analysis of working capital management-jipl

8/11/2019 Analysis of Working Capital Management-JIPL

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Project reportOn

ANALYSIS OF WORKING CAPITAL MANAGEMENT

OF

JKM INFRA PROJECTS LIMITED

Submitted for the partial fulllment of theaward

Of

Master of Business Administration

DEGREESUBMITTED BY:

ADITYA JAINROLL No. 1221000593

.UNDER TE GUIDAN!E "#

Internal Guide: r. .! ."ri#a$t#a

Department of Mana$ementIT

G%A&IA'AD


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Candidates DeclarationCerti!icate

I hereby declare that the Work which is being presented in this report entitled " Anal#sis o!

M$t$al F$nds and Ran%in& T'e( ) is an authentic record of my work carried out under the

supervision of Mr M*C* Sri+asta+a

The matter embodied in this report has not been submitted by me for the award of any other

degree

Dated ADITYA JAIN

De,art(ent- M.A

This is certifying that the above statements made by the candidate are correct to the best of my

knowledge.

Mr* M*C* Sri+asta+a

Desi&nation- AGM /Finance0

De,art(ent- Acco$nts 1 Finance

Date-22222222


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PREFACE

During Master in Business dministration program! "tudents comes direct contact with the real

corporate world through the industrial Work. #$DM program provides its students with an in%

depth study of various managerial activities that are performed in any organi&ation.

detailed research'analysis of managerial activities conducted in various departments like

finance! marketing! human resources! production department etc. gives the student the

conceptual idea of what they are e(pected to manage and how to manage and how to obtain the

ma(imum output through minimum inputs of resources available and how to minimi&e the

wastage of resources.

s MB student! I am working with JKM In!ra Pro3ects Li(ited as a Acco$ntant*


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ACKNOWLEDGEMENT

I feel immense pleasure and privilege to e(press my sincere thanks to my #ro)ect $uide Mr*

M*C*Sri+asta+a /AGM Finance0 for his incessant invaluable and indispensible guidance

throughout. t the same time! I cannot forget the courtesy and timely help provided by my

Colleagues.

I also e(press my sincere depth of gratitude to the *inance and ccount + dministrative

Department staff members in providing me with all the necessary information in carrying out my

pro)ect study.

ADITYA JAIN

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TA.LE OF CONTENT


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E4EC5TI6E S5MMARY

well designed and implemented working capital management is e(pected to contribute

positively to the creation of a companyAs value. The purpose of this pro)ect is to analysis and

interpretation. My pro)ect is related to nalysis of Working Capital Management WCM and

its impact on the performance of JKM INFRA PROJECTS LIMITED /JIPL0during the last

few years.

My aims at learning various facets of working capital management at JIPLby studying the day

to day activities at its ,#C division which mainly deals in Infrastructure Developments

Construction of roads ' highways for 3ational 9ighways uthority of India 39I and "tate#WDs and e(ecution of irrigation pro)ects for irrigation departments.

These pro)ects also draws a comparison between JIPLand other prominent players active in the

infrastructure segment and tries to find out the reasons playing an active role behind the

numerouno status of JIPLin the infrastructure segment. Working capital management involves

not only managing the different components of the current assets! but also managing the current

liabilities! or to be more precise! financing the current assets.

company is reEuired to maintain a balance between liEuidity and profitability while conducting

its day to day operations. 7iEuidity is a precondition to ensure that firms are able to meet its

short%term obligations and its continued flow can be guaranteed from a profitable venture. The

importance of cash as an indicator of continuing financial health should not be surprising in view

of its crucial role within the business. This reEuires that business must be run both efficiently and

profitably. In the process! an asset%liability mismatch may occur which may increase companyAs

profitability in the short run but at a risk of its insolvency. 4n the other hand! too much focus on

liEuidity will be at the e(pense of profitability.


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During my study! I understand that there are three main areas in working capital management

and the pro)ect focuses on the followingF

0eceivables management

Cash management

Inventory management

By using the financial statements of 6I#7! an analysis has been carried out to understand the

trends that have been followed. lso a comparative study is carried out with respect to the v

companyAs competitors to further understand its position in the market .Based on the above

study! certain recommendations are made. The financial statements mainly balance sheet along

with profit + loss accounts are used to work out various ratios which help us in better

understanding the organi&ationAs working capital management.

The key variables used in the analysis are inventories days! accounts receivables days! accounts

payable days and cash conversion cycle. These ratios are then compared with industryAs standard

to get an insight to understand the nuances of the working of the organi&ation.


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INTROD5CTION

Wor%in& Ca,ital-

Working capital in simple terms means the amount of funds that a company reEuires for

financing its day %to% day operations. Working Capital includes the current assets and current

liabilities areas of the balance sheet.

Working 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.

Working Capital Management is the process of planning and controlling the level and mi( of

current assets of the firm as well as financing these assets. nalysis of working capital is of

ma)or importance to internal and e(ternal analysis because it is closely related to the current day

%to% day operations.

Concept of Working CapitalF%

There are two concepts of working capitalsF %

2. $ross Working capitalF % It means the current assets which represent the proportion of

investment that circulates from one form to another in the ordinary conduct of business.

5. 3et Working CapitalF % It is the difference between current assets and current liabilities

or alternatively the portion of current assets financed with long%term funds.


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Constituents of Current ssetsF%

2. Cash in hand and cash at bank.

5. Bill receivables.

8. "undry debtors.

@. "hort term loans and advances.

=. Inventories.

>. #repaid ,(penses.

?. ccrued Income.

:. Marketable "ecurities.

Constituents of Current 7iabilitiesF%

2. ccrued and outstanding e(penses.

5. "hort term loans! advances and deposits.

8. Dividends payable.

@. Bank overdraft.

=. #rovision for ta(ation.

>. "undry Creditors.

?. Bills payable.


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The gross concept is sometimes preferred to the concept of working capital for the following

reasonsF

2. It enables the enterprise to correct amount of working capital at correct time.

5. ,very management is more interested in total current assets with which it has to operate then

the source from where it is made available.

8. It take into consideration of the fact every increase in the funds of the enterprise would

increase its working capital. The net working capital concept! 9owever! is also important for

following reasonsF

ItAs a Eualitative concept! which indicates the firmAs ability to meet its operating e(penses and

short term liabilities.

It indicates the margin of protection available to the short term creditors.

It is an indicator of the financial soundness of enterprise.

It suggests the need of financing a part of working capital reEuirement out of the permanent

sources of funds.


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C7""I*ICTI43 4* W40;I3$ C#IT7

Working capital may be classified in two waysF 4n the basis of concept.

4n the basis of time.

4n the basis of concept working capital can be classified as gross working capital and net

working capital. 4n the basis of time! working capital may be classified asF

#ermanent or *i(ed working capital.

Temporary or variable working capital.

#,0M3,3T 40 *I-,D W40;I3$ C#IT7

#ermanent or fi(ed working capital is minimum amount which is reEuired to ensure effective

utili&ation of fi(ed facilities and for maintaining the circulation of current assets. ,very firm has

to maintain a minimum level of raw material! work% in%process! finished goods and cash balance.

This minimum level of current assets is called permanent or fi(ed working capital as this part of

working is permanently blocked in current assets. s the business grow the reEuirements

of working capital also increases due to increase in current assets.

T,M#4001 40 /0IB7, W40;I3$ C#IT7

Temporary or variable working capital is the amount of working capital which is necessary to

meet the seasonal demands and some special necessities. /ariable working capital can further be

categori&ed as seasonal working capital and special working capital. The capital necessary to


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meet the seasonal need of the enterprise is called seasonal working capital. "pecial working

capital is that part of working capital which is reEuired to meet special demands.

Temporary working capital differs from permanent working capital in the sense that is reEuired

for short periods and cannot be permanently employed profitably in the business.

IM#40T3C, 4* D,GT, W40;I3$ C#IT7

"47/,3C,1 4* T9, B"I3,""F % deEuate working capital helps in maintaining the

solvency of the business by providing uninterrupted of production.

$44DWI77F % "ufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

,"1 743"F % deEuate working capital leads to high solvency and credit standing can

arrange loans from banks and other on easy and favorable terms.

C"9 DI"C43TF deEuate working capital also enables a concern to avail cash discounts

on the purchases and hence reduces cost.

0,$70 "##71 4* 0W MT,0I7F % "ufficient working capital ensures regular

supply of raw material and continuous production.

0,$70 #1M,3T 4* "70I,"! W$," 3D 4T9,0 D1 T4 D1

C4MMITM,3T"F % It leads to the satisfaction of the employees and raises the morale of its

employees! increases their efficiency! reduces wastage and costs and enhances production

and profits.

,-#74ITTI43 4* */40B7, M0;,T C43DITI43"F % If a firm is having

adeEuate working capital then it can e(ploit the favorable market conditions such as


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purchasing its reEuirements in bulk when the prices are lower and holdings its inventories for

higher prices.

BI7IT1 T4 *C, C0I","F % concern can face the situation during the depression.

GIC; 3D 0,$70 0,T03 43 I3/,"TM,3T"F % "ufficient working capital

enables a concern to pay Euick and regular of dividends to its investors and gains confidence

of the investors and can raise more funds in future.

9I$9 M407,F % deEuate working capital brings an environment of securities!

confidence! high morale which results in overall efficiency in a business.

DI"D/3T$," 4* ,-C,""I/, W40;I3$ C#IT7

2. ,(cessive working capital means ideal funds which earn no profit for the firm and business

cannot earn the reEuired rate of return on its investments.

5. 0edundant working capital leads to unnecessary purchasing and accumulation of inventories.

8. ,(cessive working capital implies e(cessive debtors and defective credit policy which causes

higher incidence of bad debts.

@. It may reduce the overall efficiency of the business.

=. If a firm is having e(cessive working capital then the relations with banks and other financial

institution may not be maintained.

>. Due to lower rate of return n investments! the values of shares may also fall.

?. The redundant working capital gives rise to speculative transactions.


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W40;I3$ C#IT7 I" 3,,D,D *40 T9, *4774WI3$ #0#4","F %

*or the purpose of raw material! components and spares.

To pay wages and salaries.

To incur day%to%day e(penses and overload costs such as office e(penses.

To meet the construction costs as payment to sub contractors! power + fuel! site e(penses!

freight + cartage etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material! work%in%progress! stores and spares and

finished stock.


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*CT40" D,T,0MI3I3$ T9, W40;I3$ C#IT7 0,GI0M,3T"

2. 3T0, 4* B"I3,""F % The reEuirements of working is very limited in public utility

undertakings such as electricity! water supply and railways because they offer cash sale

only and supply services not products! and no funds are tied up in inventories and

receivables. 4n the other hand the trading and financial firms reEuires less investment in

fi(ed assets but have to invest large amt. of working capital along with fi(ed investments.

5. "IH, 4* T9, B"I3,""F % $reater the si&e of the business! greater is the reEuirement

of working capital.

8. #04DCTI43 #47IC1F % If the policy is to keep production steady by accumulating

inventories it will reEuire higher working capital.

@. 7,3$T9 4* #04DCTI43 C1C7,F % The longer the manufacturing time the raw

material and other supplies have to be carried for a longer in the process with progressive

increment of labor and service costs before the final product is obtained. "o working

capital is directly proportional to the length of the manufacturing process.

=. ","437" /0ITI43"F % $enerally! during the busy season! a firm reEuires larger

working capital than in slack season.

>. W40;I3$ C#IT7 C1C7,F % The speed with which the working cycle completes

one cycle determines the reEuirements of working capital. 7onger the cycle larger is the

reEuirement of working capital.


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*ig. % 2

?. 0T, 4* "T4C; T034/,0F % There is an inverse co%relationship between the Euestion of

working capital and the velocity or speed with which the sales are affected. firm having a

high rate of stock turnover will needs lower amt. of working capital as compared to a firm

having a low rate of turnover.

:. C0,DIT #47IC1F % concern that purchases its reEuirements on credit and sales its product '

services on cash reEuires lesser amt. of working capital and vice%versa.

. B"I3,"" C1C7,F % In period of boom! when the business is prosperous! there is need for

larger amt. of working capital due to rise in sales! rise in prices! optimistic e(pansion of

business! etc. 4n the contrary in time of depression! the business contracts! sales decline!

difficulties are faced in collection from debtor and the firm may have a large amt. of working

capital.

C"9

0W MT,0I7 W40; I3 #04$0,""

*I3I"9,D $44D"

D,BT40"


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2


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O.JECTI6E OF ST5DY

This pro)ect was undertaken to analy&e the working capital policies! working capital

management of the company and to reduce down their problems and to find the solutions withrespect to the working capital management of the company.

The ob)ective of the study is to provide the solutions for reducing down the duration of the

operating cycle! to analy&e the working capital position of the company and the liEuidity

position! finding out the problems that the company is facing in managing the working capital

and showing trend of particular ratios in future and at the same suggesting them to solve their

problems. There are Two types of 4b)ectives in this studyF%

2. Pri(ar# O73ecti+eF% #rimary 4b)ectives is to nalysis of Working Capital Management

5. Secondar# O73ecti+e F% There are few secondary ob)ectives F %

To see whether the company is prepared with enough working capital to face any kind of

contingencies.

To identify the financial strength and weakness of the company

To see how the day%to%day operations of the company takes place.

To compare the performance of working capital for a particular year with previous years.

To assess 7iEuidity position! 7ong term solvency! operational efficiency! and overall

profitability of 6;M I3*0 #046,CT" 7IMIT,D.

#roviding suggestions to solve the problems of the company.


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COMPANY PROFILE

JKM In!ra Pro3ect Li(itedis mainly an ,#C /Engineering, Procurement and Construction)

contractor and is currently engaged in construction of roads ' highways for 3ational 9ighways

uthority of India 39I and "tate #WDs and e(ecution of irrigation pro)ects for irrigation

departments. The Company has been e(ecuting road and irrigation pro)ects in the state of Bihar!

ssam! runachal #radesh and ttar #radesh. s per CompanyAs business model! 6I#7 provide

,#C services either on basis of contracts directly bagged by it or through 6oint /entures 6/s

with other reputed construction companies in similar business activities.

T'e Co(,an# is 'a+in& ISO 899:- ;99< Certi!ication !or its =$alit# ,rod$cts* The Company

has been also registered as Class>I Contractorswith Water 0esource Division! Bihar! 0oad

Construction Division! Bihar! 0ural Development Division Bihar! and #WD! 7ucknow .#.

The Company is having a large and reputed customerAs base and the infrastructure sector being

having in the priority sectors list of $ovt. of India.

The Company is currently engaged mainly in the following activitiesF%

a Construction of highways for 3ational 9ighways uthority of India 39I.

b 4peration! maintenance! augmentation on DB*4T Toll basis for 39I in the state of

Bihar

c Construction of roads for "tate #WDs.

d Construction of Bunds! Canals! earthwork! etc. for irrigation departments.


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?5ALITY O.JECTI6ES-

2. 4rgani&ation which is sensitive and interactive to the needs of customer.

5. Continuous upgrading of Euality and process to meet changing needs of customer.

8. 4ptimi&ation of return on investment byF

Continuous improvement

Technology development

4rgani&ational and personnel development

Cost reduction efforts

,ffective use of all resources

9armonious and safe working conditions

@. Work to international norms of Euality and management.

The company has successfully practiced the best work ethics and technology

along with the T#M Total #roductive Management + ;ai&en approach and

harmony through teamwork.


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JIPL@s .OARD OF DIRECTORS

Mr* Ra( Kis'or Jalan CMD

Backed by vast e(perience in financial and administrative management! Mr. 0.;. 6alan with hisvision is the driving force behind the company for overall management and growth. nder his

stewardship! 6;M Infra has risen to become a great company and a leading infra player with apan India presence. visionary who believes in leading by e(ample! he is passionate about hiswork J a passion that has eEuipped him with a deep insight! acumen and e(pertise that enables

his team to deliver consistently.

rmed with rich technical knowledge + e(perience! Mr. 6alan has! over the years! gathered

e(tensive work e(perience in e(ecuting ma)or pro)ects! such as /aranasi J "haktinagar "tate9ighway! #art of 3oida to $reater 3oida ,(pressway! 6aipur Bypass #hase%I! Bridges on

Mahakali 9ighway in 3epal! Cement Concrete 0oad at ,#I# ;asna! 7oni in #! "ohna! #alwal

9ighway in 9aryana + "tate 9ighways in Chhattisgarh and .#. 9e also has immensee(perience in handling pro)ects covered under C0*! World Bank! etc.

cknowledged and respected for his e(tensive understanding and e(perience! he has freEuently

been invited by various local eEuipment manufactures ' M3Cs within India to attend their

presentations and for his views on the performance of various new types of eEuipments beingmanufactured ' introduced in India in the construction Industry.

Mr. 6alan is a graduate with about 8< years of e(perience in the field of construction.

Mr* Ga$ra+ Jalan Joint Mana&in& Director

rmed with strong prowess and insight in the construction of 9ighways! Mr. $aurav 6alan has

been instrumental in steering the growth of the company. In his capacity as Director! he looksafter the management of all administrative as well as financial matters of the company.

dditionally! he also carries the overall responsibility for formulating the business strategy toensure that 6;M Infra continues its rapid strides towards becoming a fast growing dynamic

infrastructure company.

management graduate from .;.! Mr. $aurav 6alan has about : years of e(perience.

Mr* 6ai7'a+ Jalan Joint Mana&in& Director

n intelligent! hard working + enthusiastic young professional! Mr. /aibhavAs prowess lies in

his detailed knowledge and e(pertise in the field of road construction pro)ects of .#.! #WD!under World Bank. keen strategist! he is the brains behind the companyAs key strategic )oint

venture relationships! which help the company deepen industry domain capabilities by

e(panding vertical wise coverage. 9is calm and composed disposition makes him an ideal

mentor for his team and he spends a significant proportion of his time grooming and mouldingthem. s part of diversification plans of the Company! he has been instrumental in 4pening a

"ubsidiary company in Indonesia! with the aim of entering into the international trading of


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minerals including coal and getting the company into .OTspace.

management graduate from "ydney! ustralia! Mr. /aibhav 6alan has over ? years of hands

down e(perience.

Mr* Faroo= Sa$lat Director O,erations

4ne of the strongest pillars of the company! Mr. "aulat has been an integral part of the Board of

Directors since ugust 5


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Mission 1 6ision

t 6;M Infra! we believe in continuous learning and growth. To continue to succeed as abusiness over for decades to come! we must look ahead! be aware of the trends and forces that

will influence our business and foresee whatLs to come. We strive to get organi&ed for tomorrow!

today itself.

ThatLs what the vision of JKM INFRA PROJECTS LIMITEDis all about. It builds anenduring destination and endow with a 04DM# to gain mutually with our business partners.


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ACBIE6EMENTS-

List o! ,ro3ects co(,leted 7# co(,an#-

Bihar "tate 9ighways #ro)ect 0ebid "iwan J Basantpur J Masrakh J Taraiya J

Madhaura J mnaur J "onho J #arsa Ba&ar J "heetalpur Const. #ackage 3o. J = "9%

?8.

ll Works including Canal "ystem + Buildings nder ,.0.M. ,(tension! 0enovation

+ Modernisation of ,astern ;osi Canal "ystem under Chief ,ngineer! Water 0esouces

Department! #urnea.

0aising! "trengthening and Construction of Bituminous 0oad including reconstruction '

restoration of structures on Western ;osi ,mbankment from ;m

;m


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List o! ,ro3ects in Band-

Description of t%e &or'

I()ro#e(ent*+),radation of -"ian/'a$ant)ur/a$ra/Taraia/adaura/A(nauar/"ono/ar$a 'a4ar "eetal)ur Road-"%/637

All 8or$ inludin, !anal "$te( 'uildin,$7 +nder ;.R.. ;o$i !anal "$te( under !ief;n,ineer= 8ater Re$oue$ De)art(ent= urnia

;artor in %ari$ !andra)ur Di$tr. !on$trution of $truture$ fro( R.D.0.00 to ?9.10 under 'ate$ar$tan Gan,a u() !anal "e(e a$e/I

8idenin, to to lane fro( ( 0.00 to 23.30 of Ja(ui/Laara,)urRoad "iandra/Ja(ui/>ara,)ur Road7= "%/62 in Ja(ui Di$tt of 'iar "tate+nder L8; LAN

!on$trution and aintenane of Rural Road$ in Di$trit Rota$ 'iar7 underG"Y= aa,e No.'R2@R*Rota$/1 'RRDA= Go#ern(ent. of 'iar7

"tren,tin, idenin, of en,li$ (ore to )un$ia #ia aitor(at road ( ?to 12.67


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To Lanin, of Road fro( a$i,at B arian, B Yin,oin, Road fro( >(. 0.00to 19.@@6 in te "tate of Arunaal rade$.

'alane or of on$trution of C/lane road for ( 1?5.C00 to ( 190.5@6 of

Jatin,a Juntion to %aran,ao $etion of N%/5C in te "tate of A$$a(

2/lanin, fro( Lon,din, / Ti$$a B >on$a ')a$$ onnetor N%/52'7 NetLen,t C2.50 >($.7 in Arunaal rade$ under Arunaal rade$ aa,e of"ARD/N;

To lanin, of te u4aar)ur/'arauni "etion of N%/2@ fro( >( 519.?00 to>( ?26.000 in te "tate of 'iar under N%D a$e/IE on 'OT Toll7 'a$i$ ;!!ontrator J> Infra roet$ Li(ited

roet of 2 lannin, of >( 2?F210 to >( 65FC@5 of Gou/arian,/"ionNalla in Arunaal rade$

Rai$in, "tren,tenin, Of Ja(indari 'und Of 'utai Ri#er= Ri,t 'undHro( Lodi)ur To Li#erie Left 'und %ida( Lodi)ur To 'ait)ur

!on$trution and u),radation of road and oter $truture$ inludin, %i,Le#el 'rid,e$7 fro( Hate)ur to Gal,alia #ia iltola L/ 69.50>(.7 in >i$an,andi$trit +nder Indo/Ne)al 'order Road roet.

!on$trution$ and u),radation of Road and oter $truture$ fro('aar'aera 7#illa,eto "ur$and Eia >anauli L/?0.065>(7 'ita(ore toar$aL/5.@0 >(.7 in "ita(ari Di$trit and ar$a to Arar,at L/10.?1 >(.7

Jauri!auLauai7 to 'utaa au #ia aadeo(at L/2@.?0>(.7 inaduani Di$trit under Indo Ne)al 'order Road roet.


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!on$trution and +),radation of road and oter "truture= fro( Dutaa Ri#er'rid,e to Guaari/ularia Gat at Lalaia Ri#er L/66.2C2 (.7 in ;a$t!a()aran otiari7 Di$trit +nder Indo Ne)al 'order road roet.

8idenin, "tren,tenin, of %aider,ar aara,an Rae'areli Road "%/13A7fro( !. 9.31@ to !. C1.000 +nder "tate "etor in Di$trit Raeareli

;


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8idenin, to to lane and i()ro#e(ent fro( ( 00.00 to 23.00 of "ar#an'a$ila Road= Ja(ui Di$tt of 'iar "tate +nder L8; LAN

Re(ainin, or for 8idenin, and "tren,teinin, of "ari/'aera Road 0/15.650 >(7 for te ear 2010/11

!on$trution of Road.

!on$trution of Road.

;


29/112


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E=$i,(ents Di+ision

T'e Co(,an# is contin$o$sl# consolidatin& its ,osition and e,erience 7# ac=$isition o! latest

(ac'iner# and e=$i,(ents and e(,lo#in& t'e latest tec'nolo s$ited to t'e &roin& needs o! its

e,andin& client 7ase*

,(cavator' 7oader 9ydraulic ,(cavator

Motor $rader /ibratory 0oller

Compressor Wheeled 7oader

WMM #lant WMM #aver

Batch Type 9ot Mi( #lant Drum Type 9ot Mi( #lant

sphalt "ensor #aver Concrete Batching #lant

Concrete Mi(er $enerating "et

Weigh Bridge Do&er

Tractor with Do&er "tatic 0oller ' 0oad 0oller

7ight "ource Crushing + "creening #lant! 2=


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Crusher 6aw 0ock Breaker

Bucket Crusher with "tandard coupling Drill Machine

9ydraulic Mobile Crane Dumpers

Tripping Trailer 8> to @: Cum. capacity Bitumen "prayer

#neumatic Tyre 0oller Mechanical Broom


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O$r Stren&t'

The Company has invested nearly 0s 5


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By fostering a climate that encourages innovation! growth and diligence!

the Company! along with its competent human asset base comprising highly Eualifiedprofessionals! engineers! technocrats! pro)ect managers! is redefining the benchmarks of

e(ecuting challenging infrastructure pro)ects in the country and ensuring timely completion of

pro)ects across sectors and geographies.

The Company has carefully built its human resources base! combining very senior e(perienced

professionals with deep domain knowledge in e(ecuting large and challenging )obs and a team ofyoung and enthusiastic professional geared to absorb finer nuances of the business. The

CompanyAs thrust has been on fostering a climate which encourages innovation and diligence

among the employees and on creating an ethical and friendly work environment that nurturesteam spirit and commitment.

The Company is pre%Eualified to bid and undertake single pro)ects in the range of 0s 2


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The Company is now also looking at the "#/ model to e(ecute pro)ects in the ### space.

*or smooth information flow! better and effective planning and closely monitoring work%in%

progress across the large infrastructure and construction sites pan%India! the Company hasinvested in a powerful ,0# system. With this system all the offices! its department and site

offices will be tightly integrated and seamlessly connected on a single platform facilitating free

flow of information by the end of MID 5


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These compliant procedures are overseen by the CompanyAs 9ealth! "afety + ,nvironmentaldepartment which has spelled out the procedures for all activity at the site'work place. 0egular

audits are carried out to ensure its compliance. ,mployees are provided training on various

"afety and ,nvironment procedures on induction which is backed up with regular Euality +safety campaigns and literature updates. These focused efforts aim to create awareness on the

collective responsibility to prevent in)ury! occupational illness and ensure public safety when

carrying out its business.

The CompanyAs strengths are manifest in the robust performance year%on%year. The CompanyAs

Total Turnover has increased over touch 0s >


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Joint 6ent$res

Ala#s a ste, !orard to 7$ild a ro7$st !o$ndation o! stren&t'sca,a7ilities and eec$tion ,roess to $nloc% (ai($( &rot'*

;30 Constructions 7td.! 9yderabad ndhra #radesh

$0 Infra #ro)ects 7td.! daipur 0a)asthan

#eninsula 7and 7imited! Mumbai Maharashtra

3;C #ro)ects #rivate 7imited.

KNR Constr$ctions Li(ited ;30C7 is a multi domain infrastructure developmentorgani&ation with more than 5 decades of e(perience and e(ecutes the construction of technically

comple( and high value pro)ects across segments such as

,(press ways

3ational 9ighways

"tate 9ighways + 0ural 0oads

*lyovers

Bridges and /iaducts

Irrigation #ro)ects

rban Development % Civic amenities

Commercial and 0esidential #ro)ects

These pro)ects e(hibit ;30C7Ls trademark % which is Euality! e(cellence and turning them into

engineering and construction marvels in their respective categories.

T'e G R In!ra,ro3ects Li(ited /GRIL0 is a national company speciali&ing in the

infrastructure sector. Their operations are spread in 0a)asthan! $u)arat! Madhya #radesh!

9aryana! tter #radesh! Bihar! 9imanchal #radesh! 6harkhand etc.The $ 0 Infrapro)ects 7imited has been working in the field of Infrastructure development in

India for =< years! since 2>@.

$0I7 e(tend ,#C services ranging from 9ighways! *lyovers! Bridges! Buildings! ir *ieldDevelopments! Irrigation! Mega 9ighways! 0oad pgradations! $eometrical Improvements!

Implementation of B.4.T. #ro)ects and ssets preservation J Maintenance etc. their Euality

standards! Construction and pro)ect managements techniEues is reflection of its businesse(cellence. They have grown to become national class construction entrepreneur! as well as in

the commitments to their employers and communities J nation.


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NKC Pro3ects Pri+ate Li(itedis a multi%disciplinary construction company with the ability to

deliver the finest construction solutions and e(ceed client e(pectations every time % in Euality of

material! build and processes.

3ational 9ighways! ,(pressways! Bridges! Industrial turnkey #ro)ects! Multi storey 9ousing

#ro)ects are all part of the companyAs pri&ed portfolio. It has integrated its strengths in process

technology! basic and detailed engineering! eEuipment fabrication! procurement! pro)ect

management! construction and commissioning to offer single%point responsibility against

stringent delivery schedules.

3;C #ro)ects has e(celled in the e(ecution of several national and state highway pro)ects during

the last : years J pro)ects that have been completed with precision engineering! transparent

building processes and some of the best talent in the sector.

3;C #ro)ectsA e(perience in 0oad construction has been enriched with e(perience of conversion

of a section of the Delhi%$urgaon ,(pressway 39%: into a modern access controlled :'> lane

,(pressway! completion of World Bank funded :< ;m road works for # "tate $ovt. with

I0C43 International 7td $ovt. of India ndertaking! substantial completion of prestigious

Ta) ,(pressway 3ow 1amuna ,(pressway for 6aypee $roup.

0ecently we have been awarded the road work of 0s. 55=.%lane road Contract #ackage%/I in the "tate of

0a)asthan with ,T "tar Infrastructure 7imited ,"I7! Dubai and road work of 0s ?.> crore

directly with 3ational 9ighway uthority of India! in the "tate of ;arnataka as prime contractor.

3;C #ro)ects have e(ecuted also civil work of Multi%"toried Towers for 4M-, 7td and

Industrial pro)ects at #antnagar "IDC7 for Tata Motors 7td and 9ewlett #ackard 7td.


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3;C #ro)ects have e(celled in the vital parameters of all construction pro)ects J e(cellent finish!

timely delivery and top%of%the%heap Euality.

The company has dedicated in%house teams for every single aspect of pro)ect implementation J

from planning to e(ecution to operation and maintenance % and scores a perfect 2< when it comes

to credentials! e(perience and track record.

Today! 3;C #ro)ects has more than = multi%location pro)ects in various stages of completion.


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O$r F$t$re

JKM In!ra@s %e# stren&t' lies in its a7ilit# to $nderstand t'e !$t$re needs o! !ast

,ro&ressin& nation* Ali&nin& o$rsel+es to t'e !ast>,aced and &roin& de(ands o! t'eco$ntr#@s ,o,$lace it is o$r constant endea+o$r to tr# to lend in&s to t'e as,irations o!

t'e sectors acceleratin& and trans!or(in& t'e India o! to(orro*

The Company plans to spread pan%India in the ne(t 5 to 8 years and plans to tap huge ### spacein B4T! 9ighways! diversify into other infrastructure verticals such as 0ailways! irports!

Mining! etc. The Company has a long%term vision to venture into the global arena and establish

presence across sia! frica and Middle%,ast.

Within India! the company has already bid in the states of 9imachal #radesh! 4rissa!

ttarakhand and other states of the north%east.

Through its well%planned initiatives! the Company is confident of posting strong financial growth

year%on%year.


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RESEARCB METBODOLOGY

MethodologyF

A* T#,e o! St$d#F

The study carried out here is basically analytical in nature. This type of study relies on data

which is already available.

.* T#,e o! Data $sed-

The methodology involved for data collection was mainly through secondary data and

was obtained from the companyAs financial statements and the companyAs website. The

Balance "heets and the #rofit + 7oss ccounts for the last 8 years was the source based

on which forecasting was done which was from the companyAs archives. ,(treme care was taken

in collecting the data from the financial statements and only relevant data was taken for

the analysis based on.

C* So$rces o! Data-

The source of data has been companyAs Balance "heet and #rofit and 7oss ccounts over aperiod of past 8 years.

D* Tools $sed !or Data CollectionF

The data has been collected mainly from the companyAs Balance "heet and #rofit + 7oss

ccount for the past 8 years. Interview schedule was taken to understand how the *inance

Department is working and what are the various policies followed in the 4rgani&ation.

E* Tools and tec'ni=$es $sed !or anal#sis-

/arious tools and techniEues have been used to fulfill the aforesaid ob)ectives.

thorough study of the organi&ation has been along with in depth study of the functioning

of *inance and ccounts Department of 6I#7. *urther for the analysis of Working Capital

Management! study of working Capital cycle ' 4perating cycle has been made along with


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4perating cycle of 6I#7. Thereafter analysis of working capital has been done by taking into

consideration past 8 years Current ssets and current 7iabilities. fter this component wise

analysis has been done! to have in depth view of working capital reEuirements and its trend. To

find out the efficiency of Working Capital management! 0atio analysis tool has been used

for the evaluation of inventory! Cash Management and 0eceivables Management at

"0#7. Trend #ro)ection of Working Capital 0eEuirements has also been done to assess

the future reEuirements of Working Capital.

ANALYSIS OF WORKING CAPITAL MANAGEMENT

Met'ods ado,ted !or Wor%in& Ca,ital anal#sis-

The broad range of pro)ect management and financial advisory services includeF

Working Capital policy

*inancial 0atio analysis for Working Capital Management

Managing the components of Working Capital of 6;M I3*0 #046,CT" 7TD.

Determination of operating cycle of 6;M I3*0 #046,CT" 7TD.

"tatement of change in Working Capital

,stimating Working Capital needs! #ermanent + /ariable Capital

Trend nalysis of Working Capital Management


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FINANCIAL RATIO ANALYSIS FOR WORKING CAPITAL

MANAGEMENT

Ret$rn on Wor%in& Ca,ital-

0eturn on Working Capital 04WC O #BIT ' Working Capital P 2


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3oteF C$rrent Lia7ilitiesO Working Capital borrowings from Banks R Current 7iabilities R

#roposed Dividend R #rovision for Ta(.

C$rrent AssetsO Inventories R Debtors R Cash + Bank balance R Current Investments R

dvance Income Ta( R dvance recoverable in Cash.

Anal#sis-

There has been a decline in 04WC between the two years J it reduces 5:

Current ratio 5.>< 5.2? 5.@8

cid test ratio 2.>> 2.5: 2.=?

Cash ratio


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Fi&$re - C$rrent Ratio

An

al#sis-

The current ratio is the measure of whether a company has enough short%term assets to cover its

short%term debt and is inde( of strength of working capital. nything below 2 indicates negative

W'C working capital. While anything over 5 means that the company is not investing e(cess

assets. ratio of greater than one means that the firm has more current assets then current

claims. Current ratio of the company has increased from 5.2? in 1ear 5


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In order to increase current ratio current assets should be increased. If we look into the

detailed schedule of current assets then we can find out that ma)or portion of current assets is

due to debtors and inventories.

Company should make market survey and should decide first that what should be the

optimum amount of finished goods so that ma)or portion of it can be sold off in the market.

This will help in reducing the locking of funds or working capital in the finished goods.

Acid Test Ratio-

Ta7le H- Acid Test Ratio !or JKM In!ra Pro3ects Li(ited

Acid Test Ratio For S'rira( Pistons

5


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Anal#sis-

cid test ratio is a more rigorous test of liEuidity than the current ratio and when used in

con)unction with it! gives a better picture of the firm s ability to meet its short%term debts out of

short%term assets. This ratio is used to determine risk that is not detected by the Working Capital

ratio. Euick or liEuid ratio of 2F2 is considered as satisfactory as the firm can easily or readily

meets all of its current liabilities. 9ere 6I#7 have its last year ratings of which is constant from

last three years! which indicates company is not having satisfactory financial position and not

able to pay its current liabilities and should be looked at with e(treme care and also implies that

current assets are highly dependent on inventory.

Co(,arison 7eteen C$rrent Ratio 1 Acid Test Ratio-

Ta7le - Co(,arison 7eteen c$rrent ratio and acid test ratio

Co(,arison C$rrent Acid Test

5

5


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Cas' Ratio-

Ta7le - Cas' ratio !or JIPL

Cas' Ratio For S'rira( Pistons

5=.?8


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Anal#sis-

s cash is being the most liEuid asset! Euoted investment has been taken as marketable

securities. In our case the company is showing an increasing trend but still it is not a favorable

cash ratio. *rom the above calculation it is clear that companyAs cash ratio had remained very

low. It is the notable point for the company as its current liabilities are much higher than the cash

in hand. It can create problems in the future payments of current liabilities. Ma)or portion of

companyAs current assets goes to inventory and debtors! which only increase the carrying cost.

Company need to reduce these assets to their optimum level.


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OTBER SNAPSBOT OF WORKING CAPITAL MANAGEMENT RATIO S

Ta7le :9 ;9:9>:: ;9::>:;

*i(ed sset Turnover 2 days =>.> days =5.2? days

CreditsA Turnover 8.88 times 5.>= times 8.8> times

Credit #ayment #eriod 2


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Current 7iabilities to Total 7iabilities


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Ta7le 8- C$rrent asset t$rno+er !or JIPL

Current sset Turnover *or 6I#7

5


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during the previous year however this year due to non%proportionate change in current assets and

turnover the ratio declines to 5.5. Due to more inventories this ratio falls.

Wor%in& Ca,ital T$rno+er- This ratio signifies how effectively working capital is being

used in terms of the turnover.

Wor%in& Ca,ital T$rno+er O "ales

Working Capital

Ta7le :9- Wor%in& ca,ital t$rno+er !or JKM In!ra Pro3ects Li(ited

Fi&$re


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Anal#sis-

What this ratio tries to highlight is how effectively working capital is being used in terms of the

turnover it can help to generateF no ideal values here but the higher the better! surely. The

declining working capital turnover ratio in JKM In!ra Pro3ects Li(itedindicates that working

capital is not being utili&ed properly over the period of time. Management may think of

increasing the sales in the market or it is going for certain e(pansion plans.

Wor%in& Ca,ital Mana&e(ent II- E!!icienc#

Wor%in& Ca,ital to Gross Sale-

Wor%in& Ca,ital to Gross Sale OWorking Capital

$ross "ale

Ta7le ::- Wor%in& ca,ital to &ross sale !or JIPL

Working Capital to $ross "ale for the 6I#7

5@


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Anal#sis-

The Company was showing decline in the year 5


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Fi&$re :9- Wor%in& Ca,ital to Cost o! Sale !or t'e JIPL

Anal#sis-

The Company was showing decline in the year 5


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Ta7le :- De7tor@s t$rno+er ratio !or JIPL

Fi&$re ::- De7tor@s T$rno+er Ratio !or t'e JIPL

Anal#sis-

*irstly! the ratio seems to have change by going from =.2? to >.8= times in the two yearsK and it

means that! on average! the companyAs debtors are taking fewer days to pay their accounts.

"oundness of this ratio is more dependent on the business policy and the terms with the clients.

4n the other side turnover is increasing over the years! which implies higher the turnover! shorter

the time between sales and collecting cash. It shows the companyAs debt%collecting machinery

has improved through years.

A+era&e Collection Period-

De7tor@s T$rno+er Ratio !or t'e JIPL

5


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A+&* Collection Period O 8>.< =5.2? days

Fi&$re :;- A+era&e Collection Period !or t'e JIPL


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Anal#sis-

The average collection period measures the Euality of debtors since it indicates the speed of their

collection. The shorter the average collection period! the better the Euality of debtors! as a short

collection period implies the prompt payment by debtors. The trend of 6I#7 is showing that the

company was a success in decreasing the average collection period! which represent sound

collection policy of the company. #revious year it was =>.> being debtors were less but now it

is on the previous trend.

Creditor@s T$rno+er-

Creditor@s T$rno+er O #urchases

Creditors

Ta7le :H- Creditor@s t$rno+er ratio !or JIPL


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Fi&$re :- Creditor@s T$rno+er Ratio !or t'e JIPL

Anal#sis-

In 5= to 8.8> times that shows company was

having improved credit paying ability through proper working capital management while in 5 8.88

5


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Credit Pa#(ent Period-

Credit Pa#(ent Period O 8>:'5.=? >.>8

Fi&$re :H- In+entor# T$rno+er Ratio !or t'e JIPL

Anal#sis-


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It measures appro(imately the number of times an entity is able to acEuire the inventories and

convert them into sales. The 6I#7 shows higher turnover ratio which is good for the company

while a low turnover is usually a bad sign because products tend to deteriorate as they sit in a

warehouse! but several aspects of inventory holding policy have to be balanced like lead time!

seasonal fluctuations in orders! alternative use of warehouse space.

In+entor# Boldin& Period-

In+entor# Boldin& Period O 8>.2> days

5< ' >.>8 [email protected] days


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Fi&$re :- In+entor# Boldin& Period !or t'e JIPL

Anal#sis-

9ere! the company shows a decreasing trend in which there inventory holding ratio falls down!

which is good for the company as it avoids the unnecessary locking up of working capital in the

inventory and it shows efficiency of the management.


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Wor%in& Ca,ital Mana&e(ent I6- Ratio to anal#e WC Str$ct$re

C$rrent Asset to Total Assets Ratio-

Ta7le :8- C$rrent asset to total asset ratio !or JKM In!ra Pro3ects Li(ited

C$rrent Asset to Total Asset Ratio !or t'e JIPL

55>>.:?


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Anal#sis-

If we analy&e the structural health of working capital for 6;M Infra #ro)ects 7td.! the proportion

of current assets to total assets has been showing almost constant trend continuously over the

years! which shows that the company is having certain problems with its current asset

management. But as this picture is showing less declining so itAs very clear that this can be due to

some investment for long%term return.

Cas' to C$rrent Asset Ratio-

Cas' to C$rrent

AssetO

Cash

Current asset

Ta7le ;9- Cas' to c$rrent asset ratio

Cas' to C$rrent Asset Ratio !or t'e JIPL

5


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Fi&$re:


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Ta7le ;:- In+entor# to c$rrent asset ratio !or JIPL

In+entor# to C$rrent Asset Ratio !or t'e JKM In!ra

5


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C$rrent Lia7ilities to Total Lia7ilities-

Current 7iabilities to Total 7iabilities OCurrent 7iabilities

Total 7iabilities

Ta7le ;;- C$rrent lia7ilities to total lia7ilities ratio !or JIPL

C$rrent Lia7ilities to Total Lia7ilities Ratio !or t'e JIPL

5


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Anal#sis-

The company shows a decreasing trend in the proportion of the current liabilities in the total

liabilities! this means company is taking fewer loans to meet its liability and pro)ect investments

are there! hence this shows a less burden on the management of 6;M I3*0 #046,CT"

7IMIT,D. This ratio is not the only means of reviewing a companyLs debt structure.

Loan 1 Ad+ances to C$rrent Asset Ratio-

7oan + dvances to Current sset O7oan + dvances

Current sset

Ta7le ;- Loan 1 Ad+ances to C$rrent assets ratio !or JIPL

7oan + dvances to Current sset Ratio !or t'e JIPL

5


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Fi&$re ;;- Loan 1 Ad+ances to C$rrent Asset

Anal#sis-

The increase in this ratio in the year 5


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INTERPRETATION /RATIO ANALYSIS0-

The utili&ation rate of net working capital as depicted by working capital turnover ratio isfluctuating during the period. It shows that working capital has not been effectively used over

the period of years e(cept in the year 5


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MANAGEMENT OF C5RRENT ASSETS

Alternati+e C$rrent Asset In+est(ent ,olicies

Three alternative policies are there regarding the total amount of current assets. ,ssentially!

these policies differ with regard to the amount of current assets carried to support any given level

of sales! hence in the turnover of those assets. The line with the steepest slope represents a

rela(ed current asset investment also known as fat cat #olicy! where relatively large amounts

of cash! marketable securities! and inventories are carried! and where sales are stimulated by the

use of a credit policy that provides liberal financing to customers and a corresponding high level

of receivables. Conversely! with the restricted current asset investment also known as lean and

mean policy! the holdings of cash! securities! inventories and receivables are minimi&ed. nder

the restricted! current assets are turned over more freEuently! so each dollar of current assets is

forced to work harder. The moderate current asset investment policy is between the two

e(tremes.

nder the conditions of certainty! all firms would hold only minimal levels of current assets.

ny larger amounts would increase the need for e(ternal funding without a corresponding

increase in profits! while any smaller holdings would involve late payments to suppliers along

with lost sales due to inventory shortages and an overly restrictive credit policy.

When uncertainty is introduced the firm reEuires some minimum amount of cash and inventories.

restricted lean and mean current asset investment policy often provides the highest e(pected

return on this investment! but it entails the greatest risk! while the reverse is true under a rela(ed

policy.


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Alternati+e C$rrent Assets In+est(ent Policies-

Fi&$re ;- Alternate c$rrent assets in+est(ent ,olicies

Current ssets

=:: ;9::>:; ;9:;>:

Cash to Current sset 0atio @>.85'55=:

O==.?8

O'2


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E+al$ation o! Pa#a7les Mana&e(ent-

The evaluation for payable management is done with the help of ratiosF

CreditorAs turnover ratio

verage #ayment #eriod

Ta7le ;- Ta7le s'oin& ,a#a7les (ana&e(ent

JKM INFRA For t'e #ear ended MnRs*

Pa#a7le Mana&e(ent ;9:9>:: ;9::>:; ;9:;>:

Creditor@s ratio 8.88 times 5.>= times 8.8> times

A+era&e Pa#(ent ,eriod 2


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;0 4Y Anal#sis- >Items which constitute top ?


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In+entor# T$rno+er Ratio-

Ta7le ;- ta7le s'oin& In+entor# t$rno+er ratio

JKM INFRA For t'e #ear ended MnRs*

;9:9>:: ;9::>:; ;9:;>:

Inventory Turnover >..8? times >.>8 times

verageF >.8>

S$((ar#-

Inventory turnover ratio establishes a relationship between the total sales during a period and

average inventory hold to meet that Euantum at >.>8 times in 5.8>

times! that signifies the average moving of inventory. In other words! the stock held during 5.=5 days.

Recei+a7le Mana&e(ent-

t a plant level mostly the finished goods are sold on credit to increase upon the market

share and retain the customers but the ma)or portion of debtors are dealt by Marketing nit

of the Commercial Department and the *inance Department. It is consideration as an

essential marketing tool.

Control of the debtorsA element the amount owed the business in the short term involves a

fundamental trade%off between the cost of providing credit to customers which includes

financing bad debts and administration! and the additional net revenue that can be earned by

doing so. The former can be kept to a minimum with effective credit control policies! which will

reEuireF

"etting and enforcing credit termsK

/etting customers prior to allowing them creditK

"etting and reviewing individual credit limitsK

,fficient invoicing and statement generationK

#rompt Euery resolutionK


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Continuous review of debtors position generating Saged debtorsA reportK

,ffective chasing and collection proceduresK and

7imits beyond which legal action will be pursued.

Before allowing credit to a new customer trade and bank references should be sought. ccounts

can be asked for and analy&ed and a report including any county court )udgments

gainst the business and a credit score asked for from a credit rating business. "alesmenAs views

can also be canvassed and the premises of the potential customer visited.

The e(tent to which all means are called upon will depend on the amount of the credit sought!

the period! past e(periences with this customer or trade sector! and the importance of the

business that is involved. But this is not a one%off reEuirement. 4ne classic fraud is to start off

with small amounts of credit! with invoices being settled promptly! eventually building up to a

huge order and a disappearing customer.

Credit checking! even for established customers! should therefore feature in regular procedures.

When the creditworthiness of a new customer is established! positive credit control calls for the

setting of a credit limit! any settlement discounts! the credit period! and credit charges if any.

The 7ate #ayment of Commercial Debts Interest ct now allows small businesses to charge

large interest on late payment of business debts by companies and public sector organi&ations.

3evertheless! it is wise to inform customers this right will be e(ercised.

Collection is a vital element of credit control and must include standard! polite and well%

constructed reminder letters and effective telephone or e%mail follow up. se of collection

agencies should be considered! as could factoring J in its most comprehensive form a loan

facility based on outstanding invoices plus a sales ledger and debtors control service.

,fficient control of debtors will assist cash flow! and help keep overdraft or other loanreEuirements down! and hence reduce interest costs.


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Debtors represent future cash J or they should do if proper credit control policies are pursued.

7ikewise stock will eventually become cash! but in the meantime represents working capital tied

up in the business. ;eeping levels to the minimum reEuired for efficient operations will keep

costs down. This means controlling buying! handling! and storing! issuing! and recording stock.

Inherent in any system of inventory control is the concept of appropriate stock levels J normally

e(pressed in physical units sometimes in monetary terms.

The ob)ective of establishing control levels is to ensure that e(cessive stocks are never carried

and working capital thereby sacrificed but that they never fall below the level at which they can

be replenished before they run out.

Recei+a7les Mana&e(ent inJKM INFRA-

Corporate office and the commercial department in coordination do the management of

receivables. The management of receivable is dealt on ma)or part by corporate office and minor

part by commercial department of the company.

6;M I3*0 in matter of granting a credit period to customers tightens their policy and reduce

credit period to 2


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DETERMINATION OF OPERATING CYCLE OF JKM INFRA-

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

The broad range of pro)ect management and financial advisory services includeF

inventory conversion period IC#! +

debtors conversion period DC#

A0 In+entor# con+ersion ,eriod-

It is the total time needed for producing and selling the product. Typically! it includesF

a0 raw material conversion period 0MC#

70 work%in%process conversion period WI#C#

In+entor# Con+ersion ,eriod RMPC WIPCP

The raw material conversion period is depends onF

:0 raw material consumption per day! +

;0 raw material inventory

Ra Material Cons$(,tion ,er da# Total Ra Material Cons$(,tionN$(7er o! da#s

in t'e #ear

Ra Material Con+ersion ,eriod Ra Material In+entor#Ra Material Cons$(,tion

,er da#

"imilar calculations can be made for other inventories! debtors and creditors.

.0 De7tors@ con+ersion ,eriod-

It is the time reEuired to collect the outstanding amount from the customers. The total of

inventory conversion period and debtorsA conversion period is referred to as gross operating

cycle $4C.

Gross O,eratin& C#cle ICP DCP


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C0 Pa#a7le De!erral ,eriod-

This is very common to get gross operating cycle but in practice! a firm may acEuire resources

such as raw materials on credit and temporarily postpone payment of certain e(penses.

#ayables! which the firm can defer! are spontaneous sources of capital to finance investment in

current assets. The payables deferral period #D# is the length of time the firm is able to defer

payments on various resource purchases.

Net O,eratin& C#cle Gross O,eratin& C#cle Pa#a7le De!erral ,eriod

If depreciation is e(cluded from e(penses in the computation of operating cycle! the net

operating cycle also represents the cash conversion cycle. It is net time interval between cash

collections from sale of the product and cash payments for resources acEuired by the

firm. It also represents the time interval over which additional funds! called working capital!

should be obtained in order to carry out the firmAs operations.

A0 In+entor# con+ersion ,eriod-

a0 Ra Material Con+ersion Period-

1ears 5:=

:8.@2

2>:=':8.@2

O2.:: times

0CM#

8>


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70 Wor%>In>Pro&ress Con+ersion Period-

.0 De7tors Con+ersion-

1ears 5 times

25@:.:5

2@:.8=

25@:.:5'2@:.8=

O:.@2 times

WI#C# 8>

O2:.> days

8>@


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C0

Pa#a7les Con+ersion-

O,eratin& C#cle-

$ross 4perating Cycle $4CF

3et 4perating Cycle 34CF

Anal#sis-

1ears 5


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The operating cycle of the firm is disturbed! as it is continuously increasing which is not good for

the company.

The company policy had a significant change for the year with regard to inventory as it had

increased continuously but this policy has a cost to the company in the presence of a

significant decrease in payables deferral period! will have to negotiate higher working capital

funds.

Company has tighten its steps towards the credit policy which signifies that in the current

year company is proving itself more efficient but other side it as well shows a decline in the

market share of the company.

The company had reduced down its payables deferral period significantly which strengthens

its creditworthiness in the market and helps the company in getting the loans on liberal terms.

This represents the efficiency of the management.

4ne can have a vastly different working capital outlay while performing the same activity.

9aving a large amount invested in stocks and debtors does not necessarily mean large profits! but

it can mean a drop in the prime calculation that every businessman is interested in the return on

investment. The ob)ect of working capital management is to trim down on stocks and debtors and

get the cash coming faster within the comfort &one of the business. In the normal periods of

business activity! cash that had completed the working capital cycle would be reinvested in stock

and the whole process would begin again.


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Anal#sis o! Asset Percenta&e-

Ta7le ;


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Anal#sis-*rom the above calculation it can be analy&ed that company is following an adeEuate

policy of working capital from last 5 years. When we give a thought to the current ratio of last

three years we can very easily depict that its current ratio is more than the standard one i.e. of

5F2. This type of approach also gives the adverse impact on the liEuidity of the company.

Anal#sis o! C'an&e in Wor%in& Ca,ital-

Ta7le ;8- Ta7le s'oin& anal#sis o! or%in& ca,ital

"90I0M #I"T43" For t'e #ear ended MnRs*

Partic$lars ;9:9>:: ;9::>:; ;9:;>:

Current asset 55=: 5=


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s we can see from the above table and graph that companyAs 3et Working Capital has been

showing variation in its trend as from last two years working capital is showing positive

trend in increasing order.

The above situation shows that company management is efficient in management of working

capital.

Making the comparison of current assets and current liabilities in 5:: ;9::>:; ;9:;>:

Debtors 22>?.=> 2


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*irst and foremost suggestion for the company is that! it should look into the idle funds!

which are engaged in inventory. Company should withdraw money from this locked up

working capital and invest it in some other assets.

Anal#sis o! C$rrent Lia7ilities-

Ta7le ;- Ta7le s'oin& anal#sis o! c$rrent lia7ilities

Partic$lars ;9:9>:: ;9::>:; ;9:;>:

"undry Creditors @28.> =58.= =


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cash outflow of cash get restricted and outflow gets converted into inflow to increase in

profitability of the firm.

4ne suggestion that could be made to the company is that! it should pay off its creditors by

withdrawing some cash from its debtors! which is idle at this point of time and some amount

from its inventory.

STATEMENT OF CBANGE IN WORKING CAPITAL

Ta7le - Ta7le s'oin& state(ent o! c'an&e in or%in& ca,ital


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6;M I3*0 Years

Partic$lars ;9:9>:: ;9::>:; ;9:;>:

Total C$rrent assets /A0 55=: 5=


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The most appropriate method of calculating the working capital needs of a firm is the concept of

operating cycle. 9owever! a number of other methods may be used to determine working capital

needs in practice. We shall illustrate here three approaches! which have been successfully

applied in practiceF

C$rrent assets 'oldin& ,eriod-To estimate working capital reEuirements on the basis of

average holding period of current assets and relating them to costs based on the companyAs

e(perience in the previous years. This method is essentially based on the operating cycle

concept.

Ratio o! sales- To estimate working capital reEuirements as a ratio of sales on the

assumption that current assets change with sales.

Ratio o! !ied in+est(ent- To estimate working capital reEuirements as a percentage of

fi(ed investment.

Esti(atin& O,ti(al Need o! Wor%in& Ca,ital

a0 Ra (aterial cons$(ed ,er (ont'-

O 2>:='25 O2@


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0aw material per month R Cost of #roduction '5

O %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

25

2@


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the idea what would happen in past. In trend analysis! industry ratios are compared over time!

typically years. 1ear%to%year comparisons can highlight trends and point up the need for action.

Trend analysis works best with five years of ratios.

With the past! we can see tra)ectories into the future % both catastrophic and creative

pro)ections.

The Trend nalysis module allows plotting aggregated response data over time. This is

especially valuable on the basis of five%year data and a result of long survey.

The following data points can be measured 1%(is

:* Mean and Mean #ercentile

;* "tandard Deviation and /ariance

* 0atio

The Time *actor -%(is can have the following granularity

:* Daily

;* Weekly

* Monthly

* Guarterly 6an%Mar! pr%6un! 6ul%"ept! 4ct%Dec

H* 1early

Projection of Ratios through Trend Analysis

Fi&$re ;- C$rrent Ratio Trend


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Fi&$re ;- Cas' Ratio Trend


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Fi&$re ;


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Fi&$re 9- Wor%in& Ca,ital T$rno+er Trend

Fi&$re :- De7tor T$rno+er Trend


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Fi&$re ;- Creditor T$rno+er Trend

Fi&$re - In+entor# T$rno+er Trend


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Anal#sis on t'e 7asis o! Trend-

Trend of current ratio put a picture of company that company is not having short term fund in

hand to meet short term debt hence it put a threat in meeting current obligations.

Cash 0atio trend shows that company is having high amount of cash for paying current

liability which can influence the financial position of company in upcoming period.

Total asset turnover implies the asset base of company and this pro)ection is in favour of the

company that shows efficacy of company in handling asset.

Current asset turnover trend of company is decreasing which shows inefficiency in handing

assets.

Working capital is decreasing over the period that can lead company to face liEuidity crunch

+ shows inefficiency in use of working capital. It needs to analy&e the root cause of the same

to take reEuired corrective action.

DebtorAs turnover trend is showing an increase in future that signifies that there is shorter

time period in sales and collecting cash.


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s the CreditorAs turnover ratio trend is decreasing which shows that payments of company

are prompt and do not keep its obligation for long time.

Inventory is showing good position in hand of company but still company need to keep a

check over it as inventory is influenced by seasonal fluctuations and market conditions.


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C5RRENT ASSET FINANCING

Process o! or%in& ca,ital !inancin&-

:0 #redictions are made based on sales.

;0 Company has Credit Monitoring rrangement CM with banks. ccordingly *orms

are prepared and sent to consortium of banks for approval.

a* *orm I contains information about Current ssets! this *orm I should be sent one

week before beginning of Guarter.

7* *orm II contains details about operationsK this *orm II should be sent si( weeks

from entering the Guarter.

0 ccordingly margins are decided. The company itself should meet margin amount. ,.g.

Inventory J 5=Q! 0eceivables J 8=Q. 3ormally margins are 5=%8=Q.

0 dvances are received.


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FINDING 1 S5GGESTIONS

Findin&s-

The following recommendations are made to the authorities at 6;M Infra #ro)ects 7imited inorder to maintain and improve on their current performance. The recommendations made are

based purely on my understanding of the situation. "ome of the ma)or things which I would like

the authorities to take notice of includeF

C$rrent ratio is sli&'tl# on a loer side a&ainst t'e ind$str# standard o! :*

!olloed in India* Current ratio indicates the ability of a company to stay afloat irrespective ofthe prevailing market situations. Internationally! a current ratio of 5F2 is accepted. The investors

also seek this ratio in order to e(amine whether the company has adeEuate current resources so

that it does not default on its obligations and is able to generate sufficient returns to ma(imi&eshareholders money.

De7tor@s t$rno+er ratio needs a t$ne $, as a&ainst creditor@s t$rno+er* This ratio

helps to e(amine whether the management of the concerned organisation is not being complacentin recovery of its debts on time. $enerally it is reEuired that debtors turnover ratio be high as

compared to creditors turnover which implies that the firm is generating sales adeEuate enough

to cover its construction cost. If we look at the situation for 6I#7! the ratios were fine enough

until *128 but then afterwards the debtors turnover took a dip but because of adeEuate liEuiditythe management is able to take care of its obligations as for now. But if a proper solution is not

formulated then it can become a huge problem which will affect not only the performance of the

firm but may also deteriorate the confidence of the investors in the company.

T'e in+entor# t$rno+er ratio !or JIPL 'as 7een a s$ccess stor# !or t'e last co$,le o!#ears so the management should do everything possible thing to maintain this inclination

in the coming years and try to encourage its human resources to keep up the good work.

With many a pro)ects in line and at different levels of e(ecution! it is reEuired that all the

aspects are dealt with eEual importance whether it is the case of long term ratios or the

short term ratios. The company has so many pro)ects in line for which it will reEuirefunds. With stellar performance in various sectors it has the confidence of investors. "o

the management )ust need to continue on the good work.

p to now the Company en)oys the ratin&s o! CRISIL A and Care ...@ from

C0I"I7 and Care 0atings respectively. "o the management must make sure that

investors confidence remains the same.


107/112

"ome of the recent initiatives of 6I#7 areF

The study conducted on working capital management of 6;M I3*0 #046,CT"

7IMIT,D shows the evaluation of management performance in this conte(t. Ma)or

findings and suggestions thereon are narrated as underF

2. s current ratio is showing an increasing trend year on year! which implies that

current asset! are more compared to current liabilities.

5. 9igh current assets turnover ratio is more )udicious and shows efficiency of

management and proper utili&ation of the assets.

8. 6;M I3*0 #046,CT" 7IMIT,D has not a sufficient amount of working

capital during the past two years. s company is showing decreasing trend of

working capital! which shows that company! kept its obligation for long time and

less cash in hand to pay off its obligations.

@. Current ratio 5.@8F2 and Euick ratio 2.=?F2 of the year 5. Debtors Turnover ratio reveals an increasing trend during the period of study and

average collection period came down from > to =5 days which shows that

company is having specific policy for debtorsA management.

?. The operating cycle of the firm is disturbed! as it is continuously increasing

which is not good for the company.

:. The optimum need for working capital on an average basis company roughly will

reEuire more than 2>5:.5 Mn'0s. as its working capital.

S$&&estions- ;eeping in view of detailed analysis for the 8 years of study and findings

mentioned in above paragraphs! the following suggestions shall be helpful in increasing

the efficiency in working capital management.

2


108/112

2. In case of inventory management BC analysis! *"3 techniEue! /,D techniEue

should be adopted to increase the efficiency of inventory management. *urther a

inventory monitoring system should be introduced to avoid holding of e(cess

inventory.

5. It is suggested to maintain a favorable current and Euick ratios which shows a

lesser than ideal figures. It can be done either through increasing current assets

or decreasing liabilities.

8. With the help of proper inventory management systems! like demand%based

management! etc. the company can reduce the need for working capital and

inventories can be financed through accounts payable.

@. The company should try and maintain an optimum level of working capital in

order to improve upon the workings of the company.

5


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LIMITATIONS

2. vailability of the financial data was very limited which is not disclosed due to

sensitive nature for the company.

5. The main component of working capital is cost of capital! which is not described

in the pro)ect because of confidential nature.

8. ,(ternal environment influence was not considered while doing the theoretical

standard rather than the industrial standard because of unavailability of any such

specific standard.

@. The scope of the study was limited to JKM INFRA PROJECTS LIMITED*

8


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REFERENCES

nnual reports of 6;M Infra #ro)ects 7imited.

;han M.1! *inancial Management.

*inancial accounting! Weygandt! ;eiso! ;immel.

*undamental of financial management D. Chandra Bose

*inancial management! #aresh "hah

*inancial Management! ;han + 6ain % 5


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GLOSSARY

A.C Anal#sis-n approach of inventory management! which classifies inventories

according to their monetary values. Inventory items are thus categori&ed as i %

itemsF high value items for which careful management is neededK ii B%itemsF

moderate value items for which rules of thumb such as past inventory turnover are

adeEuate management techniEues! and iii C%itemsF low value items which can be

maintained at a flat minimum amount.

Accr$ed Lia7ilit#- > lso known as outstanding liabilities or e(penses. *or

e(ample! accrued wages! accrued rent! accrued ta(es and accrued interest and so on.

They typically represent obligations for certain services for which payments are yet

to be made and are indirect sources of financing.

A&ein& Sc'ed$le- It is a tabular classification of receivables which showing the

length of time which the account has been outstanding.

An A&&ressi+e Polic#- It resorts to short%term liabilities to finance temporary and

also part or the entire permanent current assets reEuirement.

A+era&e Collection Period-ccounts receivables ' annual credit sales'8>


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Cas' C#cle-This is length of the time between the purchase of raw materials and

collection of receivables in the sale of the final product.

Cas' Disco$nt- percent reduction in sales or purchase price allowed for early

payment of invoices. It is an incentive for credit customers to pay invoices in a

timely fashion.

Collection Cost- These costs are administrative costs or legal costs incurred in

collecting the receivables from the customers to whom credit sales have been made.

Conser+ati+e Polic#- conservative policy ignores the distinction between

temporary and permanent current assets! by financing almost all assets investments

with long term capital.

Cons$(er Credit-Credit granted to an individual is referred to as consumer credit.

Credit Period-It is total length of time period over which credit is e(tended to a

customer to pay bill.

analysis of working capital management-jipl

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