AProject Report on

“WORKING CAPITAL MANAGEMENT OF

RELIANCE INFOCOMM”

Supervisor Submitted By:-

Mrs. Shashi Bala Mr. Kamal KrishanLecturer ODM Enrollment No 08061114150Hissar MBA IVth SEM (Finance)

Session 2008-10DIRECTORATE OF DISTANCE EDUCATION

GURU JAMBHESHWAR UNIVERSITYOF SCIENCE & TECHNOLOGY

HISAR - 125001

ACKNOWLEDGEMENTACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution make it successful.

Since such a list will be prohibitively long, I may be excused for important omissions.

I would like to express my heart-felt gratitude to Ms Shashi Bala my project guide, for his

invaluable guidance and encouragement.

I would like to pay my heartily gratitude to my friends for their moral support during my project

work.

It was a pleasant feel and unique experience working on this project.

CONTENTS

1. Introduction

2. Objectives of the Study

3. Research Methodology

4. Conceptual Framework

Working Capital -- Overall View

Financial of Working Capital

Cash Management

Inventory Management

Debtors Management

Creditors Management

5. Findings & Analysis

6. Recommendations

7. Bibliography

INTRODUCTION

.

RELIANCE INFOCOMM

Few men in history have made as dramatic a contribution to their country’s economic fortunes as did

the founder of Reliance, Sh. Dhirubhai H Ambani. Fewer still have left behind a legacy that is more

enduring and timeless.

As with all great pioneers, there is more than one unique way of describing the true genius of

Dhirubhai: the corporate visionary, the unmatched strategist, the proud patriot, the leader of men, the

architect of India’s capital markets, the champion of shareholder interest.

But the role Dhirubhai cherished most was perhaps that of India’s greatest wealth creator. In one

lifetime, he built, starting from the proverbial scratch, India’s largest private sector enterprise.

Reliance Infocomm is the outcome of late Dhirubhai Ambani’s dream of bringing about a digital

revolution in India that will bring to every Indian’s doorstep an affordable means of information and

communication.

When Dhirubhai embarked on his first business venture, he had a seed capital of barely US$ 300

(around Rs 14,000). Over the next three and a half decades, he converted this fledgling enterprise

into a Rs 60,000 crore colossus—an achievement which earned Reliance a place on the global

Fortune 500 list, the first ever Indian private company to do so.

Dhirubhai is widely regarded as the father of India’s capital markets. In 1977, when Reliance Textile

Industries Limited first went public, the Indian stock market was a place patronized by a small club

of elite investors which dabbled in a handful of stocks.

Undaunted, Dhirubhai managed to convince a large number of first-time retail investors to

participate in the unfolding Reliance story and put their hard-earned money in the Reliance Textile

IPO, promising them, in exchange for their trust, substantial return on their investments. It was to be

the start of one of great stories of mutual respect and reciprocal gain in the Indian markets.

Under Dhirubhai’s extraordinary vision and leadership, Reliance scripted one of the greatest growth

stories in corporate history anywhere in the world, and went on to become India’s largest private

sector enterprise.

Through out this amazing journey, Dhirubhai always kept the interests of the ordinary shareholder

uppermost in mind, in the process making millionaires out of many of the initial investors in the

Reliance stock, and creating one of the world’s largest shareholder families.

"Make the tools of infocomm available to people at an affordable cost. They will overcome the

handicaps of illiteracy and lack of mobility", was how Dhirubhai, as he was fondly called, spelt out

Reliance Infocomm’s mission in late 1999. He firmly believed the country could use information

and communication technology to overcome its backwardness and underdevelopment.

It was with this belief that Reliance Infocomm began laying its 60,000 route kilometers of pan-India

fiber optic backbone in 1999. The backbone was commissioned on December 28, 2002, Dhirubhai’s

70th birth anniversary, first since his sad demise on July 6, 2002.

Late Dhirubhai Ambani built Reliance from scratch and in 25 years got it a place among the world’s

top Fortune 500 corporations. The fact that he took barely a quarter of a century to do that is what

makes this achievement special.

His corporate philosophy was short: "Think big. Think differently. Think fast. Think ahead. Aim for

the best". At Reliance, he inspired all to better the best in the world.

Dhirubhai would often say that if a telephone call could be made cheaper than the post card in India,

it will transform every home, empower every Indian, remove every roadblock to opportunity and

growth, and demolish every barrier that divides our society. He was of the view that Infocomm

(information and communication) would energize enterprises, galvanize governance, make learning

an experience and life, exciting.

Reliance – Anil Dhirubhai Ambani Group, an offshoot of the Reliance Group founded by Shri

Dhirubhai H Ambani (1932-2002), ranks among India’s top three private sector business houses in

terms of net worth. The group has business interests that range from telecommunications (Reliance

Communications Limited) to financial services (Reliance Capital Ltd) and the generation and

distribution of power (Reliance Infrastructure Limited).

Reliance – ADA Group’s flagship company, Reliance Communications, is India's largest private

sector information and communications company, with over 100 million subscribers. It has

established a pan-India, high-capacity, integrated (wireless and wire line), convergent (voice, data

and video) digital network, to offer services spanning the entire infocomm value chain.

Other major group companies — Reliance Capital and Reliance Infrastructure — are widely

acknowledged as the market leaders in their respective areas of operation.

VISION

"We will leverage our strengths in executing complex global-scale projects to make leading edge

information and communication services affordable by all individual consumers and businesses in

India. We will offer unparalleled value to create customer delight and enhance business productivity.

We will also generate value for our capabilities beyond Indian borders while enabling millions of

India's knowledge workers to deliver their services globally".

By 2015, be amongst the top 3 most valued Indian companies, providing Information,

Communication & Entertainment services, and being the industry benchmark in Customer

Experience, Employee Centricity and Innovation.

MISSION

We will create world-class benchmarks by:

Meeting and exceeding Customer expectations with a segmented approach

Establishing, re-engineering and automating Processes to make them customer centric,

efficient and effective

Incessant offering of Products and Services that are value for money and excite customers

Providing a Network experience that is best in the industry

Building Reliance into an iconic Brand which is benchmarked by others and leads industry in

Intention to Purchase and Loyalty

Developing a professional Leadership team that inspires, nurtures talent and propagates

RCOM Values by personal example

Business

Reliance India Mobile

India ’s leading integrated telecom company Reliance Communications is the flagship company of

the Anil Dhirubhai Ambani Group (ADAG) of companies. Listed on the National Stock Exchange

and the Bombay Stock Exchange, it is India’s leading integrated telecommunication company with

over 100 million customers.

Our business encompasses a complete range of telecom services covering mobile and fixed line

telephony. It includes broadband, national and international long distance services and data services

along with an exhaustive range of value-added services and applications. Our constant endeavour is

to provide an enhanced customer experience and achieve customer satisfaction by upscaling the

productivity of the enterprises and individuals we serve.

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002, coinciding with

the joyous occasion of the late Dhirubhai Ambani’s 70th birthday, was among the initial initiatives

of Reliance Communications. It marked the auspicious beginning of Dhirubhai’s dream of ushering

in a digital revolution in India. Today, we can proudly claim that we were instrumental in harnessing

the true power of information and communication, by bestowing it in the hands of the common man

at affordable rates.

We endeavour to further extend our efforts beyond the traditional value chain by developing and

deploying complete telecom solutions for the entire spectrum of society.

Wireless

Reliance Mobile With over 100 million subscribers across India, Reliance Mobile is India’s largest

mobile service brand. Reliance Mobile services now cover over 24,000 towns, 6 lack villages, and

still counting.

We have achieved many milestones in this short journey. In 2003, AC Nielsen voted Reliance

Mobile (formerly Reliance India Mobile) as India’s Most Trusted Telecom Brand. In July 2003, it

created a world record by adding one million subscribers in a matter of just 10 days through its

‘Monsoon Hungama’ offer.

What sets Reliance Mobile apart is the fact that nearly 90 per cent of our handsets are data-enabled,

and can access hundreds of Java applications on Reliance Mobile World.

Reliance Mobile has ushered in a mobile revolution by offering advanced multimedia handsets to the

common man at very affordable rates. This innovative low pricing has increased the number of

mobile phone users and its result is clearly reflected in the meteoric rise in India’s tale-density over

the past four years.

Our pan-India wireless network runs on CDMA2000 1x technology, which has superior voice and

data capabilities compared to other cellular mobile technologies. CDMA2000 1x is more cost-

effective as it utilizes the scarce radio spectrum more efficiently than other technologies do.

Enhanced voice clarity, superior data speed of up to 144 kbps and seamless migration to newer

generations of mobile technologies are some of its key differentiators.

R World

The R World suite of Reliance Mobile is a unique Java-based application. Its uniqueness lies in the

fact that it enables complex Internet application to be introduced in mobile phones effectively and

quickly. R World receives over 1.5 billion page views per month from Reliance Mobile users.

R World offers a wide array of applications that include hourly news updates, high quality headline

video clips, downloadable multi-lingual ring tones, seasonal updates including festival specials, city

and TV specials, exam results, astrology, mobile banking, bill payment.

With over 150 data applications offering varied services - unique to any wireless service in India - R

World is truly a treasure house of knowledge, information, entertainment and commerce.

Wireless ATMs

The CDMA-based Wireless connectivity solution enables quick deployment of ATMs by banks,

apart from the advantage of rolling out a nationwide network of Wireless ATMs that are secure and

cost efficient. Unlike VSAT-based connectivity, which banks traditionally rely on, the CDMA

solution eliminates the need of rooftop rights and the resultant delays. Reliance Infocomm's CDMA-

based Wireless connectivity scores over other ATM connectivity options on counts like speed of

deployment, mobility and cost. Many banks including SBI, ICICI and HDFC banks are rolling out

hundreds of wireless ATMs using Reliance's wireless network.

R-Connect

Reliance offers India's only nationwide wireless Internet connectivity through R Connect service by

leveraging its pan-India high speed CDMA2000 1x wireless network. R Connect is also India's

fastest growing Internet connectivity service with over 300,000 subscribers in less than seven

months. Subscribers can connect to Internet on the move at data speeds of up to 144 Kbps from their

laptops or other mobile computing devices with an R Connect Cable connected to their Reliance

India Mobile phones or by using an R-Connect Card inserted into the PCMIA slot in their laptop.

It was the dream of Late Mr Dhirubhai Ambani, Chairman, Reliance Group, to leapfrog India to the

centre stage of global communication and information technology space. Commensurate with this

dream, over the next 5 years, Reliance will be the key contributor towards enabling India achieves

the targeted tale-density of 15 lines per hundred persons as against the current figure of 3. Reliance

has envisaged an investment of Rs. 25,000 crore towards the realization of this dream - creation of

state-of the-art telecommunications infrastructure allowing convergence of voice, data and video.

Key Features:

One of the largest CDMA 1x Network outside of North America

CDMA 1x Wireless Technology

673 cities & over 2500 BTS

Better spectral efficiency vis-à-vis GSM Networks

Data rates of up to 144 Kbps (shared bandwidth)

Technology choices make costs lower

Lower costs – lower prices

Internet

Broadband

Wired to win

The successful rolling out of real broadband services across the nation marks the second chapter of

Reliance Communications’ commitment to usher in a digital revolution in India. Reliance

Communications is setting new standards for the world to follow through inventive use of cutting-

edge technologies in the field of fiber optics, Ethernet, microwave radios, switching, routing, digital

compression and encoding.

The mass roll out of broadband being carried out by Reliance Communications across the length and

breadth of the country, offering speeds of up to 100 Mbps to millions of users, in itself is a

technological marvel.

The uniqueness of Reliance Communications’ broadband initiative lies in the fact that our entire

nationwide network is being conceptualized and built from ground zero. It is designed to deliver

affordable quality education, drive governance, transform healthcare, enhance efficiency in business

and finally, generate new job opportunities for millions of unemployed Indians.

Reliance Communications’ broadband service is set to revolutionize Indian society by removing the

traditional bottlenecks of development including lack of capital and weak infrastructure, and help

tide over the challenges of distribution in a vast country like India.

E-education

The mission of Reliance Communications’ e-learning initiatives is to bring world-class education to

the doorstep of every Indian home. Utilizing our pan-India optical fiber and retail network,

educational institutions can reach out to large sections of students which otherwise would be very

difficult to contact.

Leveraging our robust broadband infrastructure two top Indian management schools — the Xavier

Institute of Management, Bhubaneshwar and XLRI, Jamshedpur — are imparting fully interactive

real-time courses across 105 cities.

The Indian market possesses tremendous potential yet to be tapped. Utilizing our real broadband

connectivity, educational institutions can source the best educational material from anywhere in the

world. Libraries and laboratories around the world can be cross-linked making way for seamless

exchange of information and expertise.

Digital workplaces

Physical distance or proximity is now a thing of the past. Reliance Communications’ real broadband

connectivity has changed the dynamics of work. Our video conferencing service acts as a virtual

bridge between professionals working at different office locations across the world.

E-healthcare

Reliance broadband is set to offer timely quality healthcare facilities at very affordable rates to large

sections of the Indian population irrespective of their geographical location. Our broadband

connectivity is committed to usher in a new generation of online healthcare delivery system.

Access to advance medical expertise can no longer be constrained by geography. A patient can seek

medical advice sitting in the comforts of home. Doctors can attend to patients anywhere in the world

on real-time basis. At the click of the mouse, medical records and documents can be digitally

dispatched thousands of miles away.

Recently, the Apollo Group of Hospitals joined hands with Reliance Communications to offer its

top-of-the-line healthcare facilities online to the benefits of millions of Indians.

Integrated Enterprise Solution

Reliance Communications’ Integrated Enterprise Solution offering is currently being rolled out in 30

cities across India. It consists of an integrated voice, data and video solution. Our target is to expand

its service to cover the entire country eventually.

For Indian enterprises, our convergent voice-data-video solution framework, delivered through

fiber-to-the-building (FTTB) architecture introduces true broadband connectivity. Our enterprise

broadband is delivered using Metro Ethernet technology. However, based on specific customer

requirement other high-end technologies including Digital Subscriber Line (DSL), Local Multipoint

Distribution Services (LMDS) and Integrated Service Digital Network (ISDN) are also being

deployed.

As per specific requirements of enterprises we provide customized solutions be it a simple voice

solution or complex data solutions that involves nationwide networking of all branches, sales and

field executives, vendors, suppliers and customers at data speeds scalable from 64 Kbps to 100

Mbps. Reliance Communications’ core broadband products include MPLS based VPN, leased lines,

Gigabit Internet connectivity, video conferencing and video telephony.

Entertainment IPTV

Reliance IPTV is powered by Microsoft Mediacom, which is the preferred IPTV Platform world

over. Leading IPTV Service Providers like AT&T, BT, DT and SingTel operate on the Mediacom

Platform. Features and functionalities on the Reliance IPTV differentiate us from all the other IPTV

Players in the country. Reliance IPTV is uniquely placed to cater to the growing & varied needs of

consumers and become India’s leading IPTV service provider.

Wireline

• Pan India coverage (18 out of 21 telecom circles)

• Fiber to 1.7 million buildings in 200 towns

• 1500 semi-urban and rural towns serviced by CorDECT

Wireless

• 3G wireless network -largest deployment in India

• Coverage in 673 towns

Data Centers • 8 world class Data

Centers planned with over 500,000 sq. ft. of space

• Licenses for ILD, NLD, Basic telephony• Plan covers 95% of the telecom market

(by revenue) in the country

International Carriage• Connectivity on

Fiber & Satellite

• PoPs in USA, UK, Hongkong and Middle East

Network Operating Centers

• Two NoCs planned for 24/7 monitoring and fault tracking of network

National Backbone• 60,000 km nationwide

optical fiber backbone covering 226 districts

• Each fiber capable of terabit capacity

• 6 ducts laid in backbone

Wireline

• Pan India coverage (18 out of 21 telecom circles)

• Fiber to 1.7 million buildings in 200 towns

• 1500 semi-urban and rural towns serviced by CorDECT

Wireless

• 3G wireless network -largest deployment in India

• Coverage in 673 towns

Data Centers • 8 world class Data

Centers planned with over 500,000 sq. ft. of space

• Licenses for ILD, NLD, Basic telephony• Plan covers 95% of the telecom market

(by revenue) in the country

International Carriage• Connectivity on

Fiber & Satellite

• PoPs in USA, UK, Hongkong and Middle East

Network Operating Centers

• Two NoCs planned for 24/7 monitoring and fault tracking of network

National Backbone• 60,000 km nationwide

optical fiber backbone covering 226 districts

• Each fiber capable of terabit capacity

• 6 ducts laid in backbone

Reliance IPTV comes loaded with unique features and functionalities that are built to provide the

user an amazing TV experience.

Following features differentiate Reliance IPTV from competition:

Live TV

Reliance IPTV Service has the capability to deliver over 500 Live TV channels and will

carry around 200 Channels at launch – the highest by any Television Service Provider in India. We

are targeting to carry at least 250 channels, including 5-10 HD Channels, within a year of launch.

Video on Demand

Reliance IPTV can host over 5,000 hours of Video at current capacity. Around 500 Video

Titles will be available at launch and the library will be expanded on an ongoing basis. Within a year

of launch, we intend to carry at least 1500 Titles.

DVR

Reliance IPTV has functionality to support recording of 3 streams simultaneously while

watching Live TV/VOD.

Instant Channel Change (ICC)

A unique feature of Reliance IPTV which enables channel changeover in microseconds.

Typical channel change times are at least 2-4 seconds.

Time-Shift TV

Catch-up TV allows a subscriber to go back in time and watch programs that were screened earlier

in the day or in the week. Reliance IPTV has the capability to allow a subscriber to go back a week

in time.

Reliance IPTV has been tested and is running successfully in more than 200 Homes in Mumbai.

Initially, our services will be launched in Mumbai and Delhi and then expanded to Pune, Bangalore,

Hyderabad and Ahmedabad in the next one year.

Big TV

Entertainment avenues in India today are expanding from mass entertainment to ‘lifestyle

entertainment’. Consumers are looking at the best life has to offer when it comes to enjoyment,

entertainment, expression and creativity. They are seeking products and services that will create a

rich, personalized and social media environment that maximize the limited time available.

Imagine a digital television service that suits you and your family’s interests, passions and busy

schedules. Picture all of your favorite channels, shows, and movies at your fingertips – it’s time to

step into the BIG world of entertainment.

Reliance BIG TV presents the next landmark in entertainment in India. The launch of Reliance BIG

TV brings true digitization and a transformation of the current television viewing experience, and

marks a shift in the controls from the broadcaster to the hand of the consumer. Homes all over the

country will witness a never before digital television viewing experience with unlimited hours of fun

and entertainment for the entire family. Consumers can now experience fantastic features such as

pure digital picture, digital sound, more channel choice, multiple exclusive movie channels, easy

programming guide, interactive services, parental control, superior customer service and lots more.

It has a significant technological advantage over other television platforms in terms of the number of

digital channels it can broadcast, the quality of its audio and video, DVR (Digital Video Recording)

and HD (High Definition) readiness and many more features because it uses MPEG-4 compression

technology. It is also in a superior position to take advantage of the content boom, the synergies with

the BIG Entertainment group, and the Reliance ADA Group retail distribution network, consumer

and investor base.

Reliance Infratel Limited (RITL)

RITL’s business is to build, own and operate telecommunication towers, optic fiber cable assets and

related assets at designated sites, and to provide these passive telecommunication infrastructure

assets on a shared basis to wireless service providers and other communications service providers

under long-term contracts.

OBJECTIVES OF THE STUDY

The main objective of the study is to have an insight into the current practices of the company with

regards to management of various elements of working capital. An attempt will also be made to find

out whether or not, to what extent, the working capital management is efficient and effective in the

RELIANCE INFOCOMM. Ways and means to improve working capital management would also be

suggested which lead to better productivity and maximization or shareholder’s wealth.

Apart from the above, more specifically the present study is conducted to find out as follows:

The main objectives are:-

Whether the firm has adequate liquidity throughout the period which leads to risk return trade

off?

How far has the firm been successful in managing and collection of the receivables in time?

To study management policies regarding inventory management, whether the management have

applied various inventory control techniques for proper utilization of resources.

How far have the firm been successful in managing and payments of accounts payables.

To study the factor affecting the working capital management.

To study the policies regarding working capital management

.

RESEARCH METHODOLOGY

Research Methodology

Research methodology is the way to systematically solve the research problem. It may be

understood as the science of study how research is done systematically. In it we study the various

steps that are generally adopted by the research methods or techniques and also the methodology.

Research design

The formidable problem that follows the task of defining the research problem is the preparation of

the design of the research project, popularly known as “RESEARCH DESIGN”. Decision regarding

what, where, when, how much, by what means concerning and enquiry or a research study

constitute.

The research design can be exploratory and descriptive designs.

Data collection method:

The data can be collected by two methods:

1. Primary method2. Secondary method

Primary data

Primary data is the important source of information. Primary data are those, which are collected

first time and thus happens be original in character. So, data directly collected by research is known

as primary data. The primary source of data collection is classified as:

Observation

Focus

Surveys

Experiments

Secondary method

The data, which is not collected for the first time & it used already for any other purpose. The

main sources are:

1. Central and state Govt.

2. Magazines & journals.

3. Other published material.

4. Websites.

But in my research data will be collected through secondary source.

Analytical tools

Data will be analyses on the basis of percentage with the help of table and figures.

CONCEPTUAL FRAMEWORKCONCEPTUAL FRAMEWORK

WORKING CAPITAL MANAGEMENT – AN INTRODUCTION

Working Capital management is the management of assets that are current in nature.

Current assets, by accounting definition are the assets normally converted in to cash in a

period of one year. Hence working capital management can be considered as the

management of cash, market securities receivable, inventories and current liabilities. In

fact, the management of current assets is similar to that of fixed assets the sense that is

both in cases the firm analyses their effect on its profitability and risk factors, however

differ on three major aspects.

1. In managing fixed assets, time is an important factor discounting and compounding

aspects of time play an important role in capital budgeting and a minor part in the

management of current assets.

2. The large holdings of current assets, especially cash, may strengthen the firm’s

liquidity position, but is bound to reduce profitability of the firm as ideal cash yield

nothing.

3. The level of fixed assets as well as current assets depends upon the expected sales,

but it is only current assets that are adjusted with the fluctuation in the short run in a

business.

To understand working capital better we should have basic knowledge about the

various aspects of working capital. To start with, there are two concepts of working

capital:

- Gross Working Capital

- Net working Capital

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization, or other entity, including governmental

entity. Along with fixed assets such as plant and equipment, working capital is

considered a part of operating capital. Net working capital is calculated as current assets

minus current liabilities. It is a derivation of working capital, that is commonly used in

valuation techniques such as DCFs (Discounted cash flows). If current assets are less

than current liabilities, an entity has a working capital deficiency, also called a

working capital deficit.

Working Capital = Current Assets

Net Working Capital = Current Assets − Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its

assets cannot readily be converted into cash. Positive working capital is required to

ensure that a firm is able to continue its operations and that it has sufficient funds to

satisfy both maturing short-term debt and upcoming operational expenses. The

management of working capital involves managing inventories, accounts receivable and

payable and cash.

Gross Working Capital:

Gross working capital, which is also simply known as working capital, refers to the

firm’s investment in current asset. Another aspect of gross working capital points out the

need of arranging funds to finance the current assets. The gross working capital concept

focuses attention on two aspects of current assets management, firstly optimum

investment in current assets and secondly in financing the current assets. These two

aspects will help in remaining away from the two danger points of excessive or

inadequate investment in current assets.

Working Capital = Current Assets

Net Working Capital:

The term net working capital refers to the difference between the current assets and

current liabilities. Net working capital can be positive as well as negative. Positive

working capital refers to the situation where current assets exceed current liabilities and

negative working capital refers to the situation where current liabilities exceed current

assets. The net working capital helps in comparing the liquidity of the same firm over

time. For purposes of the working capital management, therefore, Net Working Capital

can be said to measure the liquidity of the firm.

Net Working Capital = Current Assets − Current Liabilities

Working Capital Management

Decisions relating to working capital and short term financing are referred to as working

capital management. These involve managing the relationship between a firm's short-

term assets and its short-term liabilities. The goal of working capital management is to

ensure that the firm is able to continue its operations and that it has sufficient cash flow

to satisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria

By definition, working capital management entails short term decisions - generally,

relating to the next one year period - which are "reversible". These decisions are

therefore not taken on the same basis as Capital Investment Decisions (NPV or related,

as above) rather they will be based on cash flows and / or profitability.

One measure of cash flow is provided by the cash conversion cycle - the net

number of days from the outlay of cash for raw material to receiving payment from the

customer. As a management tool, this metric makes explicit the inter-relatedness of

decisions relating to inventories, accounts receivable and payable, and cash. Because

this number effectively corresponds to the time that the firm's cash is tied up in

operations and unavailable for other activities, management generally aims at a low net

count.

In this context, the most useful measure of profitability is Return on capital

(ROC). The result is shown as a percentage, determined by dividing relevant income for

the 12 months by capital employed; Return on equity (ROE) shows this result for the

firm's shareholders. Firm value is enhanced when, and if, the return on capital, which

results from working capital management, exceeds the cost of capital, which results

from capital investment decisions as above. ROC measures are therefore useful as a

management tool, in that they link short-term policy with long-term decision making.

See Economic value added (EVA).

Management of working capital

Guided by the above criteria, management will use a combination of policies and

techniques for the management of working capital. These policies aim at managing the

current assets (generally cash and cash equivalents, inventories and debtors) and the

short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to

meet day to day expenses, but reduces cash holding costs.

Inventory management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials - and minimizes

reordering costs - and hence increases cash flow. Besides this, the lead times in

production should be lowered to reduce Work in Progress (WIP) and similarly, the

Finished Goods should be kept on as low level as possible to avoid over production -

see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ);

Economic quantity

Debtors management. Identify the appropriate credit policy, i.e. credit terms

which will attract customers, such that any impact on cash flows and the cash

conversion cycle will be offset by increased revenue and hence Return on Capital (or

vice versa); see Discounts and allowances.

Short term financing. Identify the appropriate source of financing, given the

cash conversion cycle: the inventory is ideally financed by credit granted by the

supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to

"convert debtors to cash" through "factoring".

Importance of working capital management:

Management of working capital is very much important for the success of the business.

It has been emphasized that a business should maintain a sound working capital position

and also there should not be an excessive level of investment in the working capital

components. As pointed out by Ralph Kannedy and Stewart MC muller, “the inadequacy

of mis-management of working capital is few leading causes of business failure.

Current assets, in fact, accounts for a very large portion of the total investment of

the firm. Table clearly shows that in RELIANCE INFOCOMM, the current assets

accounts for 72.52% (average) of total investment in the net assets during the study

period.

Table showing Current assets as percentage of Total assets

Year Percentage

1997-98 75.82

1998-99 73.27

2000-01 71.45

2001-02 74.48

2002-03 67.57

Average: 72.52%

It can be visualized from the table that in the first year of our study 1.e. 1997-98 it was

75.82% which was reduced to 73.27% in the next year and in 2002-03 it is 67.57%

shows decreasing trend.

CIRCULATION SYSTEM OF WORKING CAPITAL

In the beginning the funds are obtained from the issue of shares, often

supplemented by long term borrowings. Much of these collected funds are used in

purchasing fixed assets and remaining funds are used for day to day operation as pay for

raw material, wages overhead expenses. This account of profit is used for paying taxes,

dividend and the balance is ploughed in the business.

Working capital is considered to efficiently circulate when it turns over quickly.

As circulation increases, the investment in current assets will decrease. Current assets

turnover ratio speaks about the efficiency of RELIANCE INFOCOMM in the utilization

of current assets. Fast turnover current assets results in a better rate on investment.

Table showing Current assets turnover ratio

Average: 1.41

The ratio average is 1.41 times in the study period of 5 years. In 2000-01 current assets

turnover ratio is highest one i.e. 1.77 during the 5 year study. Reasons being during this

year company has achieved sales growth 33.48% over the previous year and additional

activity needs more funds.

A firm needs fixed assets and current assets to support a particular level of

output. As the firm’s output increases, the need for current assets increases. The level of

current assets can be measured by relating current assets to fixed assets. Other things

assuming constant, conservative policy (i.e. higher current assets/fixed assets ratio)

implies greater liquidity and low risk, which an aggressive policy (i.e. lower current

assets/fixed assets ratio). Indicate toward higher risk between the two extreme policies.

Current Assets to Fixed Assets Ratio

Year Ratio (in times )

1997-98 3.14

1998-99 2.74

2000-01 2.50

2001-02 2.92

2002-03 2.08

Average: 2.68

It can be visualized from the above table that current assets to fixed assets ratio

of five study periods are fluctuating. So we can conclude that investment in fixed assets

(due to increase in production capacity) attracts the investment in current assets.

Analysis of Liquidity position:

The importance of adequate liquidity or the ability of the firm to meet its long

term obligations when they become due for payment can hardly be over emphasized.

The short term creation of the firm are interested in the short term solvency and liquidity

of firm and owners and long term creditors are interested in long term solvency as

profitability of the firm. A proper balance between the two contradictory required for

efficient use of current resources.

The following are the ratios which measure the liquidity of a firm:

Net Working Capital: Though net working capital is not a ratio, it is frequently

employed as a measure of the firm’s liquidity. The greater the amount of net working

capital, the greater is the liquidity of a firm. Following table shows the working capital

position of the company.

Net Working Capital

Year Amount

(Rs. in crores)

Indices % increase

1997-98 2032.11 100.00 0

1998-99 2576.33 126.78 26.78

2000-01 2709.35 133.33 33.33

2001-02 3267.20 160.78 60.78

2002-03 3698.12 181.98 81.98

Table shows that net working capital has increasing trend in the period of study.

The working capital increases significantly in the year 2000-01 and 2002-03. So we can

say that as per liquidity point of view there is no problem. But this is an indication only

whereas actual liquidity position will be reviewed by current ratio and quick ratio in the

next paragraphs.

Current Ratio: Current ratio shows that how many times current assets have covered

the current liabilities. Current ratio measures the relative ability of enterprise to pay its

short term obligations and it is also used to reveal how well a firm could meets a sudden

demand to pay of all its short term creditors. The higher the ratio, better in the safety

margin and technical solvency of the firm. Table shows the current ratios of RELIANCE

INFOCOMM

Current ratio

Average: 2.90

A high ratio of current assets to current liabilities may be indicative of slack

management practices as it might signal excessive inventories for the current

requirements and poor credit management in term of over extended accounts receivable.

The firm may not be making full use of its current borrowing capacity.

Quick Ratio: Quick ratio is the relationship between quick assets and current liabilities.

Quick assets is defined as current assets minus inventory since inventory is relatively

less liquid and hence not considered as a part of quick assets. This ratio is often used

supplement the information furnished by current ratio. An Acid test ratio of 1:1 is

considered satisfactory. This norm however should be interpreted with caution. A higher

ratio does not necessarily mean that it is good nor a lower ratio means means that it is

bad. Table shows the quick ratio of VSNL

Quick Ratio

Average :1.50

Year Quick assets Current liabilities Quick ratio

2005 _ _ _

2006 Rs.3158.96 Cr. Rs.4.25 Cr. 742.28

2007 Rs. 20107.04 Cr. Rs. 10732.14 Cr. 1.87

2008 Rs. 18515.29 Cr. Rs. 11238.16 Cr. 1.64

2009 Rs. 25543.01 Cr. Rs. 9365.46 Cr. 2.72

Cash Ratio : Cash ratio also called absolute liquidity ratio. It is most rigorous test of

the liquidity position of the business unit. It is calculated as :

cash and marketable securities

Cash ratio = -------------------------------------*100

Current Liabilities

The Table shows the cash ratio of RELIANCE INFOCOMM

Year Cash Ratio (in Percentage)

1997-98 46.55

1998-99 22.91

2000-01 22.66

2001-02 19.89

2002-03 26.42

Average: 27.69

Conclusion: In this chapter, practice regarding working capital management has been

examined of the company for the selected period of study and management performance

has been evaluated. The main findings are as follows:

It is witnessed that current assets form an integral part of the total assets i.e.

average 72.52% for the 5 years of study period. Nature and size of the business is

reported to be the most effecting factor of working capital level in the company followed

by growth and expansion, management policy etc. Conservative approach is followed by

the company in financing their working capital requirements. Total current assets

position, current ratio, quick ratio and cash ratio shows that company has very good

position regarding liquidity.

CASH MANAGEMENTCASH MANAGEMENT

Cash is the important current asset for the operations of the business. 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 or product manufactured by

the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will

disrupt the firm’s operations while excessive cash will simply remain idle, without

contributing anything towards the firm’s profitability. Thus a major function of the

Financial Manager is to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without any restriction

the term cash includes currency and cheques held by the firm and balances in its bank

accounts.

Evaluation of cash management performances

To assess the cash management performance this phase is divided as follows:

A) Size of cash:

The quantum of cash held by RELIANCE INFOCOMM during the study period

is presented in the table. The trend percentage are also calculated and shown in the table:

Size of cash balance (Rs. in Crores)

Year Cash Trend

1997-98 442.38 100

1998-99 335.24 -24.22

2000-01 328.40 -25.77

2001-02 421.15 -0.05

2002-03 449.44 1.60

Source: Annual report

Size of sales (Rs. in Lacs)

Year Sales Trend

1997-98 4033.98 100.00

1998-99 5524.90 36.96

2000-01 7350.19 82.21

2001-02 6912.47 71.36

2002-03 6837.08 69.49

Source: Annual Reports

(B) Liquidity and Adequacy of Cash:

One of the most important jobs of the Finance Manager is to maintain sufficient

liquidity to enable the firm to pay off its obligations when they fall due. To test a firm’s

liquidity and solvency we commonly use current and quick ratios. Traditionally 2:1

current ratio and 1:1 quick ratio are taken as satisfactory standards for the purpose. The

former indicates the extent of the soundness of the current financial position of a firm

and the degree of safety provided to the creditors, the later signifies the ability of a firm

to settle all its current obligations on a particular date.

Current ratio and quick ratio

Year Current ratio Quick Ratio

1993-94 3.14 1.82

1994-95 2.76 1.37

1995-96 2.87 1.69

1996-97 2.54 1.19

1997-98 3.17 1.45

Source: Annual Reports

Our analysis clearly shows that the company has very sound position regarding liquidity

and solvency. Further, all the ratio fluctuates throughout the period.

(C) Control of Cash:

One of the major objectives of cash management form the stand point of

increasing return on investment is to economize on the cash holding without impairing

the overall liquidity requirements of the firms. This is possible by effecting tighter

controls over cash flows. The following ratio has applied to assess the efficiency of cash

control:

# Cash to Current Assets ratio

# Cash turnover ratio

Cash to Current assets ratio

Year Cash to CA ratio

1997-98 14.83

1998-99 8.30

2000-01 7.90

2001-02 7.82

2002-03 8.32

Average: 9.43

Source: Annual Reports

Conclusion : It can be inferred from the above table that except the year 1997-98,

cash to current assets ratio is more or less constant, which shows the proper maintenance

of liquidity position, which ultimately affect the operational efficiency of the firm.

Cash Turnover Ratio

Year Ratio

1997-98 9.12

1998-99 16.48

2000-01 22.38

2001-02 16.41

2002-03 15.21

Conclusion: Table shows that cash turnover ratio of the company is very fluctuating.

In 1997-98 it was lowest but in 1998-99 it gets the highest value and in other three years

it remains constant which reveals the poor management of cash in the company.

Overall conclusion: The analysis of financial data reveals that the company has very

sound position regarding liquidity and solvency as shown by the current and quick

ratios. Cash turnover ratio, cash to current liabilities ratio, cash to current assets ratio

indicates the position that the firm is controlling the and managing the cash efficiently

when the cash to current assets ratio is concerned, the ratio is at the minimum level at

last year and also at the optimum level of cash apart of all current assets. There is a

decrease in sales in the year 2001-02 and 2002-03, it has thereby affected the cash

turnover ratio. The cash to current liabilities ratio is nearly on decreasing trend shows

the efficiency of operations.

MANAGEMENT OF INVENTORYMANAGEMENT OF INVENTORY

Inventories are the stock of the product made for sale by the company or semi finished

goods or raw materials. Inventory of finished goods which are ready for sale is required

to maintain smooth marketing operation. These inventories serve as a link between the

production and consumption of goods.

The aspect of management of inventory is especially important in respect to the

fact that in country like India, the capital block in terms of inventory is about 70% of the

current assets. It is therefore, absolutely imperative to manage efficiently and effectively

in order to avoid unnecessary investment in them. Although to maintain low inventories

may prove to be profitable but to maintain very low inventories may prove risky on the

contrary.

A company should maintain adequate stock of materials for a continuous supply

to the factory for an uninterrupted production. It is not possible for a company to procure

raw material instantaneously whenever needed. If a close link is maintained between the

sales and the production department then an organization can do with a small inventory

also. In the process inventory is also necessary because production can not be

instantaneous

Evaluation of Inventory Management:

In this section of this chapter, an attempt has been made to judge the efficiency

of inventory management in RELIANCE INFOCOMM by examine the composition

movement and level of inventory held by the firm.

Composition of Inventory: Composition of inventory generally depends upon the

nature of business. The structure of inventory shows us that which part of the inventory

is more in the organization. Such knowledge helps us in the efficient management of

inventory. Table shows the composite of inventory in RELIANCE INFOCOMM.

Composition of Inventory

Year Raw Material Semi

Material

Finished

Goods

Stores Spares

& scrap

Total

1997-98 36.80 21.83 30.92 10.45 100.00

1998-99 46.10 13.87 27.61 12.42 100.00

2000-01 19.73 8.98 61.41 10.15 100.00

2001-02 13.26 13.31 56.47 16.96 100.00

2002-03 9.56 14.42 57.85 18.40 100.00

Average 25.09 14.48 46.85 13.68 100.00

Conclusions: Table reveals the proportion of each component of inventory to

total of inventory in percentage terms. On the opposite, the percentage share of finished

goods in the total inventory has increased significantly during last 3 years of the study

period. The percentage share of store/scrap/spares etc. is moving between 10-18%. The

increasing share of finished goods is to be checked and controlled, that shows the

blockage of goods at finished stage.

Inventory Turnover Ratio

Year Ratio In days

1997-98 3.64 100

1998-99 3.06 119

2000-01 5.15 71

2001-02 2.78 131

2002-03 2.64 138

Average: 112 days

Inventory turnover ratio is generally regarded as indicator of inventory

efficiencies. It establishes a relationship between the total sales during a period and

average inventory hold to meet that quantum of turnover. In the year 2002-03, inventory

turnover ratio is the lowest one at 2.64 times, that signifies the slow moving of

inventory. In other words, the stock held during 2002-03 is for 138 days as comparison

of average at 112 days for the view of five years.

Overall Conclusion: This can be concluded that overall composition includes the

highest factor of finished goods and that is too on increasing trend. Moreover, the

inventory level is maintained for 138 days for the year 2002-03 that is the highest during

the study period. The overall position of inventory is that adequate on following basis:

The factor of finished goods is the composition of inventory is total is at higher level

and also having an increasing trend.

The stock is also very slow moving and the stock retention period is on increasing

trend.

The above two factors increases the cost of production and decreases the profitability,

therefore, these should be taken in to consideration for better productivity and efficiency

of operation.

MANAGEMENT OF RECEIVABLESMANAGEMENT OF RECEIVABLES

Trade credit, the tool which as a bridge for movement of goods through

production and distribution stages to customer, is a force in the present day business and

an essential device. Trade credit is granted with a motive of protecting the sale from

ones, competitors and attaching more of the potential customers. Trade credit is said to

be extended to a customer when a firm sell its services or goods and does not receive the

payment for them immediately. Thus trade credit creates receivable which refer to the

amount which a firm is expected to collect in near future.

Goals of Management of Receivables

As all other aspects of management, this also aims at the maximization of wealth

by a beneficial trade off between liquidity risk and profitability. The main aim of

management is not to maximize sales or minimize bad debt risk but in a way it is to

expand sale to the extent that the bad debt risk remained within the limits. So in an effort

to maximize the wealth, the goals of management of receivable are:

To obtain optimum value of sales

To control the cost of credit and keep it to the minimum level.

To maintain investment in debtors at optimum level.

Performance Evaluation of Receivables Management:

Evaluation of the performance of the credit department is a difficult task. There

is no standard yardstick to compare with the actual performance. Yet a successful

receivable management must ensure a comparatively slow growth of receivable as

against sales, as factory collection period and receivable task over minimum bad debts

losses and effective use of capital invested in receivable. Accordingly the following

criterion has been employed to evaluate the performance of receivable management in

RELIANCE INFOCOMM:

Ageing of Debtors: We can have a detailed idea about the quality of accounts

receivable through the ageing and schedule. Ageing, clearly spot the slow paying

accounts and indicate towards the efficiency of the management in collecting the post

due accounts. A firm which fails to recover up its receivable with in time faces bad debts

losses ultimately. RELIANCE INFOCOMM has given information in their annual

reports and accounts for those debts which are due for over six months.

Table Showing the Ageing of Receivable in RELIANCE INFOCOMM

Year Receivable O/S under six months Receivable O/S over

six months

1997-98 0.98 0.02

1998-99 0.97 0.03

2000-01 0.96 0.04

2001-02 0.94 0.06

2002-03 0.96 0.04

Table reveals that receivable outstanding for a period of less than six months have more

or less constant status whereas outstanding more than six months ranges between 0.02 &

0.06 in our five year study.

Composition of Receivable:

.

In the unit under study receivable mainly consist of study debtors and loan and

advances both the segment of receivable have been shown in table:

Composition of Receivable

Year Sundry Debts Loan& Advances Debtors O/S for a

considered goods (in times)

Considered goods period exceeding six months

1997-98 0.88 0.10 0.02

1998-99 0.86 0.12 0.02

2000-01 0.85 0.11 0.04

2001-02 0.80 0.15 0.05

2002-03 0.83 0.13 0.04

Table reveals that sundry debtors considered goods are having constant base

whereas loans and advances have fluctuating trend.

Average Collection Period: Average collection period explains how many days

of credit, a company is allowing to the customer. A higher collection period indicates

towards a liberal and inefficient credit and collection performances shorter the collection

period the better the credit management and liquidity of accounts receivable.

Average collection period

Year Days

1997-98 116

1998-99 111

2000-01 105

2001-02 111

2002-03 108

Average: 110

Conclusion:The receivable collection period at an average level is for 110 days

during five years of study. The period is more or less constant.

Debtors Turnover Ratio:

This ratio is calculated the effective utilization of funds involved in receivable.

An effective credit management results in a higher turnover of accounts receivable.

Year Debtors Turnover Ratio Average collection period (in days)

1997-98 3.14 116

1998-99 3.30 111

2000-01 3.46 105

2001-02 3.30 111

2002-03 3.38 108

Conclusion: The debtor’s turnover ratio is also more or less constant that signifies the

constant recovery of debtors from operation activities. The average collection period is

at level of 110 days for the five years of study. The collection period of debtors should

be kept at lowest level for the reduction in cost of capital and better productivity.

Overall Conclusions: The overall conclusions of receivable management can be

made on following basis:

1. The factor of debtors considered goods in composition of total receivable is on

decreasing trend.

1. The factor of debtors exceeding the six months in composition of total receivable

trend from 0.02 to 0.06 during study period. Average collection period of receivable

and debtors is more or less constant i.e... Average 110 days whereas lowest 105

days during 1995-96. That shows the constant recovery of debtors and other

receivable and also in 1997-98 it is 108 days.

MANAGEMENT OF PAYABLESMANAGEMENT OF PAYABLES

A substantial part of purchase of goods and services in business are on credit

terms rather than against cash payment. While the supplier of goods and services tends

to perceive credit as a lever for enhancing sales or as a form of non-price instrument of

competition, the buyer tends to look upon it as a loaning of goods or inventory. The

supplier’s credit is referred to as Accounts payable, Trade Credit, Trade Bill, Trade

Acceptance, commercial drafts of bills payable depending on the nature of the credit.

The extent to which this ‘buy-now, pay- later’ facility is provided will depend upon a

variety of factors such as the nature, quality and volumes of items to be purchased, the

prevalent practices in the trade, the degree of competition and the financial status of the

parties concerned. Trade credits or Payables constitutes a major segment of current

liabilities in many business enterprises. And they primarily finance inventories which

form a major component of current assets in many cases.

Types of trade credits:

Trade credits or Payables could be of three types: Open Accounts, Promissory

notes and Bills Payables.

Open Account or open credit operates as an informal arrangement wherein the

supplier, after satisfying himself about the credit-worthiness of the buyer, dispatches the

goods as required by the buyer and sends the invoice with particulars of quantity

dispatched, the rate and the total price payable and the payment terms. The buyer

records his liability to the supplier in his books of accounts and this is shown as

Payables on open account. The buyer is then expected to meet his obligations on the

due date.

The promissory note is a formal document signed by the buyer promising to pay

the amount to the seller at a fixed or determinable future time. Where the client fails to

meet his obligations as per open credit on the due date, the supplier may require a formal

acknowledgment of debt and a commitment of payment by a fixed date. The promissory

note is thus an instrument of acknowledgment of debt and a promise to pay. The

supplier may even stipulate an interest payment for the delay involved in payment.

Bills payable or commercial drafts are instrument drawn by the seller and

accepted by the buyer for payment on the expiry of the specified duration. The bill or

draft will indicate the banker to whom the amount is to be paid on the due date, and the

goods will be delivered to the buyer against acceptance of the bill.

Evaluation of Payables Management

Creditor’s turnover ratio & Average Payment Period

Year Creditors Turnover Ratio Average payment period

1997-98 2.06 177

1998-99 2.10 174

2000-01 1.92 190

2001-02 1.56 234

2002-03 1.57 232

Source: Annual reports

Average: 201 days

Conclusion: Table shows that the minimum average creditor period is 201 days and

maximum is 234 days. Table reveals the increasing trend in average payment period

which is beneficial for the company.

FINANCING OF WORKING CAPITALFINANCING OF WORKING CAPITAL

Any enterprises whether industrial or trading acquire two types of assets to run

its business. It requires fixed assets which are necessary for carrying on the

production/business such as land and building, plant and machinery, furniture and

fixture etc. For a going concern these assets are of permanent nature and are not to be

sold. The other type of assets required for day to day working of a unit are known as

current assets which are floating in nature and are converted into sale. It is these assets

which are generally referred to as “WORKING CAPITAL”.

A set financing pattern is evolved to meet the requirement of a unit for

acquisition of fixed assets and current assets. The total current assets with the firm may

be taken as gross working capital whereas the net working capital with the unit may be

calculated as under:

NET WORKING CAPITAL = CURRENT ASSETS -- CURRENT LIABILITIES

This net working capital is also sometimes referred to as liquid surplus with the firm and

is the margin available for working capital requirement of the unit.

The assessment of working capital may involve two important aspects as under:

* The level of current assets required to be held by any unit which is

adequate for its day to functioning.

* The mode of financing of these current assets.

The banks follow the following methods for fixing the limits of RELIANCE

INFOCOMM on various components of working capital:

1. Raw Materials : Credit to the RELIANCE INFOCOMM is available for

purchase of raw material and the same is deducted from credit limit fixed for raw

material. The margin for raw material is low in comparison to finished goods. The

margin fixed by bank is 15%.

2. Semi-finished Goods : Semi processed goods do not form a good security as its

realizable value is not exactly determined. So bank has insisted on higher margin

i.e. 25 %.

3. Finished Goods : The margin on finished goods generally higher than the

margin on raw material and may be lower than the stock in process. That is due to

the fact that the value of finished goods can be realized easily.

4. Bills Receivables: Banks generally prefer to grant facilities against bill

receivables and a very low margin is required for the supply made to government

department. This margin is very high i.e. 40 %.

The RELIANCE INFOCOMM has enjoy the following financing facilities by its

banker i.e. HDFC Bank, ICICI Bank.

WORKING CAPITAL DEMAND LOAN (WCDL):

Under this scheme bank has to finance the working capital loan as the

organization required. This scheme is beneficial to the enterprises in many ways. The

fluctuation in business is the prime factor that can directly effect the organization.

PACKING CREDIT (OR PC) LIMIT: This facility is sanctioned to the

exporter for procuring/manufacturing/ processing/packaging and shipping the goods

meant for export are termed as Pre-shipment Credit.

Packing Credit may be taken as equivalent to “Cash Credit” in domestic business

except that cash credit facility is sanctioned as a continuous running facility whereas

packing credit advance is disbursed for a specific purpose to enable the exporters to

meet a specific export obligation. Every Pre-shipment Advance is considered as a

separate loan account which differs from a domestic advance.

FINDINGSFINDINGS

The study conducted on working capital management of RELIANCE INFOCOMM

shows the evaluation of management performance in this regard. Major findings and

suggestions thereon are narrated as under:

Current assets comprise a significant portion i.e. 72.52% (average for five years of

study) of total investment in assets of the company. There is decreasing trend of this

ratio during the study period which shows management efficiency in managing

working capital in relation to total investment. Further current assets to fixed assets

ratio also shows on decreasing trend during the study period which substantiate

above mentioned criterion of effectiveness in management of working capital by the

company.

Current assets turnover ratio for the first three years of study shows increasing trend

which is due to significant increase in sales. In 1995-96 current assets turnover ratio

is highest one i.e. 1.77 during the study, reasons being during this year company has

achieved sales growth 33.04% over the previous year.

The ratio used for analysis of liquidity position is current ratio and quick ratio. These

ratios reveal that company has sound liquidity position throughout the period of

study. Both the ratio shows fluctuating trend within reasonable limit but these ratio

are higher than conventionally accepted norms i.e. 2:1 in case of current ratio & 1:1

in case of quick ratio, which shows ineffectiveness of the management in managing

current/quick assets in relation to current liabilities.

The ratios used for cash management are cash to current assets ratio, cash to current

liabilities ratio and cash turnover ratio. Cash to current liabilities and cash turnover

ratio shows fluctuating trend where as cash to current assets ratio shows decreasing

trend except 2002-03. All these ratios reveal that management has no definite cash

policy.

Inventory turnover ratio depict the decreasing trend except 1995-96 which indicates

the accumulation of inventory in turn which cause loss to the company by way of

deterioration of stock, interest loss on blockage of stock etc. Further composition of

inventory reveals that portion of individual element of inventory has fluctuating

trend which indicates that management has no policy in respect of inventory

management.

Debtors Turnover ratio reveals a constant trend during the period of study and

average collection period ranges from 105 to 116 days. Keeping in view of fastener

industry trend credit period of 3-4 months is quite very higher. It reveals that

management has no specific policy in respect of debtors management.

Creditors turnover ratio shows an increasing trend in the study period and average

credit period increasing from 177 days (1998-99) to 234 days (2001-02). It reveals

that management is taking maximum credit period benefit from suppliers which in

turn helps in maximizing working capital effectively and management has no

specific purchase policy as far as credit period is concerned.

RECOMMENDATIONS

Keeping in view of detailed analysis for the 5 years of study and our findings mentioned

in above paragraphs, the following suggestions shall be helpful in increasing the

efficiency in working capital management.

Company should make a policy in respect of investment of excess cash, if any; in

marketable securities and overall cash policy should be introduced.

In case of inventory management ABC analysis, FSN technique, VED technique

should be adopted to increase the efficiency of inventory management. Further an

inventory monitoring system should be introduced to avoid holding of excess

inventory.

Management should develop a credit policy and proper self realization system from

customers so that efficient and effective management of accounts receivable can be

ensured. This will significantly improve the profitability and liquidity of the

company.

Purchase policy regarding raw material, consumables, tools and packing materials

etc. should be introduced which ultimately helps improper planning of inventory,

availment of maximum trade/cash discount and availment of maximum credit period

from suppliers.

BIBLIOGRAPHYBIBLIOGRAPHY

Books & Magazines

Financial Management : Khan M.Y. and Jain P.K

Financial Management : Rustagi R.P

Dalal Street Journal

Reinforce(Reliance in–house monthly journal )

Business World

Newspapers

Economic Times

Times of India

Hindustan Times

Websites

http://www.gm.ril.com

http://www.trai.com

http://www.moneycontrol.com

http://www.investopedia.com

http://www.rcom.co.in

http://en.wikipedia.org/wiki/Working_capital