provides

a cushion or buffer to withstand some unexpected emergency. The precautionaryamount of cash depends upon the predictability of cash flows. If cash flows can be

predicted with accuracy, less cash will be maintained against an emergency. On other

hand, unpredicted the cash flows, the larger the need for such balances.

(iii) The Speculative Motive:-

The financial manager would like to take advantage of unexploited opportunities.

Some reserve of money is always essential to enable the firm to take advantage of

cash when such opportunities arise.

Functions of Cash Management:-

Efficient cash management receipts and disbursement, and an efficient control and

review mechanism. The firm should evolve strategies the following four function of

cash management:-

a)Cash Planning :-

Cash planning can help anticipate future cash flows and needs of firm and reduces the

possibility of idle cash balances and cash deficits. Cash planning may be done on

daily, weekly or monthly basis.

b)Managing the Cash Flows :-

The twin objective sin managing the cash flows are: cash flows and cash outflows.

The inflow of cash should be accelerated while, as far as possible, the out flows of the

cash should be decelerated.

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c) Determining the Optimum Cash Balance :-

One of the primary responsibilities of the financial manager is to maintain a sound

liquidity position of the firm so that dues may be settled in time. The test of liquidity

is really the availability of cash to meet the firms obligations when they become due.

d)Investing Idle Cash :

The idle cash or precautionary cash should be properly and profitably invested. The

firm should decide about the division of cash balances between marketable securities

and securities and bank deposits.

Cash Turnover Ratio:-

A study of cash to sales ratio will provide a deep insight into the cash balance held in

undertaking. This is an important ratio of controlling cash. Cash to sales ratio is

calculated by dividing the figures of total sales by figures of total cash available at the

end of the year. Greater cash to sales ratio indicates the effective and better utilization

of cash resources.

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Cash Position Ratio:-

It may be defined as the ratio of cash to current liabilities or the ratio of liquid funds

to the company to control cash balances. In order to analyze the level of liquid funds

in relation to current liabilities. In this context, liquid funds include cash and bank

balance and marketable securities.

Cash Position Ratio

Rs. in lakhs.

Particular

Cash &

Bank

Current

liabilities

Ratio %

Ratio %

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Interpretation:-

.

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Data Analysis and Interpretation of the Ratio

Analysis

I. Operating Expenses Ratio Analysis

Operating Exp. Ratio =

Administrative Exp. + Selling Exp.*100

OER = ---------------------------------------------------------

Net sales

Five Years Operating Expenses Ratio

Rs. in lakhs.

Year

Administrative

Exp.

Selling Exp.

Total

Net sales

Ratio

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Interpretation:-

II. Administrative Expenses Ratio Analysis :-

Administrative Expenses Ratio =

Administrative Expenses * 100

AER = -------------------------------------------

Net Sales

Ratio

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Five Years Administrative Expenses Ratio

Rs.in lakhs

Interpretation:-

III. Finance Expenses Ratio Analysis

Finance Expenses Ratio =

Finance expenses*100

FER = -------------------------------

Net Sales

YearAD.

Exp.

Net

Sales

Ratio

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Five Years Finance Expenses Ratio

Rs. in Lakhs.

Year

Finance

Exp.

Net

Sales

Ratio

Interpretation:-

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Conclusion and Suggestion

Management Oriented:-

As the system has developed keeping unique management needs in his mind an

alignment with the corporate aims and objective.

Management Directed:-

As the manager spend good deal of time in system development far from being a

onetime effort. This continuity is maintained in the review and redesign.

Integration:-

This was observed in all major systems studied, here the mutual input and output

needs of the interlocking systems are identified and build as part of the design.

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Flexibility and Easy of Use:-

FUTURE:-

Suggestions

NOTE:-

Bibliography

Management- A Conceptual ApproachBy Dheeraj Sharma, Himalaya Publications House.

Working Capital Management-Theory&

Practiceby Dr.P.Periasamy, Himalaya Publishing House.

Organization and Finance Of Industries IN IndiaBy C.B.Mamoria, kitab Mahal Allahabad.

Finical Management PE-II Study Material the ICAI. Management Account-Principles of Practice

By M.A. Sahat vikas publishing house

Annual report for 2004-05 to 2008-09.

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