OBJECTIVEMy Project Report mainly focuses on “Working Capital”.My Project study also focuses on the main point that the basic objective of thecompany.To ensure smooth & efficient working of a department.To promote   individuals  and col lect ive ,  morals  a  sense  of   responsibi l i t ies , regarding best utilization of resources.To develop the different sources of finance.To know the financial position of the company.Stability & growth.Development & Promotion of funds in the organization.To focus  on Importance  of   f inancial  analysis .   I t  helps   to  achieve  goals  of  

Organization.To understand the effectiveness of financial activity of  Jay Bharat ExhaustSystems Limited.

To Compare the Assets and Liabilities of the company.To know the profitability position of Jay Bharat Exhaust System Ltd.To know about the trend of profits and sales of the company. SIGNIFICANCE OF STUDYFinance is the life of any business. No business can run properly unless it maintains itscash. Blood is essential for human being alive. In case of business finance take the position of blood. Hence this Project becomes vital for organization-paying attention tofinancial management. Ratio Analysis however is important because of followingreasons: -To help a company to fulfill it future financial needs.To increase the productivity.To improve organization climate.To effect the financial growth.

Scope of the project includes:to managing the financial activity.

To help   the  Finance  Department   to  evaluate  shortcomings   in   the   f inancial  programs.To help the Finance Department to effective utilization of the funds.To help the Finance Department to understand where the scope of improvement inthe future is.To help   the  Finance  Department   to  evaluate  the   f inancial  act ivi ty  of   theorganizationTo help in inventory control.To help the Finance Department to evaluate the comparative study.To help in know the financial position of the company.To help the Finance Department in forecasting.Introduction FINANCIAL MANAGEMENT Finance is the life of any business. No business can run properly unless it maintains itscash. Blood is essential for human being alive. In case of business finance take the position of blood. Now the question arises what is finance. Simply finance is known ascash and monetary terms but finance means more of it. Finance means measure

thefinancial requirement and allocate cash in different heads for proper working of eachdepartment.The word management refers to manage-men-t. It means manage the men tactfully.Here the word men mean all those person who are working in the organization.“Financial management is that managerial activity which is concerned with theplanning and controlling of the firm’s financial resources”According toHoward & Upton“

Financial Management is the application

of planning and controlling function to the finance function”Thus financial management means manage the financial activity of the company. Thereare different approaches regarding financial management.Traditional ApproachUnder this approach financial management refers to rising of funds through varioussources according to current need of the company. This approach is mainly concentrateon rising of fund. Through different sector in this approach the main thing is raising of capital.Transactional Approach

Under this approach financial management refers to inflow and outflow of cash inoperating activity. Operating activity means purchase and sale of material.Modern approachModern approach is rising of funds through different sources and utilizes themeffectively. Capital budgeting and cost of capital must be kept in mind while raising thefunds. Capital budgeting means the investment in capital goods in such a way so that wecan get back our invested money easily and quickly. Cost of capital means what is thecost of raising capital. The return demanded by preference shareholders, the interest ratesdemanded by debenture holders, dividend requirement of equity capital holders isconsidered as cost of capital.Utilization of funds means effective utilization of funds in inflow-outflow; allocatethe cash to different department in such a way so that business can run successfully. Thusfinancial management means rising of funds through different sources and utilizes themeffectively.SIGNIFICANT ACCOUNTING POLICIES1.Basis of Preparation of Financial StatementsThe Financial statements have been prepared under the historical cost convention, inaccordance with applicable Accounting Standards and provisions of the companiesAct, 1956 as adopted consistently by the Company.2.Recognition of Income/Expenditure

All incomes & expenditures having a material bearing on the financial statement areaccounted for on an accrual basis and provision is made fore all known losses andliabilities.3. Fixed AssetsFixed assets  are  s ta ted  a t  cost ,  net  of  Modvat /Cenvat /Vat ,   less  accumulateddepreciation. Cost of fixed assets comprises purchase price, duties, levies borrowingcost, net charges on forward exchange contracts and exchange rate variations and anydirectly attributable cost of bringing the assets to its working condition for theintended use.Machinery spares that can be used only in connection with an item of fixed asset andtheir use is expected to be irregular are capitalized.

Replacement of such spares is charged to revenue.Intangible  assets  acquired  on or  af ter  1stApril 2003 satisfying the qualifyingconditions prescribed under Accounting Standard 26- Intangible assets, issued byInstitute of Chartered Accountants of India are capitalized4.Capital Work in ProgressAdvance paid towards acquisition of fixed assets and the cost of assets not ready to put to use before

the year end, are disclosed under capital work in progress.5.Impairment of AssetsCarrying amount of cash generating units/assets is reviewed for impairments,Impairment, if any, is recognized where the carrying amount exceeds the recoverableamount being the higher of net realizable price and value in use.6 . I n v e n t o r i e sInventories are valued at lower of cost and net realizable value. The cost of rawmaterial is determined by using First-In-First Out (FIFO) method. However, scrap isvalued at Net realizable value. Cost of finished goods and work in progress includescost of conversion and other cost incurred in brining the inventories to their presentlocation and condition.7 . S a l e sSales are recognized on dispatch of goods from the factory and are net of discounts but exclude sales tax.8 . D e p r e c i a t i o nDepreciation on fixed assets is provided on written down value basis at the rate and inthe manner prescribed in schedule XIV to the Companies Act, 1956. Depreciation ischarged on pro-rata basis for assets purchased/sold during the year. Individual assetscosting Rs. 5000 or less is depreciated in full in the year of purchase. Depreciation onincremental cost arising on account of translation of foreign currency liabilities for acquisition of fixed assets

is provided as aforesaid over the residual life of therespective assets. Costs of intangible assets are amortized over five years9.Foreign Exchange TransactionsTransact ions  denominated   in   foreign  currencies  are  normal ly   recorded  a t   theexchange rate prevailing at the time of transaction. Monetary items denominated inforeign currencies outstanding at the year-end are translated at exchange rateapplicable as on that date. Non-monetary items denominated in foreign currency arevalued at the exchange rate prevailing on the date of transaction. Any income or expenses on account of exchange difference either on settlement r on translation isrecognized in the profit and loss account except in cases where these relate to theacquisition of fixed assets.10. Borrowing CostBorrowing Cost that is attributable to the acquisition or construction of qualifyingAssets is capitalized as part of the cost of such assets. A qualifying asset is one thatnecessarily takes substantial period of time to get ready fore intended use. All other  borrowing costs are charged to revenue.1 1 . C l a i m sClaims receivable are accounted for on the certainty of receipt & claims payable areaccounted at the time of acceptance1 2 . E x c i s e D u t y

Excise duty is accounted on the basis of both payments made in respect of goodscleared as also provision made for goods lying in bonded warehouse.Cenvat claimed on Capital goods is credited to capital Assets/capital work in process. Cenvat claimed on purchase of raw and other materials are deducted fromcost of such material.

WORKING CAPITAL MANAGEMENTIntroductionEvery business needs funds for two purposes for its establishment and to carry out day-to-day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land building, furniture etc.investment in these assets represent that part of firm’s capital, which is blocked on a permanent or fixed basis is called fixed capital.Funds are also needed for short-term purposes of raw materials, payment of wagesand other day-to-day expenses etc. these funds are known as working capitalMEANING OF WORKING CAPITALWorking capital refers to that part of firm’s capital, which is required for financing shortterm or current assets such as cash, marketable securities, debtors and inventories.DEFINITIONS OF WORKING CAPITALIn the words of  

Shubin, “working capital is the amount of funds necessary to coverthe cost of operating the enterprise.”According toGenestenberg “ Circulating capital means current assets of acompany that are changed in ordinary course of business from one form to anotheras for example, from cash to inventories, inventories to receivables, receivables intoCash”NATURE OF WORKING CAPITALWorking Capital management is concerned with the problems that arise in attemptingto manage the current assets, the current liabilities and the inter-relationship that exists between them. The term current assets refer to these assets which in the ordinary courseof business can be, or will be, Converted into cash within one year without undergoingthe diminution in value and without disrupting the operating of the firm, whereas thecurrent liabilities are those liabilities which are intended, at there inception, to be paid inthe ordinary course of business, within a year out of current assets or earning of theconcern. Thus the goal of working capital management is to manage the firm’s assets

andliabilities in such a way that a satisfactory level of working capital is maintained. Theinteraction between current assets and liabilities in such a way that optimum level of current assets, the trade off between profitability and risk which is associated with thelevel of current liabilities and assets, better financing mix strategies and other short termgoals are attainedThere are two concepts of working capital: Gross and Net1. The term gross working capital, also referred to as working capital, means the totalcurrent assets.2. The term net working can be defined in two ways.Difference between current assets and current liabilities.The task of the financial manager in managing working Capital efficiency is to ensureefficiency liquidity in the operations of the enterprise. The basic three measures of afirm’s overall liquidity are: Current ratios, Acid test ratio, Net Working Capital. For the purpose of working capital managementTherefore, NWC Can be said to measure the liquidity of the firm. In other words,the goal of working capital management is to manage the current assets andliabilities in such a way that an acceptable level of NWC is maintained.IMPORTANCE OF ADEQUATE WORKING CAPITALWorking Capital is very essential to maintained the smooth running of the business. Itis lifeblood and

nerve center of a business. No business can run successfully with outadequate amounts of working capital.1.Adequate working capital helps in maintaining solvency of the business by providinguninterrupted flow of production.2.It also enables a concern to avail each discount on the purchases and hence it reducescasts.3.Sufficient working capital enables a business to make prompt payments and helps increating and maintaining goodwill.4.A concern having adequate working capital enables and high solvency can averageloans from banks and others on easy and favorable terms.5.Adequate working capital ensures regular supply of raw materials.6.A concern can also pay quick and regular dividends to its investors, as there may not be much pressure to plough back profits because of adequacy of working capital.7.Sufficiency of working capital creates an environment of security, confidence, andhigh morale and creates overall efficiency of a business.Adequacy of working capital also enables a firm to make regular payments of salaries, wages and other day-to-day commitments, which raises the morale of itsemployees, increase their efficiency reduces wastages and costs and enhancesproduction and profits.WORKING CAPITAL REQUIREMENT

“WORKING CAPITAL IS THE LIFE BLOOD AND CONTROLLING NERVECENTRE OF A BUSINESS.” No business can be successfully run without an adequateamount of working capital. To avoid the shortage of working capital at once, an estimateof working capital requirements is not an easy task and a large number of factors have to be considered before starting this exercise. The following factors have to be consideredfor this: -1.The length of sales cycles during which inventory is to be kept waiting for sales.2.The average period of credit allowed to customers.3.The amount of cash required paying day-to-day expenses.4.The average amount of cash required making advance payments, if any.5.The average credit period expected to be allowed by suppliers.6.Time lag in payment in wages and in other expensesFrom the total amount blocked in current assets estimated on the basis of first for itemsgiven above, the total current liabilities i.e. the last two items is deducted. In order to provide for contingencies, some extra amount calculated as a fixed percentage of WCmay be added as safety margin.NEED OF WORKING CAPITALThe need for the working capital (gross) or current assets cannot be over emphasized.Given the objectives of financial decision making to maximize the shareholder’s wealth,it is necessary to generate

sufficient profits. The extent to which profits can be earnedwill naturally depend, among other things. Open the magnitude of sales. A successfulsales program is necessary for earning profits by any business enterprise. There is a needof working capital in firm of current assets to deal with the problem arising out of thelack of immediate realization of cash against goods sold. Thus sufficient working capitalis necessary to sustain sales activity. Technically, this is referred to as the operating or cash cycle.  CONCEPT OF WORKING CAPITALThere are two concepts of working capital:

1. Gross working capital: In the broad sense, the term working capital refers to thegross working capital and represents the amount of funds invested in current assets. Thus,gross working

capital is the capital invested in the total current assets

of the enterprise.Current assets are those assets, which in the ordinary course of business can be convertedin to cash with in a short period of normally one accounting year. Constitutes of currentassets are:Cash in handCash at bankSundry debtorsBills receivable

Short term loans and advancesInventories in stockPrepaid incomeAccrued expenses2. Net working capital: In a narrow sense, the term working capital refers to the network ing  cap i ta l .  Ne t  work ing  cap i ta l   i s   the  excess  o f   cur ren t   asse t s  over  cur ren t liabilities. So,Net working capital = current assets –current liabilities Net working capital may be positive or negative. When the current assets exceed thecurrent liabilities the working capital is positive and the negative working capital resultswhen the current liabilities are more than current assets. Current liabilities are thoseliabilities, which are intended to be paid in the ordinary course of business with in a short period of normally one accounting year out of the current assets or the incomes of the business. Constitutes of current liabilitiesBills payableCreditorsDividend payableProvision for taxation