project report on supertech
TRANSCRIPT
SUMMER TRAINING PROJECT REPORT
ON
“STUDY OF WORKING CAPITAL MANAGEMENT AT SUPERTECH LTD”
For the partial fulfilment for the Degree of
MASTER OF BUSINESS ADMINISTRATION
EXECUTIVE SUMMARY
Supertech Group “Pioneer in Real Estate Development over 20 years”, Supertech Group is a
prominent name for development of high quality residential, commercial and shopping centres,
Malls, Multiplexes and Hotels in NCR and other prominent places UP and Uttrakhand.
Supertech was promoted by Mr. R.K. Arora aged 48 years who is Civil engineer by profession,
having more that 25 years experience in construction and allied activities. Supertech Group started
long back in 1995 with their flagship company “Supertech Construction Private Limited”(Name of
the same company was changed to Supertech Limited subsequently). Supertech Limited is a
company incorporated under the Indian Companies Act 1956. The group grew from small
company to a large corporate house of well known brand “Supertech”. Supertech limited has
developed and constructed several prestigious group housing, Malls, Hotels, Multiplexes and
Commercial complexes in and around Delhi. The group is known for its high quality construction,
innovative designs and well planned amenities at prime location. The brand “Supertech” is well
known in real estate industry and the group has successfully completed a number of residential
and commercial complexes in Delhi NCR and Western U.P.
My Project is Study of Working Capital Management At Supertech Limited.
The study was conducted at the Corporate office of Supertech Limited in Noida (U.P.).
The project was of 2 months duration. During the project I interviewed the executives & staff to
collect the data, & also made use of company records & annual reports. The data collected were
then compiled, tabulated and analyzed.
Working Capital Management is a very important facet of financial management due to:
Investments in current assets represent a substantial portion of total investment.
Investment in current assets & the level of current liabilities have to be geared quickly to
change sales.
Some the points to be studied under this topic are:
How much cash should a firm hold?
What should be the firms credit policy?
How to & when to pay the creditors of the firm?
How much to invest in inventories?
Objectives
To identify the financial strengths & weakness of the company.
Through the profit ratio, understand the profitability of the company.
Evaluating company s performance relating to financial statement analysis.
To know the liquidity position of the company with the help of current ratio.
To determine policy regarding profitability, liquidity and risk by considering company s
objectives.
To determine the quantum and structure of current assets.
Determining the relationship between the current assets and current liabilities and
hence liquidity is determined.
COMPANY PROFILE
Supertech Group, founded in 1988 , has set new trends and benchmarks of architectural
excellence in the contemporary global scenario. An ISO 9001:2000 certified company;
Supertech has successfully completed 20 years in real estate business and today it has
revolutionized the real estate arena. Under the dynamic and pragmatic leadership of Mr.
R.K.Arora, Chairman & CMD and experienced Board Members, Supertech Group is
scaling new heights and touched the horizon of excellence. Their vision and entrepreneurial
acumen and have taken the group to the greater heights.
All this dedication and commitment has enabled us to receive the coveted “Udyog Ratan
Award”, 2001 for unparalleled contribution to this area. The greatest contributory factor to
this landmark achievement is the vision of Mr. R.K. Arora whose entrepreneurial skills and
business acumen have steered the group diligently on a growth path. Mr. Arora has also
been bestowed with “Excellence Award” for the year 2001 for his outstanding contributions
to real estate industry.
Supertech Group has already converted more than 33 million sq. ft. area of residential and
commercial entity into architectural landmarks and more than 36 projects that
accommodates nearly 30000 families. Its various projects viz. Residential & Commercial
Townships, Shopping Malls, Hotels and IT Parks have either completed or about to
complete. We are inspired by our clients to endeavour the dreams turning into reality. Our
commitment to deliver quality with aesthetic design surges ahead with the enterprising
vision of creating value through excellence. world class architecture shows true modern
lifestyle.
In a span of 20 years, Supertech Limited has achieved an impressive growth. The annual
turnover for the year ending 31st March 2012 stands at 1410 crores and profit after₹
tax(PAT) at 110 crores. The tangible net worth of Supertech Limited is more than ₹ ₹
430 crores as on 31st March 2012. ‘Supertech’ as a brand name is registered with the
registrar of Trade Marks . The group has completed three shopping malls called “Shopprix”
at sector-61, Noida, sector-5 Vaishali and Kaushambhi, Ghaziabad respectively. The Group
has completed group housing projects like “Supertech Residency”, “Supertech Estate” at
Vaishali, Housing project “Rameshwar Orchid” at Kaushambhi and Housing Project “Icon”
at Indrapuram, Ghaziabad, Emerald Court, at Expressway Noida. The presently ongoing
projects of the group include Residential Townships, Large Group Housing Complexes,
Commercial Complexes, Multi Cineplex’s & 5 Star Hotel Projects etc.
COMPANY’S CHAIRMAN PROFILE
R K Arora (Chairman & Managing Director)
Mr. R K Arora is a Chairman & Managing Director of the Supertech Ltd. He has reappointed on
April 2012 by the board of directors in 16 th Annual General Meeting. He has a good entrepreneur
skills which leads to the organization to maintain a sustainable growth. He is B.E. in civil
engineering & has more than 28 years experience of this sector. He has also get Excellence Award
for the year 2001 for his outstanding contribution to real estate industry.
In Board Of Directors company also have 5 other directors who have a great entrepreneur &
business skills whish leads organization to achieve a sustainable growth. They all have a more
than 18 year of experience of different market sectors or corporate world.
Board of Directors-
Mrs. Sangita Arora (JMD)
Mr. Mohit Arora(Director)
Mr. Anil Sharma(Director)
Mr. G.L.Khera (Director)
Mr. Vikas Kansal (Director)
Corporate Social Responsibility (CSR)-
Realty major Supertech Ltd., a socially aware company, is significantly contributing towards
growth of the society. The company is aware about its social responsibility to give back a certain
share to the socio-economic growth. As part of the CSR the various initiatives of the company
include:
Supertech provide public amenities like running of community centres, adoption and maintenance
of parks and walkways where families spend time together further enriching their lives. The need
of the project area and CSR programmes are developed keeping in mind the identified need. Also,
provision of ample greenery and open space at our residential projects.
The company believes in Social responsibility is about giving something back, and we do this with
every project we take on. It believes in giving their clients a place to live, work and flourish. It
builds developments that enhance their surroundings that enrich people's lives.
The company has just started 'Kaksha' a CSR activity at its ongoing projects to educate the poor
children in the area and the labourers working at construction project. The programme is an
initiative of "Supertech Foundation" a Trust established by Mr. R. K. Arora and his family
members.
Quality Policy-
Supertech Group has been awarded an internationally recognized ISO 9001:2001 certification and
“Udyog Ratan” Award for its quality standard. Supertech Group is constantly working towards
creating new benchmarks of architectural excellence in the contemporary global environment. In
this new environment, the demand for multi-faceted real estate development has become crucial
for keeping pace with the progress. Capitalizing on these demand dynamics, we at Supertech
Group have always taken new initiatives and emerged as one of the prominent entities.
Supertech introducing quality into every aspect of the Company ranging from Process, Human
Resource, Technology and Services to create an all-encompassing quality culture. Developing
collective willingness towards the discipline of doing things right by using perfect planning &
state of the art technology and delivering highest quality Standard to the clients. Our strong
Quality Consciousness and quest for continuous up gradation for ultra modern life-style and
luxurious living standard. Our clients’ interests are paramount priority for us. We want all our
clients' investment to be safe & profitable.
We always try to research, innovate and improve on service quality. We also provide the most
accurate information and added value in order to fulfil our clients’ demands.
Organization Chart
R.K. Arora(Chairman & Managing Director)
Board of Directors
Sunita Arora(Joint Managing Director)
Director-IT
Vice president (HR)
Company Secretary CFO Director(Mktg & Sales)
VP/AVP VP/AVP
Director-Projects
SGM/GM GM-HR Project Head GM(Finance) GM(Mktg)GM(Accounts)
Mgr. Mgr. Mgr.
EngineersAM-IT AM-HR AM-Acct. AM-Fin. AM/TL-Sales
EXEC.-IT EXEC.-HR EXEC.-HR SUPERVISOR SUPERVISOREXEC.-IT EXEC.-ACC. EXEC.-ACC EXEC.-FIN. EXEC.-FIN EXEC EXEC.
Financial Results of the Company:
The Company’s performance during the financial years is Summarized below:
(Rs. in crores)
Particulars 2009-10(Audited)
2010-11(Audited)
2011-12(Provisional)
Total Income 337.66 1333.67 1883.47Less: Operative Expenses 283.41 1,189.01 1674.06Profit before Interest, Depreciation and Taxation
54.25 144.65 209.41
Less: Depreciation 0.68 2.33 6.71Less: Interest 5.53 5.05 63.59Less: Prior Period Item - 10.53 -Profit Before Taxation 48.04 126.74 139.34Less: Provision For Taxation-Current 10.41 27.36 29.30-Deferred 0.03 0.16 0.25Profit After Tax 37.59 99.22 111.56Add: Profit Brought Forward 176.44 213.58 311.9Balance Available For Appropriation 214.03 312.80 423.46AppropriationProposed Dividend on Equity Shares 0.39 0.78 -Tax on Proposed Dividend 0.06 0.13 -Balance Carried to Balance Sheet 213.58 311.89 423.46
2009-10 2010-11 2011-12₹ 0.00
₹ 200.00
₹ 400.00
₹ 600.00
₹ 800.00
₹ 1,000.00
₹ 1,200.00
₹ 1,400.00
₹ 1,600.00
₹ 1,800.00
₹ 2,000.00
337.66
1333.67
1883.47
Total IncomeR
s.in
cror
es
2009-10 2010-11 2011-120
20
40
60
80
100
120
140
160
180
200
37.59
99.22111.56
Profit After Tax
Rs.
in c
rore
s
Company has excellent track record in paying interest and repayment of loan. Company has not
defaulted even for a single day in interest & loan repayment. No account so far has been
restructured with any bank. They have term loan facilities from following bankers:
1. Corporation Bank
2. Punjab National Bank
3. Indian Overseas Bank
4. Bank Of India
5. Indian Bank
6. ICICI Bank Ltd.
7. Oriental Bank Of Commerce(OBC)
8. UCO Bank
9. Kotak Mahindra Bank
10. HUDCO
2009-10 2010-11 2011-120
20
40
60
80
100
120
140
160
48.36
122.69
138.56
Earning Per ShareA
mou
nt in
Rs.
Financial Yea
r
COMPANY’S NEW PROJECT
SUPERNOVA
SUPERNOVA
It is the most awaited project of Supertech Limited. Supertech Group, after the successful launch
of North Eye-North, India’s tallest residential development, has launched Supertech Supernova,
situated in NOIDA. This splendid project, which is the biggest project in North India, has mixed-
use development spread over the area of 5 million sq. ft. The new township is set on beautiful lush
green area to offer its residents luxurious lifestyle. Each plot has 70% open area. The project
involves a 300 meter tall building that is going to be the tallest in North India.
Supertech Supernova is build by keeping in mind the necessities of prominent clients who desire
to have luxurious lifestyle, and it is comprised with all modern facilities like well appointed
apartments with modern conveniences such as a clubhouse, jogging track, swimming pool and
more. Supernova is having five towers. “Spira” – is the iconic tower, which is India’s tallest mixed
use development having 80 floors which stands at 300 meters. Supertech Supernova is offering
mixed use development and offering Residential, Serviced Apartment, Hotels, Shopping Malls,
Office Spaces and Recreational centres. Mixed use development and its benefits redefine this
project as an Epicentre. This project reveals luxurious amenities, world class modern
conveniences all around inside this complex.
This project is very well scheduled and designed with prominent architects and consultants, who
are working to offer high class facilities with long-lasting designs. Supertech Supernova as a
residential community is contained with two luxurious hotels, premium and luxurious retail brands
offices, deluxe residences, fully furnished serviced apartments, free entry and exits for all verticals
etc.
Revenue Model of this project is as under:
Particulars Of Project Revenue Model
Hotel-1(Super Luxury) Revenue from operations of Hotel
Hotel-2(Five Star) Revenue from operations of Hotel
Retail Lease Model
Office Area 50% sale 50% Lease
Service Apartments Revenue From Operations
High end residential Apartments/ Sale Model
Cost of Project & Means of Finance
(Rs. in Crores)
Detail Of Towers
Name Of Tower
Spira Hotel & Serviced Apartment
Nova East Nova West Astralis
No. Of Floors
79 45 39 38 28
The Table Containing Combination of various segments in Different towers is as follows:
Payment Plan for Towers (Astralis, Nova, Spira)
WHAT IS WORKING CAPITAL?
Working capital refers to the investment by the company in short terms assets such as cash,
marketable securities. Net current assets or net working capital refers to the current assets less
current liabilities.
Symbolically, it means,
Net Current Assets = Current Assets- Current Liabilities
DEFINITIONS OF WORKING CAPITAL:
The following are the most important definitions of Working capital:
1) “Working capital is the difference between the inflow and outflow of funds. In other
words it is the net cash inflow “.
2) “Working capital represents the total of all current assets. In other words it is the Gross
working capital, it is also known as Circulating capital or Current capital for current assets
are rotating in their nature”.
3) “Working capital is defined as the excess of current assets over current liabilities and
provisions. In other words it is the Net Current Assets or Net Working Capital”.
IMPORTANCE OF WORKING CAPITAL
Working capital may be regarded as the lifeblood of the business. Without insufficient
working capital, any business organization cannot run smoothly or successfully.
In the business the Working capital is comparable to the blood of the human body.
Therefore the study of working capital is of major importance to the internal and external
analysis because of its close relationship with the current day to day operations of a
business. The inadequacy or mismanagement of working capital is the leading cause of
business failures.
To meet the current requirements of a business enterprise such as the purchases of
services, raw materials etc. working capital is essential. It is also pointed out that working
capital is nothing but one segment of the capital structure of a business.
In short, the cash and credit in the business, is comparable to the blood in the human
body like finance s life and strength i.e. profit of solvency to the business enterprise.
Financial management is called upon to maintain always the right cash balance so that
flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise
can have a balance between liquidity and profitability. Therefore the management of
working capital is essential in each and every activity.
WORKING CAPITAL MANAGEMENT
INTRODUCTION:
Working Capital is the key difference between the long term financial management and short term
financial management in terms of the timing of cash.
Long term finance involves the cash flow over the extended period of time i.e. 5 to 15 years, while
short term financial decisions involve cash flow within a year or within operating cycle.
Working capital management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities & the inter relationship that exists between them. The
current assets refer to those assets which can be easily converted into cash in ordinary course of
business, without disrupting the operations of the firm.
There are basically four components have to be managed in the working capital management
because whole working capital management based on it’s components management.
Composition of working capital
Major Current Assets
1) Cash
2) Accounts Receivables
3) Inventory
4) Marketable Securities
Major Current Liabilities
1) Bank Overdraft
2) Outstanding Expenses
3) Accounts Payable
4) Bills Payable
PAYABLE MANAGEMENT
CASH MANAGEMENT
RECEIVABLE MANAGEMENT
INVENTORY MANAGEMENT
WORKING CAPITAL
MANAGEMENT
The Goal of Capital Management is to manage the firm s current assets &liabilities, so that the
satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory
level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To
maintain the margin of safety current asset should be large enough to cover its current assets.
Main theme of the theory of working capital management is interaction between the current assets
& current liabilities.
CONCEPT OF WORKING CAPITAL:
There are 2 concepts:
Balance Sheet Concept
Operating Cycle Concept
Balance Sheet Concept:
There are two interpretation of working capital under Balance Sheet Concept.
Gross working capital: - It is referred as total current assets. Focuses on,
Optimum investment in current assets:
Excessive investments impairs firms profitability, as idle investment earns nothing.
Inadequate working capital can threaten solvency of the firm because of its inability to meet
its current obligations. Therefore there should be adequate investment in current assets.
Financing of current assets:
Whenever the need for working capital funds arises, agreement should be made quickly. If
surplus funds are available they should be invested in short term securities.
Net working capital (NWC)- defined in 2 ways,
Difference between current assets and current liabilities.
Net working capital is that portion of current assets which is financed with long term
funds.
If the working capital is efficiently managed then liquidity and profitability both will improve.
They are not components of working capital but outcome of working capital. Working capital is
basically related with the question of profitability versus liquidity & related aspects of risk.
Implications of Net Working Capital:
Net working capital is necessary because the cash outflows and inflows do not coincide. In general
the cash outflows resulting from payments of current liability are relatively predictable. The cash
inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will
NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES
be required. But where the cash inflows are uncertain, it will be necessary to maintain current
assets at level adequate to cover current liabilities that are there must be NWC.
For evaluating NWC position, an important consideration is trade off between probability and
risk. The term profitability is measured by profits after expenses. The term risk is defined as the
profitability that a firm will become technically insolvent so that it will not be able to meet its
obligations when they become due for payment. The risk of becoming technically insolvent is
measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If
firm wants to reduce the risk, the profitability will decrease.
Operating Cycle Concept:
A company’s operating cycle typically consist of three primary activities. Purchasing resources,
Producing the product and Distributing (Selling)the product. If the firm is to maintain liquidity
and function properly, it has to invest funds in various short term assets (Working Capital) during
this cycle. It has to maintain a cash balance to pay the bills as they come due. In addition the
company must invest in account receivables to extend credit to its customers.
We can show the operating cycle of a company in this way-
Purchase Pay for resources Sell Product Receive Resources Purchases on Credit Cash
Inventory ReceivablesConversion Period Conversion Period
Payables Cash Deferred Period Conversion Cycle
Operating Cycle
Operating cycle= Inventory conversion period + Receivable conversion period
Operating Cycle In Supertech Ltd-
In the above said statement it concludes that, There is a different procedure of operating cycle in
this company, compare to others core manufacturing sector because it’s a real estate company
which is not a core manufacturing sector. So it is difficult to ascertain operating cycle for a
particular period. Basically company follow the operating cycle in this way e.g. company purchase
raw material, Construction and selling it to the customers and after a certain period company
generate cash from it. Here it is quite difficult to make relationship between the construction and
cash generated from the sale.
NOTE - Therefore we can say It is quite difficult to calculate the exact operating cycle period
because it is difficult to ascertain in how much period product would be sold which can not
identified here.
PLANNING OF WORKING CAPITAL:
Working capital is required to run day to day business operations. Firms differ in their requirement
of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn
sufficient return from its operations.
WCM is a significant facet of financial management. Its importance stems from two reasons:
Investment in current asset represents a substantial portion of total investment.
Investment in current assets and level of current liability has to be geared quickly to
change in sales.
Business undertaking required funds for two purposes:
To create productive capacity through purchase of fixed assets.
To finance current assets required for running of the business.
The importance of WCM is reflected in the fact that financial managers spend a great deal of time
in managing current assets and current liabilities.
The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are
necessary for earning profits. However, sales do not convert into cash instantly; there is invariably
a time lag between sale of goods and the receipt of cash. WC management affect the profitability
and liquidity of the firm which are inversely proportional to each other, hence proper balance
should be maintained between two.
To convert the sale of goods into cash, there is need for WC in the form of current asset to deal
with the problem arising out of immediate realization of cash against good sold. Sufficient WC is
necessary to sustain sales activity. This is referred to as the operating or cash cycle.
WORKING CAPITAL CYCLE:
A firm requires many years to recover initial investment in fixed assets. On contrary the
investment in current asset is turned over many times a year. Investment in such current assets is
realized during the operating cycle of the firm.
Each component of working capital (namely inventory, receivables and payables) has two
dimensions ... TIME ......... and MONEY. When it comes to managing working capital - TIME IS
MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors
more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to
sales), the business will generate more cash or it will need to borrow less money to fund working
capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free
money available to support additional sales growth or investment. Similarly, if you can negotiate
improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively
create free finance to help fund future sales.
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If
you do pay cash, remember that this is now longer available for working capital. Therefore, if cash
is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly,
if you pay dividends or increase drawings, these are cash outflows and, like water
Flowing down a plughole, they remove liquidity from the business
WORKING CAPITAL CYCLEComparative Balance Sheet for Three Years
CASH
SALE ORDER
PURCHASE GOODS/SERVICES
DELIVER GOODS/SERVICES
COLLECT ACCOUNT
RECEIVABLES
AR Converted Into Cash
Cash Converted to Prepaid expenses and
Inventory
Goods/Services Converted into AR
PARTICULERS AS AT31.3.2010
AS AT31.3.2011
AS AT31.3.2012
SOURCES OF FUNDSSHAREHOLDER’S FUNDS(A)Capital 7,77,00,000 7,77,00,000 7,77,00,000
Reserves and Surplus 2,13,58,07,783 3,11,89,60,308 4,23,12,58,710
Share Application Money(pending allotment)
- 56,66,700 56,66,700
LOAN FUNDSSecured Loans(B) 2,33,91,46,897 2,86,85,62,309 5,77,54,65,414Unsecured Loans(C) 4,71,94,214 9,53,34,014 9,56,80,457
TOTAL(A+B+C) 4,59,98,48,894 6,16,62,23,331 10,18,57,71,281APPLICATION OF FUNDFIXED ASSETS(D)Gross Block 8,74,28,613 34,22,14,848 49,69,86,596Less: Accumulated Depreciation 2,71,41,393 5,04,67,682 6,70,21,537NET BLOCK (1) 6,02,87,220 29,17,47,166 37,94,97,376Investment(E) 68,41,26,430 1,25,18,17,837 1,20,76,07,837
Deferred tax Assets/Liability(2) 680,741 (963,662) (45,83,076)CURRENT ASSET,LOANS AND ADVANCESInventories(F) 5,53,00,00,985 13,30,02,08,898 5,73,70,23,205
Sundry Debtors(G) 73,68,03,369 2,16,41,14,233 9,43,35,47,853
Cash and Bank Balance(H) 48,52,60,801 2,48,10,93,076 1,15,55,50,106
Loans and Advances(I) 1,35,90,52,209 3,80,71,12,586 11,18,17,76,4448,11,11,17,364 21,75,25,28,793 27,50,78,97,608
LESS:CURRENT LAIBILITIES AND PROVISIONCurrent Liabilities(J) 4,15,07,22,371 16,84,74,63,161 18,62,58,64,528Provision(K) 10,86,79,342 28,26,31,918 27,87,83,936NET CURRENT ASSETS (3){(F+G+H+I)-(J+K)}
3,85,17,15,651 4,62,24,33,714 8,60,32,49,144
Miscellaneous Expenditure to the Extent Not Written Off Or Adjusted (L)
30,38,852 11,88,276 18,50,576
TOTAL(1+E+2+3) 4,59,98,48,894 6,16,62,23,331 10,18,57,71,281
Profit & Loss Account for the years (2009-10, 2010-11, 2011-12)
(Rs. in crores)
PARTICULARS AMOUNT(Audited)(2009-10)
AMOUNT(Audited)(2010-11)
AMOUNT(Provisional)(2011-12)
I. Revenue from Operations 330.37 1322.42 1859.62II. Other Income 7.3 11.24 24.19III. Total Revenue(I+II) 337.66 1333.66 1883.81IV. Expenses
Cost of material Consumed 64.12 273.58 273.58 Changes in Inventories of FG,WIP & Stock In Trade
208.71 (780.81) 749.16
Employee benefits Expenses 4.60 36.97 32.93 Finance Cost 5.53 37.67 63.59 Depreciation and Amortization 0.68 2.32 6.71 Other Expenses 5.99 1626.66 618.55Total Expenses 289.62 1196.39 1744.36
V. Profit before Exceptional, Extraordinary items & tax
48.03 137.28 139.45
VI. Exceptional Items - - -VII. Profit Before Extraordinary items &
tax[V-VI]48.03 137.28 139.45
VIII. Extraordinary Items - 10.53 .060IX. Profit Before Tax 48.03 126.74 139.40X. Tax expense:
(1) Current Tax(2) Deferred Tax
10.41.03
27.361.6
27.873.6
XI. Profit/loss for the period 37.59 99.21 111.15
CASH MANAGEMENT
CASH MANAGEMENT
Cash management is one of the key areas of WCM. Apart from the fact that it is the most liquid
asset, cash is the common denominator to which all current assets, that is, receivables & inventory
get eventually converted into cash. Cash is oil of lubricate the ever-turning wheels of business:
without it the process grinds to a shop.
Motives for holding cash:
Cash with reference to cash management is used in two senses:
It is used broadly to cover currency and generally accepted equivalents of cash, such as cheques,
drafts and demand deposits in banks. It includes near-cash assets, such as marketable securities &
time deposits in banks.
The main characteristic of these is that they can be readily sold & converted into cash. They serve
as a reserve pool of liquidity that provides cash quickly when needed. They provide short term
investment outlet to excess cash and are also useful for meeting planned outflow of funds.
CASH IS MAINTAINED FOR FOUR MOTIVES:
A. Transaction motive:
Transaction motive refer to the holding of cash to meet routine cash requirements to finance the
transactions which a firm carries on in a variety of transactions to accomplish its objectives which
have to be paid for in the form of cash. E.g. payment for purchases, wages, operating expenses,
financial charges like interest, taxes, dividends etc. Thus requirement of cash balances to meet
routine need is known as the transaction motive and such motive refers to the holding of cash to
meet anticipated obligations whose timing is not perfectly synchronized with cash receipts.
B. Precautionary motive:
A firm has to pay cash for the purposes which cannot be predicted or anticipated. The unexpected
cash needs at the short notice may be due to:
Floods, strikes & failure of customer
Slowdown in collection of current receivables
Increase in cost of raw material
Collection of some order of goods as customer is not satisfied
The cash balance held in reserves for such random and unforeseen fluctuations in cash flows are
called as precautionary balance. Thus precautionary cash provides a cushion to meet unexpected
contingencies. The more unpredictable are the cash flows, the larger is the need for such balance.
C. Speculative motive:
It refers to the desire of the firm to take advantage of opportunities which present themselves at
unexpected moment & which are typically outside the normal course of business. If the
precautionary motive is defensive in nature, in that firms must make provisions to tide over
unexpected contingencies, the speculative motive represents a positive and aggressive
Approach. The speculative motive helps to take advantages of:
An opportunity to purchase raw material at reduced price on payment
Of immediate cash.
A chance to speculate on interest rate movements by buying securities
When interest rates are expected to decline.
Make purchases at favourable price.
Delay purchase of raw material on the anticipation of decline in prices.
OBJECTIVES OF CASH MANAGEMENT
To meet the cash disbursement needs
In the normal course of business firms have to make payment of cash on a
continuous and regular basis to the supplier of goods, employees and so son. Also
the collection is done from the debtors. Basic objective is to meet payment
schedule that is to have sufficient cash to meet the cash disbursement needs of the
firm.
To minimize the funds committed to cash balances First of all if we keep high cash
balance, it will ensure prompt payment together with all the advantages. But it also
implied that the large funds will remain idle, as cash is the non-earning asset and
firm will have to forego profits. On the other hand, low cash balance mean failure
to meet payment schedule. Therefore we should have optimum level of cash
balance.
FACTORS DETERMININING CASH NEEDS
Synchronization of cash - need for the cash balances arises from the non-synchronization
of the inflows & outflows of cash. First need in determining cash needs is, the extent of
non-synchronization of cash receipts & disbursements. For this purpose cash budget is to
be prepared. Cash budget point out when the firm will have excess or shortage of cash.
Short cash - Cash period reveals the period of cash shortages. Every shortage of cash
whether expected or unexpected involves a cost depending upon the security, duration &
frequency of shortfall & how the shortage is covered. Expenses incurred as a shortfall are
called short costs.
There are following costs included in the short cash:
Transaction cost : this is usually the brokerage incurred in relation to the some short-term
near-cash assets like marketable securities.
Borrowing costs : these include interest on loan, commitment charges & other expenses
relating to loan.
Loss of cash discount : that s a loss because of temporary shortage of cash.
Cost associated with deterioration of credit rating.
Penalty rates : By a bank to meet a shortfall in compensating balances.
Excess cash balance - cost associated with excessively large cash balances is known as
excess cash balance cost. If large funds are idle the implication is that the firm has missed
the opportunity to invest those funds and has thereby lost interest. This loss of interest
is primarily the excess cost.
Procurement & Management cost : cost associated with establishing and operating cash
management staff and activities. They are generally fixed and accounted for by salary,
handling of securities etc.
Uncertainty : the first requirement in cash management is Precautionary cushion to cope
with irregularities in cash flows, unexpected delays in collection &disbursements, defaults
and unexpected cash needs.
DETERMINING THE CASH NEEDS IN A COMPANY
There are two ways to determine the cash needs-
Planned way
Unplanned way
Planned way:
Cash needs can be determined through preparing cash budget, for the year, month, week etc.
Cash reports, providing a comparison of actual development with forecast figures, are helpful in
controlling and revising cash forecasts on a continual basis. The important cash reports are-
PLANNED WAY
UNPLANNED WAY
DETEMINING THE CASH NEEDS
The daily cash reports
Daily treasury reports
The monthly cash report
By preparing of these reports cash needs can be easily identified and fulfilled accordingly.
Unplanned way:
There is no requirement to make a cash budget or any other statement relating to fulfil the cash
needs here. In this way as timely requirement has to be generated, it has to be fulfilled from cash
available. As such in this regard there in no certain plan to meet out the cash needs.
INVENTORY MANAGEMENT
Inventory management-
Inventory Management is concerned with keeping enough products on hand to avoid running out
while, at the same time maintaining a small enough inventory balance to allow for a reasonable
return on investment. Proper Inventory management is important for the financial help of the
corporation. Being out of stock forces customers to turn to competitors or results in a loss of sales.
Excessive level of inventory, however, results in large inventory carrying cost, including the cost
of the capital tied up in inventory warehouse fee, insurance etc.
A major problem with managing inventory is that a demand for a corporation’s product is to a
degree uncertain. The supply of the raw material used in its production process is also somewhat
uncertain. In addition the corporation’s own production contains some degree of uncertainty due
to possible equipment breakdowns and labour difficulties. Because of these possibilities, inventory
acts as a shock absorber between product demand and product supply. If product losing sales unit
production can be stepped up enough to select the unexpected demand. However, inventory is
difficult to manage because it crosses so many line so of responsibility
Why Inventories Exist?
Some function of the firm, such as the purchase of the raw materials, processing and having
finished goods available for sale, have a sequential, physical dependence. Maintenance of
inventories allows the firm to decuple these functions so that each can be planned, schedule and
operated independently.
Types of inventories-
Raw Materials- An inventory of raw materials allows separation of production scheduling
from arrival of basic inputs to the production process. Factors affecting the amount of the raw
materials inventory include proximity to the supplier, relationship with the supplier, predictability
of the production process, lead time required to place an order, transportability of materials.
Work in Progress- An inventory of partially completed units allows the separation of different
phases of the production process. The amount of work in process inventory is in part a function of
the type of product, the measurement period and the nature of the production process.
Finished Goods- An inventory of finished goods allows separation of production from selling.
With a stock of finished merchandise on hand, a firm can fill orders as they are received rather
than depend upon the completion of production to satisfy customer demands.
Motives of holding of Inventory-
WORK-IN-PROGRESSFINISHED GOODSRAW MATERIALS
Economists have established three motives of holding inventories are as follows-
Transactions motive-
The transaction motive for holding inventory is to satisfy the expected level of activities of the
firm.
Precautionary Motive –
The precautionary motive is to provide cushion in case the actual level of activity is different than
anticipated.
Speculative Motive-
The speculative motive for holding inventory might entice a firm to purchase a larger quantity of
materials than normal in anticipation of making abnormal profits. Advance purchase of raw
materials in inflationary times is one form of speculative behaviour. A second reason for
speculative inventory purchase may involve an anticipated change in a product.
Factors to be considered when determining optimum stock levels include:
What are the projected sales of each product?
How widely available are raw materials, components etc.?
How long does it take for delivery by suppliers? Can you remove slow movers from your
product range without compromising best sellers?
RECEIVABLE MANAGEMENT
INTRODUCTION-
Receivable Management refers to the decisions a business makes regarding to overall credit and
collection policies and the evaluation of individual credit applications. In formulating an optional
credit policy, marginal benefits and costs associated with changes in credit standards, credit
terms , collection efforts etc. Receivable management proves for a firm, both, an asset and a
problem: an asset because of the promise of a future cash flow and a problem because of the need
to obtain financing while waiting for the future cash flow.
Company Credit Policy- Company is providing a credit period of 30days to its customers.
Basically it’s not a core manufacturing company. It’s a real estate company. If any Customer is
not able to pay the due amount to the company in given period that condition company provides a
15 days extension in existing period but for this there is an approval required signed by the CEO
of the company.
Cost of maintaing Receivables
Cost of financing- The credit sales delays the time of sales realization and therefore the time
gap between incurring the cost and the sales realization is extended. This result is blocking of
funds for a longer period. On the other hand company has to arrange funds to meet its obligation.
These funds are to be procured at some explicit cost or implicit cost.
Administrative Cost- a firm will also be required to incur various costs in order to maintain
the record of credit customers both before the credit sales as well as after the credit sales. Before
credit sales, costs are incurred on obtaining information regarding credit worthiness of the
customers.
Delinquency Costs- over and above the normal administrative cost of maintaing and collection
of receivables, the firm may have to incur additional costs, if there is delay in payment by a
customer.
Cost of Default by Customers- if there is a default by a customer and the receivables becomes,
partly or wholly, unrealizable then this amount, known as bad debt, also becomes a cost to the
company.
In receivable Management there are four things which is to be managed by the company as
follows-
Credit Sales- Changing credit standards can also be expected to change the volume of sales. As
standards are relaxed, sales are expected to increase with relaxation in credit standards and
decrease if credit standards become more restrictive
Credit Policy- the credit policy of a company can be regarded as a kind of trade –off between
increased credit sales regarding to increase in profit and the cost of having larger amount of cash
locked up in the form of receivables and the loss due to the incidence of bad debts.
Factoring cost – this cost have to be beard by the company if it choose an external agency or
institution for collecting the money from debtors.
Opportunity cost of investment- if the company provide a more relaxation in credit period
in that situation more funds have to be blocked, the result is company will lose opportunity to
invest somewhere else for this company have to be beard some cost.
PAYBLES MANAGEMENT
Creditors are a vital part of effective cash management and should be managed carefully to
enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing
function can create liquidity problems. Consider the following:
Who authorizes purchasing in your company - is it tightly managed or spread among a
number of (junior) people?
Are purchase quantities geared to demand forecasts?
Do you use order quantities, which take account of stock holding an purchasing costs?
Do you know the cost to the company of carrying stock?
Do you have alternative sources of supply? If not, get quotes from major suppliers and
shop around for the best discounts, credit terms, and reduce dependence on a single
supplier.
How many of your suppliers have a returns policy?
Are you in a position to pass on cost increases quickly through price increases to your
customers?
If a supplier of goods or services lets you down can you charge back the cost of the delay?
Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-
time basis?
There is an old adage in business that if you can buy well then you can sell well. Management of
your creditors and suppliers is just as important as the management of your debtors. It is important
to look after your creditors -slow payment by you may create ill feeling and can signal that your
company is inefficient (or in trouble!).
Company Policy –
Company purchase cement always on cash basis from some major suppliers i.e. ACC
Cement, Ultratech Cement & J.K.Cement etc.
Company purchase iron rods and other Materials on the basis of 30days credit basis from
the suppliers.
Company purchase electronics items on the basis of 15 days.
DATA INTERPRETATION
&
RATIO ANALYSIS
CURRENT RATIO
Current Assets
CURRENT RATIO-
Current Liabilities
(Rs. in Crores)
Year 2009-10 2010-11 2011-12Current Assets 811.11 2175.25 2750.79Current Liabilities 415.07 1684.74 1862.69Current Ratio 1.95:1 1.29:1 1.48:1
2009-102010-11
2011-12
0
0.5
1
1.5
2
2.5
3
Current Ratio
Interpretation
In 2012 company current ratio is 1.48 which is good in comparison to last year for a company to
pay their obligations but in 2009 company have a current ratio of 1.95 which showed that
company have a more current assets in that year.
QUICK RATIO
Liquid Assets
Quick Ratio-
Current Liabilities
( Rs. in Crores)
Year 2009-10 2010-11 2011-12Liquid Assets 258.11 845.25 2177.09Current Liabilities 415.07 1684.74 1862.69Quick Ratio 0.67 0.49 1.17
2009-10 2010-11 2011-120
0.2
0.4
0.6
0.8
1
1.2
1.4
0.67
0.49
1.17
Quick Ratio
Interpretation:
In 2009 company had a quick ratio i.e. 0.67 which was goes down in 2010 i.e. 0.49 but in 2012
company have a better quick ratio i.e. 1.17 in comparison to last two years which shows that
company has able to reduce the blockage in inventory this year and also able to generate the
more liquidity for the company.
Debtors Collection Period
12 months
Debtors Collection Period-
Debtors Turnover Ratio
Particulars 2009-10 2010-11 2011-12Period In Months 12 12 12DT Ratio 5.2 9.11 3.2DCP in months 2.30 1.31 3.75
2009-10 2010-11 2011-120
0.5
1
1.5
2
2.5
3
3.5
4
2.3
1.31
3.75
Debtors Collection Period
DCP in Months
Interpretation-
In 2012 company have a collection period of 3.75 months in compare to last two years in this
time period company has able to collect due amount as per the company credit policy and it is also
helpful to reduce the blockage of funds which gives a more opportunity to invest somewhere but
in 2010 company had a 1.31 moths collection which showed more blockage of funds and in 2009
company had the very good level in collection period in compare to 2009.
CREDITORS PAYMENT PERIOD
12 Months
Creditors Payment Period-
Creditors Turnovers Ratio
Particulars 2009-10 2010-11 2011-12Period in months 12 12 12C.T.R. 2.02 1.94 1.95C.P.P. 5.94 6.18 6.15
2009-10 2010-11 2011-125.8
5.85
5.9
5.95
6
6.05
6.1
6.15
6.2
5.94
6.186.15
Creditors Payment Period
CPP in Months
Interpretation:
2010-11 shows the highest CPP i.e. 6.18 because in this year creditors variation in regards to
purchase are satisfactory and have also increased compare to 2009-10 or 2011-12 therefore CTR
is also higher which affect the CPP. In 2009-10 CPP is lower because in this year purchase have
more varied in compare to creditors therefore CTR more which affect the CPP. But in 2011-12
there is a minor variation in to CTR & CPP because creditors increased in to a same way in which
purchase have increased.
INTEREST COVERAGE RATIO
EBIT
Interest Coverage Ratio-
Interest
(Rs.in Crores)
Particulars 2009-10 2010-11 2011-12Interest 5.53 5.05 63.01EBT 48.04 126.74 139.34EBIT 53.57 131.79 202.35I.C.R.(in times) 9.69 26.09 3.21
2009-10 2010-11 2011-120
5
10
15
20
25
30
9.69
26.09
3.21
Interest Coverage Ratio
Interpretation:
In 2010 company have a good interest coverage ratio 26.90 which shows that company have very
good image in paying the interest but in 2012 company have a ratio of 3.21 times which is not for
a good because it shows that company is not able to pay its obligations and it also shows the
blockage of funds.
DEBT TO EQUITY RATIO
Total Debts
Debt Equity Ratio-
Equity (Sh. Capital+ Reserve & Surplus)
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12Equity 221.35 320.24 430.18Total Debt 238.63 296.39 587.11D.T.E.R. 1.07 0.90 1.36
2009-10 2010-11 2011-120
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.07
0.9
1.34
Debt Equity Ratio
Interpretation:
In 2011 company have 1.34 debt equity ratio which is more in compare to last two years its
shows that company are using more debt in their capital structure. The reason of increasing debt is
in this year company have taken more loan because of launching of some new projects. In 2010
company have a satisfactory situation but in 2009 it is 1.07 which is more in compare to 2010
,GROSS PROFIT RATIO
Gross Profit
Gross Profit Ratio:- ×100
Sales
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12Gross Profit 48.03 137.28 139.45Sales 330.37 1333.67 1883.81G.P. Ratio (in %) 14.53 10.29 7.40
2009-10 2010-11 2011-120
2
4
6
8
10
12
14
16 14.53
10.29
7.4
G. P. Ratio
Ratio in %
Interpretation:
It shows that company have a highest gross profit ratio i.e. 14.53 in 2010 but its goes down in
2011 & 2012 doe to increase of expenses i.e. finance cot & other expenses in compare to last two
year. In 2012 company have a G.P. ratio of 7.4 which is least to last two years due to high
increment in expenses.
TOTAL ASSETS TURNOVER RATIO
Net Sales
Total Assets Turnover Ratio-
Average Total Assets
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12Total Fixed Assets(Opening + Closing) 6.03 29.17 37.95Average Fixed Assets(Opening + Closing)/2 3.02 14.62 18.95Total Current Assets(Opening + Closing) 811.11 2175.25 2750.79Average Current Assets(Opening + Closing)/2
405.55 1087.625 1375.395
Average Total Assets(AFA+ACA) 408.57 1102.245 1394.345Net Sales 337.66 1333.66 1883.81Total assets Turnover Ratio 0.826 1.21 1.35
0.826
1.21
1.35
Total Assets Turnover Ratio
2009-102010-112011-12
Interpretation:-
In 2010 company having a total assets turnover ratio of 0.826 which is increased in 2011 by 0.384
due to increase in sales i.e. 337.66 to 1333.66 but in 2012 there is a slight increment in total assets
turnover ratio is 0.14 . it has happened also because of increment in sales of 550.15 crores .
WORKING CAPITAL TURNOVER RATIO
Net Sales
WORKING CAPITAL TURNOVER RATIO:
Net Working Capital
Particulars 2009-10 2010-11 2011-12Net Sales 337.66 1333.66 1883.47Net Working Capital 385.17 460.25 860.32WCTR 0.88 2.89 2.19
2009-10 2010-11 2011-120
0.5
1
1.5
2
2.5
3
3.5
0.88
2.89
1.64
WCTR
Interpretation:
In 2011 company have 2.89 working capital turnover ratio which is more in compare to 2010 i.e.
0.88 it means company have more blockage of funds in 2011 but in 2012 it is 1.64 which is less
from2010.
WORKING CAPITAL AND SALES
As on 31st March
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12
Working Capital385.17 460.25 860.32
Sales337.66 1333.66 1883.17
% Of Sales114.29 34.66 45.68
DEBTORS AND WORKING CAPITAL
As on 31st March
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12Debtors 73.68 217.41 943.35Working Capital 385.17 460.25 860.32% of WC 19.12 47.23 109.65
CREDITORS AND WORKING CAPITAL
As on 31st March
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12Creditors 415.07 1684.75 1862.58Working Capital 385.17 460.25 860.32As a % of WC 107.76 366.05 216.43
DEBTORS AND SALES
As on 31st March
(Rs. in Crores)
Particulars 2009-10 2010-11 2011-12Debtors 73.68 217.41 943.35
Sales 337.66 1333.66 1883.17As a % sales 21.82 16.30 50.09
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
Research Type- This Is an Analytical Research which is to be based on secondary data.
The whole secondary data have collected from various sources like-
Annual Reports of the company.
Magazines, Reports in the company.
Policy documents of finance departments.
Tally & SAP softwares.
After collection of these data analysis has to be done for fulfilling the research objective
FINDINGS
Company revenue is increasing year by year which shows its growth.
Increment in Gross Profit in compare to last year.
Company have a Liquidity Ratio of 1.17 in current year which that company have a
sufficient liquidity to pay their obligations.
Company have a 6.15 creditors payment period in compare to debtors collection period i.e.
3.75 in current year. It means company have a more opportunity for investment.
Company have a 1.64 working capital turnover ratio in current year which is less from last
year i.e. 2.89 it also shows that blockage in funds is less in compare to last year.
SUGGESTIONS
It can be said that overall financial position of the company is normal but it is required to
be improved from the profitability point of view.
Company should try to reduce the receivable period so that blockage of funds can be
reduced.
Company should try to pay interest timely on long term debts.
Company should not rely on Long-term debts.
Company should try to increase Volume based sales so as to stand in the competition.
LIMITATION
Operating cycle cannot be clearly determined here because it is Real Estate Company
rather than core manufacturing company.
Company used unstructured way to meet out the daily expenses from available cash
balance.
Optimum inventory level cannot be determined here.
ANNEXURS
Statement of Changes in Working Capital (2009-10)
Particulars 2009 2010 Increase DecreaseA) Current AssetsInventory 319.17 553.03 233.86Sundry Debtors 53.38 73.68 20.3Cash & Bank 22.33 48.53 26.2Loan & Advances 80.99 135.9 54.91Total Current Assets 475.87 811.14B) Current LiabilitiesSundry Creditors 126.31 415..07 288.76Provision 7.28 10.87 3.59Total Current Liabilities 133.59 425.94Net Current Assets 342.28 385.2Net Increase in Working Capital 42.92
Statement of Changes in Working Capital (2010-11)
Particulars 2010 2011 Increase DecreaseA) Current AssetsInventory 553.03 1330.02 776.99Sundry Debtors 73.68 216.41 142.73Cash & Bank 48.53 248.11 199.58Loan & Advances 135.9 380.71 244.81Total Current Assets 811.14 2175.25B) Current LiabilitiesSundry Creditors 415.07 1684.75 1269.68Provision 10.87 28.26 17.39Total Current Liabilities 425.94 1713.01Net Current Assets 385.2 462.24Net Increase in Working Capital 77.04
Projection of Changes in Working Capital (2011-12)
Particulars 2011 2012 Increase DecreaseA) Current AssetsInventory 1330.02 573.7 756.32Sundry Debtors 216.41 943.35 726.94Cash & Bank 248.11 115.55 132.56Loan & Advances 380.71 1118.18 737.47Total Current Assets 2175.25 2750.78B) Current LiabilitiesSundry Creditors 1684.75 1862.58 177.83Provision 28.26 561.27 533.01Total Current Liabilities 1713.01 1890.46Net Current Assets 462.24 860.32Net Increase in Working Capital 710.84
BIBLIOGRAPHY
Working Capital Management – V.K. Bhalla
Company Website – www.supertechlimited.com
Annual reports of Supertech Limited