vali project 25-5-12
TRANSCRIPT
Working Capital Management Nandi Pipes
INTRODUCTION
Capital required for a business can be classified under two main categories viz.,
(i) Fixed capital, and
(ii) Working capital
Every business needs funds for two purposes- for its establishment and
to carry out its 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. Investments in these assets represent
that part of firm’s capital which is blocked on a permanent or fixed basis and is
called fixed capital. Funds are also needed foe short-term purposes for the
purchase of raw materials, payment of wages and other day-to-day expenses,
etc. These funds are known as working capital. In simple words, working
capital refers to tat part of the firm’s capital which is required for financing
short term or current assets keep revolving fast and being constantly converted
into cash and this cash flows out again in exchange for other current assets.
Hence, it is also known as revolving or circulating capital or short-term capital.
In the words of Shubin, “working capital is the amount of funds
necessary to cover the cost of operating the enterprise. “
According to Genestenberg, “Circulating capital means current assets of
a company that are changed in the ordinary course of business from to another,
as for example, from cash to inventories, inventories to receivables, receivables
into cash.
Meanings and Definition of working capital
The term “working capital” stands for that part of the capital, which is
required for the finance of working or current needs of the company. Working
capital is life blood of every company whether it is manufacturing and non
manufacturing one without adequate working capital, there can be no progress
in the industry. The term describes a category of management decisions on
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specific types of assets and current liabilities. In turn those decisions should be
routed in the overall valuation of the firm.
Definitions
According to West And Brigham,
“Working capital refers to a firm’s investment in short term assets –
cash, short term securities, accounts receivables and inventories.”
According to Hoagland,
“Working capital is description of that capital which is not fixed but th
more common use of the working capital to consider it as the difference
between book value of assets and current liabilities.
According to Bonneville,
“Any acquisition of funds which increase the current assets increase the
working capital also, for they are one and the same”.
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NEED FOR THE STUDY
To maximise the shareholder’s wealth a firm should earn efficient
returns from its operations, largely from sales. Thus adequate amount of funds
are to be invested in current assets for successful sales and smooth &
uninterrupted production process. Because of circulating nature of current
assets, working capital is also called as “Circulating Capital”. The
management of Working Capital should be prompt to initiate an action and
correct imbalances otherwise, this lead to excess or inadequate working capital.
Both the conditions are not desirable as they impact the profitability and short-
term solvency of the firm. Hence, the present study is needed to evaluate the
working capital management at Sujala Pipes Pvt. Ltd.,.
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OBJECTIVES OF THE STUDY
The main objective of the study is to evaluate the working capital
management at SUJALA PIPES PVT LIMITED during the period 2007-2010.
The following are the sub-objectives of the study.
To study the liquidity position of the Sujala Pipes Pvt. Ltd
To examine the efficiency of working capital management with the
help of turnover ratios.
To understand the structure of operating cycle at Sujala Pipes.
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SCOPE OF THE STUDY
The scope of the study is defined below terms of concepts adopted and
period under focus.
First, the study “management of working capital” i.e “gross” and “net”
is used in measuring profitability and liquidity respectively and also to arrive at
various objectives of the study.
Secondly, the study is based on the annual reports of the company for a
period of five years from 2006-2007 to 2010-2010 (so we study 2007, 2008,
2009, 2010, 2010).
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RESEARCH METHODOLOGY
Research plan: For these study the research plan is essentially a
combination of qualitative and quantitative aspects of Analytical
research.
Data collection: The sources of data is collected mainly from
Secondary data : The profit and loss and balance sheet statements are
collected from
o Company’s annual reports and
o Finance section
Tools of analysis
The tools used for analysis are
o Financial ratios
o Operating cycle analysis
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LIMITATIONS OF THE STUDY
The study has been carried out at APCW and hence access to company
level data (apart from the data available in the annual reports) was
restricted.
There is only one months period two finish the project, due to lack of
time in depth of financial matters have not been touched.
The information available in the balance sheet have taken from the
published annual reports,
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WORKING CAPITAL MANAGEMENT
INDUSTRIAL PROFILE
Plastics which are used for the industrial purpose is called industrial
plastics. It is of 2 types.
1. Structural Foams.
2. Sheets and Films.
01. Structural Foam
It is of two Types
a) Rigid Foam b) Flexible Foams.
Rigid Foams
Rigid polyether foams in sandwich foams have wide application a
building component because of the stiffness imparted by the thick foam center
for a given weight. They are also best insolvent known today and so have wide
applicable in fitted slabs and are formed into cavities at the building site. A
very important use of rigid foam is fur furniture parts to reproduce wood
structures.
Flexible Foams
Flexible Foams, usually polyether urethane are made in slab foam up to
8 feet (2.4 meters) in which and, as much as 5 feet (1.5 meters) high, these are
cut to required shapes or sizes or molded. Used almost exclusively by the
automobile industry for crash pads, arm sets and dash board covers.
Sheet and Films
These include vinyl’s plastics and cellulose acetate vinyl. Plasticized
poly vinyl chloride by a calendaring process, can be sawn, heat sealed or
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electrically sealed, it is used for apparel, door curtains. Protective clothing are
made in many colored, transparent, translucent, or opaque. Polyvinyl chloride
can be with sensitive adhesives and printed with decorative patterns. Thicker
Sheet is colored and embossed for women handbags, luggage and seat covers.
This film is used for packaging, especially for meat and fruits. If biaxial
stretched, it forms a shrink film that retracts up to 60%. Another important use
is, as a laminate for printed paper. Flooring tiles, largely made of PVC are
built up by lamination and decorated either by printing or by rolling in color
chips. The common title is vinyl asbestos, pressed into sheets on calendars and
ten embossed and cut into titles. Rigid PVC Sheets has dimensional stability
ad flame redundancy and is often used in corrugated form for building
construction, partitions, drainage gutters, industrial lightening panels are the
other uses. Styrene film, is widely used for rigid containers, Laminating by
press and casting especially packing, molding.
Laminating by Press and Casting
Formed plastics are produced by forming gas bubbles in the molten
material. Plastic Products are further shaped and finished by means of ranging
from mechanical through laser machining ultrasonic welding and radiation
processing. Vinyl Chloride, discovered in 1815, is formed by the reaction of
acetylene with hydrochloric acid. The polymer Vinyl Chloride (PVC) was first
produced in 1912. Plastic research and manufacture was proceedings on a
considerable scale in the US Study of Polymers in the laboratory of E.I.
DuPont De Nemours and Company from 1928 onwards, which led to the super
polyamide or Nylon.
Vinyl Chloride is made from ethylene and chlorine. Though acetylene
can also be used. Then polymer is mainly processed in a highly plasticized
from with varying degrees of flexibility, by a calendaring, extraction molding,
often by “ dry blends ”, mixtures made below temperature from polymer
plasticizer and pigments plasticizer are chosen to maintain flexibility at low
temperature. The range of applications of flexible poly vinyl chloride is
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enormous and cover flouring, wire insulation, home furnishing, piping etc.,
Acrylonitrile – Butanide – Styrene posses a wide range of properties,
notably scuff resistance, refrigerator linings, food and detergent, containers
because of its chemical resistance to heat. Thick acroconistsle butanide-styrene
sheet is used for sports car, bodies and automobiles door. Nylon films mostly
from nylon 6.6 are ideal for food packaging, because of strength,
impermeability to oils and Greases and high melting point. As such film is
stream strippable; they find many uses in hospitals. They are frequently used
in laminations. Acrylic films have resistance to ultraviolet light and external
exposure, there prime use in surfacing laminations..
PVC PIPES IN INDIA
Chief occupation in India is agriculture. For the developing country like
India, modernization of the agriculture practices has a pivotal place in
improving the economy states and the process of modernization includes usage
of high productive tools and agriculture practices. By using pipes, water can be
transported efficiently with lesser no wastages, from the place where there is
plenty of water available to the place where there is no less scarcity necessity
of water. Pipes have been manufactured in India from the 1960’s on imported
lines and thereafter indigenous plans were also established. There are few pipe
manufactures up to 1978 to 1979 and production capacity was increased
rustically during 1979 – 1983 Cement pipes were the conventional pipes used
for irrigation in the lift irrigation schemes. Now a day’s PVC pipes replaced
the conventional pipes and they constitute almost 90% in the respect (because
of breakdowns, difficulty in immovability etc.). The use of polymer Vinyl
Chloride pipes in agricultural fields has lessened the water seepage which was
predominant in earlier days.
The Government of India allowed the imports of sophisticated
machinery of technology, which are not available indigenously. The
companies Europe and West Germany have competition in machinery
producing plastics and it is an essential need for them to carry out continuous
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research for the up-to-date technology, which given higher output and good
quality products.
The State Government of A.P. is using rigid PVC pipes for irrigation
and water supplies for the past few years. The State Government is producing
PVC Pipes through APSIDC (Andhra Pradesh State Irrigation Development
Corporation) for its lift irrigation schemes and other development schemes.
The Panchayatraj Development is procuring pipes for the public water supply
schemes. The main distributors and individual connections can use these pipes.
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COMPANY PROFILE
Mr.S.P.Y.Reddy (MP) started with a small plastic container
manufacturing around 30 years ago and soon graduated into pipes
manufacturing. With focus on quality and innovative marketing the group had
grown into a mutli product, mutli vocational entity.
We are into Manufacturing of PVC Pipes, HDPE Pipes, Storage
Containers, Flexible Hoses, Fittings and processing of dairy products.
The group had acquired majority stake in Panyam Cements two years ago.
After resolving all issues, production was restarted in the month of May 2007.
We believe with infrastructure and construction boom all around, the prospects
are excellent for this unit.
We have also initiated construction of Ethanol unit. We hope to
commence production by January, 2008. Our Vision is to have three successful
vertical entities plastics. Cement and Ethanol by 2008.
Our aim is to provide quality products, service to our customers and
enhance living standards of workforce.
ORIGIN
Rayalaseema, economically backward part of the Andhra Pradesh (state)
was has been identified fro-rapid industrialization to boost up the economic
level of the region. Nandyal Town in Rayalaseema was industrially developed
by the dynamic entrepreneur Sri.S.P.Y.Reddy, who is basically a Mechanical
Engineer, by setting up an Unit at Nandyal and manufactured black pipes in
1977. His determination and hard work has helped to him in overcoming the
problems faced in the initial years. With the financial assistance by the local
commercial banks.
Later he started a manufacturing of black pipes. This resulted in the
formation of a private limited company called “Sujala Pipes Private Limited,
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by S.P.Y.Reddy as the Managing Director and group promoter. He got
financial assistance and Institutional assistance, which motivated him to setup a
unit at Nandyal. With a great hope and expectations he has started production
PVC Pipes for improving the water transport system.
Nandi Pipes, which are famous all over the country, stand for testimony
to Zeal, Perseverance, and hard work and for sighted vision of the one
individual. He is Mr.S.P.Y. Reddy, the Founder and Managing Director and
eminent techno entrepreneur and excellent mechanical engine. He left his plum
job at bar to bring to dynamism and energy and aspirations started
manufacturing of LDPE Pipes and later switched to PVC achieving
incomparable success. Sujala Pipes Private Limited is the Manufacturing of the
largest and most comprehensive range of UPVC Pipes in India.
PRODUCTION CAPACITY
Production Capacity of 22,200 metric tones per annul.
Nandi rigid PVC at a glance:
Color : Light Gray
Length : 6 Meters
Pressure Rating : 2.5 Kg., 4Kg, 6Kg, 10Kg, & 15 Kg/cm*cm.
Range Available : 20mm to 400mm O.
Manufactured with ISI mark is 4985: 2000
ESTEEMED CUSTOMERS
Nandi Pipes are proud to present list of customer, which includes big water
pipe line projects, dot projects panchayati Raj and industrial development
corporation. Etc.,
Satya Sai Water Schemes
Lorhen Project
NABARD Water Schemes
Karnataka Land Army Department
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And also we undertake turkey projects for pipelines.
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GROWTH AND DEVELOPMENT OF THE ORGANIZATION
The Sujala Pipes Private Limited to record an excellent growth from
1977 onwards.
1977 - Nandyal Region (Polythene Pipes)
1984 – 1985 - P.V.C. Pipes Rayalaseema Region.
1985 – 1987 - Rayalaseema, Telangana Region.
1987 – 1988 - Andre and Karnataka Region.
1989 – 1990 - Andre, Tamilnadu and Karnataka States.
1990 – 1992 - Andre, Kerala and Karnataka States.
Sizes
Various sizes rangin from ½ to 10 are offered to Customers. But for the
purpose of cubic space utilization in truck while transport organization is
adopting the technique like pipe in pipe.
Payment Period
The Company adopts zero credit policy and goods are not delivered
unless cash remittance is made. The same policy is also applicable to
authorized dealers of Sujala Pipes Private Limited.
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TECHNICAL DETAILS ABOUT PVC PIPES
INGRADIENTS
PVC Resin
D.B.L.S.
T.B.L.S.
L.S.
C.S.
Static Acid
Hydro Carbon
Calcium Carbonate
Titanic Dioxide.
FUNCTIONAL DEPARTMENT OF THE COMPANY
Financial Department
Though initially the company approached the external sources for
financial aid, now the financial status of the company is very sound and is
being run only with self-finance except the loans taken on hypothecation of
machinery and stock from S.B.I. Nandyal and Karur Vysya Bank, Nandyal.
The Financial Departments is headed by the Financial Manager with the
help of four Accountants and other Clerks of the Department. The company
follows cash & carry policy. The product is not delivered until the cash is paid
and these transaction are look after financial department with the help of
marketing department.
Marketing Department
Executive Director heads Marketing Department. Marketing Manager is
in charge of all the operations who reports to Executive Director. Marketing
Manager and 35 Sales Representatives are under immediate control of
Executive Director. There are also 20 Salesmen who have to report to the sales
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representatives above them.
Personnel Department
The Personal Department consists the details of the Executives and
Workers of the Organization. The organization in formed with
Sri.S.P.Y.Reddy. The General Manager of Executive Director who reports to
Managing Director. Two Marketing Managers. Financial Manager, Public
Relations Officer and Quality Control Officer who all Reports to Executive
Director. Other than Executives there are 1,500 Workers in the organization.
Panel consisting of Managing Director, Executive Director, General Manager
and Managers of concerned department makes the Recruitment and selection.
Apart from the attractive salaries company provides meals and health care
facilities.
Purchasing Department
The Perplexing situation that is confronted by the Manufacturer of the
PVC Pipes is Scarcity of resin. Though the Government of India has taken
various steps to improve Supply Conditions of PVC resin, the Indian
Manufacturers could meet only 50% of demand and remaining 50% is met
from imports.
The Major Petrochemical Companies are
Sri ram Vijay Limited.
Chem. – Plast Limited.
Reliance Petro Chemicals Ltd.,
National Organic Chemical Industries Ltd.,
Finale
Indina Petro Chemical Industries Ltd.,
The lead – time for the acquisition of raw material is 4 days.
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HUMAN RESOURCES POLICIES AND PRACTICES
The following lines are highlights the human resources policies and
practices.
Effective Utilization of Manpower
To Provide good working condition.
To Promote industrial development.
Nandi Group of Organizations
1. Sujala Pipes Private Limited, Nandyal.
2. Sri Kanth Water Containers, Nandyal.
3. Mahanandi SWR Fitters, Nandyal.
4. Nandi Solvent Cement, Nandyal.
5. Mahanandi Mineral Water, Nandyal.
6. Nandi Milk Dairy Products, Nandyal.
7. S.P.Y.Reddy Educational Institutions, Nandyal.
PVC Pipes
Sujala Pipes Private Limited, Nandyal a premier enterprise of Nandi
Group is the well known manufacturer of the largest and most comprehensive
range of UPVC Pipes in India. Nandi Gold Pipes, with a diameter upto 400mm
are suitable for water tranportations, irrigation, plumbing, drainage, cable
ducting, bore wells, transfer of industrial effluents and electrical conduits.
The gamut of products covers all applications in which PVC Pipes can
be used. Nandi UPVC Systems are more cost effective than conventional. GI,
CI or AC systems besides being light in weight, durable and no corrosive.
They are also easy to handle, offer excellent flow characteristics and can be
transported and installed anywhere. With world class quality and customized
product development support, they enjoy the satisfaction of millions of
customers.
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The unit also has world class qualify assurance systems ensuring products of uncompromising excellence, meeting all relevant ISI, BS, DIN and ASTM standards.
In addition to these features, extensive R & D facilities provide reliable
and committed support for new product development, implying that even if a
Nandi Customer is unable to acquire his precise requirement from our elaborate
ranges, Nandi also could supply customized products as per his own exclusive
specifications.
The two major types of plastics are
Thermosetting resins.
Thermoplasting resins.
THERMOSETTING RESINS
They become insoluble and infusible on heating. They are phonetic
resins, furnaresins amino plastics, alkyls and polyesters of unsaturated acids,
epoxy resins, polytehane’s and silicones.
THERMOPLASTICS RESINS
These can be melted and solidified repeatedly, unlikely thermosetting
resins. They include cellulose derivates and additional polymers. Other types
of resins include oil soluble or modified resins, plastics such as casein and
lignin extracted from natural products and special application synthetics such
as resins used as adhesives and as additives to paper and textiles.
Pipes Manufacturer in A.P.
The Major PVC Manufacturers in A.P.
Nandi Pipes
Finolex Pipes
Supreme Pipes
Monarch Pipes
Jam Sudhakar Pipes
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Sri Lakshmi Venkateshwara PVC Pipes
Hasthi Pipes
And Many local manufacturers.
Factors contribution to the boom of PVC pipes market:
Less Weight
Non Corrosiveness
Excellent pressure resistance
Good Chemical and thermal Stability
Simple installation probability in handing
Super Weathering and
Economical.
Present Marketing Situation of PVC pipes:
Existence of large number of firms
Product differentiation.
Freedom of entry and exist of firms
Easy Availability.
BENEFITS OF PVC PIPES
Corrosion Resistance
Amuse to galvanic or electrolyte corrosion.
Chemical Resistance
PVC Pipes are not attacked by low or high concentration of acids.
Oxidizing agents, alkalis, oils facts and halogens.
Maintenance free
No Painting coating required.
Fire Resistance
Self Extinguishing
Flexibility
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Flexibility in underground piping.
Variety of Joining Methods
Cementing, Heat Fusing, Threading, Flanged Compression fitting.
Biological Resistance
Fit for high purity water applications, and resist to rodent attack.
DETAILS OF NANDI PVC PIPES
Pipe Diameter Class Flow Range
mm inches class Pressure liter/sec.
20 0.5 5 10 0.07 – 0.13
25 0.75 5 10 0.13 – 0.25
32 1 5 10 0.25 – 0.50
40 1025 3 6 0.50 – 1.00
50 1.5 3 4 1.00 – 1.80
63 2 2 4 1.80 – 3.00
75 2.5 2 4 3.00 – 5.00
90 3 2 4 5.00 – 15.00
110 4 2 4 8.00 – 15.00
140 5 2 4 15.00 – 20.00
160 6 2 4 20.00 – 30.00
180 7 2 4 30.00 – 40.00
200 8 2 4 40.00 – 50.00
225 9 2 4 50.00 – 60.00
250 10 2 4 60.00 – 70.00
HDPE PIPES
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SALIENT FEATURES OF NANDI HDPE PIPES
Manufactured as per ISI 4948: 1995 onwards
Pipes are manufactured either in long coils or 6 meter length
Depending on pipe dimension and customer requirements.
Best Quality pipes at most reasonable prices.
Pipes that meet your needs.
Special customer requirements are accepted.
STANDARD PIPE COIL LENGTHS OF VARIOUS SIZES
Pipe Size Available Coil Length
20 – 25mm 1000mtrs.
30 – 40mm 600 mtrs.
50mm 400 mtrs.
63 – 75mm 300 mtrs.
90 – 110mm 50mtrs.
125mm & above 12 & 6 mtrs (single length)
WHAT NANDI OFFERS YOU...?
Our job goes beyond just selling pipes, as we are committed to the
complete customer service.
We take up pipeline projects on ‘TURNKEY’ basis.
We offer HDPE pipes solutions in place of conventional pipes (PVC,
GI, Concrete etc.,) at competitive prices guaranteed service.
We provide water lines for agricultural needs with free but jointing and
testing.
We extend service free of cost any future leakages / defects in the pipe
line caused by faculty manufacturing or faulty jointing for a period of 20
years.
We offer proclaim facility (for earth work) to farmers who buy
minimum 100 lengths (6mtrs length) at concessional rates.
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Physical and Chemical Properties of Nandi HDPE Pipes:
More Flexible
Light in Weight
Corrosion Resistant
Chemically Inert
Economical
Smooth inner and outer finishing resulting in low flow resistance and
low power consumption.
Availability of pipes in long coils reduces much of the cost of laying.
Jointing and additional couplers.
APPLICATIONS OF NANDI HDPE PIPES
Agriculture and Drinking water lines.
As delivery pipes for single phase & 3 phase submersible pumps.
As suction and delivery pipes for jet pumps
As suction and delivery for centrifugal & monoblock pumps
As delivery pipe for open well submersible pumps.
Telecom & Electrical ducting.
Slurry disposal.
Industrial Flow applications.
Sewage Pipe Systems.
PRODUCT PROFILE
We shall look at the basic data about plastics and particularly these
properties. Which are of use in practical working with plastics, plastics are
manmade materials. The oldest raw materials for producing plastics are carbon
materials obtained from coal tar. Today the majority of raw materials are
obtained from petrochemicals sources and they can be economically produced
in large quantities. Plastics have change out world day by day. They are
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become more important. They own their success to whole series of advantages,
which they have over conventional materials such as
Light Weight
Excellent Mouldability
Attractive Colours
Low Energy Requirement for Conversion
Low Labour
Less Cost of Manufacturing
Low Maintance
High Strength of Manufacturing
Corporation Resistant
Aesthetics without Surface Treatment
Compatibility with Reinforcing Materials
EMERGENCY OF PVC CONCEPT AND ITS SOCIALIZATION
Growing domestic agricultural and industrials requirements of the
modern Words werer in quest for the new substance, which could serve the
needs and wants of the to days man although metals were meeting major chunk
of the fabrication demands of the modern world, formability and weight
constraints were real impediments in light of this situation the substance called
plastic which has got all desired characteristics to serve the modern man was
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discovered this carbonaceous substance with excellent physical stability could
replace most of the earlier used metals wood etc.,
Although acceptance and socialization or this new innovation or this
new innovation was slow it has shown a study encroachment into the life of the
todays an Now plastics are omnipresent and serving numerous fields
agricultural heavily modernized communication, optical liners in
communication sector fiber equipment are only few application in multi
various uses of the plastic.
PVCPIPES AND ITS ECONOMICROLE
Chief occupation in India is agriculture. For the developing countries
like India, modernization of the agricultural practices assumes pivotal place in
improving the economic status and the processes of modernization include
usage of high productive plastic supplement of great extent manufacturing of
tools required for new agricultural practices.
The usage of Poly Viny Chloride pipes in agricultural fields, lessen
water seepage, which was predominate in earlier practices. With the services of
PVC pipes, water can be transported efficiently with lesser losses. From the
place or higher water potential to the place of lower potential.
Presently the revolutionary tried in water management speaks much
about drip irrigation, which is developed in Israel and is practiced by all
agriculture based nations in the world. Drip irrigation greatly used PVC pipes
as core tools of implementation with the service or this sort, PVC pipes one
way or the other strengthening the hands of country’s economy.
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A part with the referred PVC pipes supplemented with fitting used in
houses for electric connections. Sewage connections and other domestic
purposes. A part from these two applications it has got wide application even in
industrial sector. PVC pipes with much unique heart, chemical and physical
characteristics serve many industrial purposes.
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STERICAID
HYDROCARBON
CALCIUM CARBONATE
TITANIC DIOXIDE
MANUFACTURING PROCESS
Hot forward extrusion is employed for the manufacturing of PVC pipes
resin with weighted amounts of other ingredients, which are carried to the hot
chambers, the high temperature of hot chamber melts ingredient and content of
the given forward transit to get hallow pipes of required dimension. As the
pipes come out of the heat chamber, cool the pipes immediately. Pipes of
desired length are cut with the aid of stop and power hacksaw. Production is
made in various sizes ranging from “½ to 10” according to usage.
REINFORCED PLASTIC
Although plastic have high strength to ratio, they are not as strong as
metals and deform permanently under load it cannot he placed under extremely
high or low temperature like metals and other and black as reinforcing fillers
have a way for making strength bearing plastic and they are at a times replace
steel.
ALLOYS
Physical mixture of two polymers is termed as alloys physical blending
of two polymers is needed because every polymer has certain set of good
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properties design of a specials products which should have specific set
properties may not obtain if it is made only from one polymer by blending two
polymers is highly amorphous and rigid but has low impact strength if it is
blended with, materials product will he of high strength rigid
Thus by alloying a wide range of product can be made although ugh
alloys are physical mixture of polymers hydrogen bonds formed between some
special ionic groups with hydrogen atom of the carbon of the chain such a
bound is very useful in alloy formation because it impacts processing flexibility
with and use of cross linked products.
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ORGANISATION STRUCTURE
OF
NANDI BRAND PIPES PVT. LTD.,
FFF
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Managing Director
Public
Relation
Officer
Marketing
Manager
Production
Manager
Purchase
Manager
Financial
Manager
MachineTechnician
QualityControl
ProductionSupervisor
Foreman MachineOperator
LabTechnician
Working Capital Management Nandi Pipes
REVIEW OF LITERATURE
Classifications of working capital
Working capital may be classified in two ways:
(a) On the basis of concept.
(b) On the basis of time.
On the basis of concept,working capital may be classified as:
Gross working capital
Net working capital
Gross working capital
The gross working capital refers to the firms' investment in the total
current assets of the enterprise. The current assets are those assets with in the
ordinary course of business can converted into cash with in the short period of
normally one accounting year.
Net working capital
The net working capital can be defined into two ways the most common
definition of working capital is difference between current assets and current
liabilities.
Net working capital can also be defined as that portion of firm's current
assets. Which are financed with long-term funds?
On the basis of concept, working capital is classified as gross working capital
and net working capital as discussed earlier. This classification is important
from the point of view of the financial manager.
On the basis of time, working capital may be classified as:
1. Permanent or fixed working capital.
2. Temporary or variable working capital.
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1. Permanent or fixed working capital.
Permanent or fixed working capital is the minimum amount which is
required to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. There is always a minimum level of current assets
which is continuously required by the enterprise to carry out its normal
business operations..
2. Temporary or variable working capital.
Temporary or variable working capital is the amount of working capital
which is required to meet the seasonal demands and some special exigencies.
Most of the enterprises have to provide additional working capital to meet the
seasonal and special needs. The capital required to meet the seasonal needs of
the enterprise is called seasonal working capital.
IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING
CAPITAL
Working capital is the life of blood and nerve canter of a business. Just as
circulation of blood is essential in the human body for maintaining life,
working capital is very essential to maintain the smooth running of a business.
No business can run successfully without an adequate amount of working
capital. The main advantages of maintaining adequate amount of working
capital are as follows:
1. Solvency of the business. Adequate working capital helps in
maintaining solvency of the business by providing uninterrupted
flow of production.
2. Good will. Sufficient working capital enables a business concern
to make prompt payments and hence helps in creating and
maintaining goodwill.
3. Easy loans. A concern having adequate working capital, high
solvency and good credit standing can arrange loans from banks and
others on easy and favourable terms.
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4. Cash discounts. Adequate working capital also enables a
concern to avail cash discounts on the purchase and hence it reduces
costs.
5. Regular supply of raw materials. Sufficient working capital
ensures regular supply of raw materials and continuous production.
6. Regular payment of salaries, wages and other day-to-day
commitments. A company which has ample working capital can
make regular payment of salaries, wages and other day-to-day
commitments which raises the morale of its employees, increases
their efficiency, reduces wastages and costs and enhances production
and profits.
7. Exploitation of favorable market conditions. Only concerns
with adequate working capital can exploit favorable market
conditions such as purchasing its requirement in bulk when the
prices are lower and by holding its inventories for higher prices.
8. Ability to face crisis. Adequate working capital enables a
concern to face business crisis in emergencies such as depression
because during such periods, generally, there is much pressure on
working capital.
THE NEED OR OBJECTS OF WORKING CAPITAL
The needs for working capital cannot be over emphasized. Every
business needs some amount of working capital. The needs for working capital
arises due to the time gap between productions and realization of cash from
sales. There is an operating cycle involved in the sales and realization of cash.
There are time gaps in purchase of raw materials and production; production
and sales; and sales and realization of cash. Thus working capital is needed for
the following purpose:
1. For the purchase of raw materials, components and spares.
2. To pay wages and salaries.
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3. To incur day- to-day expenses and overhead costs such as fuel,
power and office expenses, etc.
4. To meet the selling costs as packing, advertising, etc.
5. To provide credit facilities to the customers.
6. To maintain the inventories of raw material, work-in-progress, stores
and spares and finished stock.
FACTORS DETERMINING THE WORKING CAPTIAL
REQUIREMENTS
1. Nature or Character of Business. The working capital requirements of a
firm basically depend upon the nature of its business. Public utility
undertakings like Electricity, Water Supply and Railways need very limited
working capital because they offer cash sales only and supply services, not
products, and as such no funds are tied up in inventories and receivables.
2. Size of Business/Scale of Operations. The working capital requirements of
a concern are directly influenced by the size of its business which may be
measured in terms of scale of operations. Greater the size of a business unit,
generally larger will be the requirements of working capital.
3. Production Policy. In certain industries the demand is subject to wide
fluctuations due to seasonal variations. The requirements of working
capital, in such cases, depend upon the production policy. The production
could be kept either steady by accumulating inventories during slack
periods with a view to meet high demand during the peak season or the
production could be curtailed during the slack season and increased during
the peak season.
4. Manufacturing Process/Length of Production Cycle. In manufacturing
business, the requirements of working capital increase in direct proportion
to length of manufacturing process. Longer the process period of
manufacture, larger is the amount of working capital required
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5. Seasonal Variations. In certain industries raw materials is not available
throughout the year. They have to buy raw materials in bulk during the
season to ensure an uninterrupted flow and process them during the entire
year. A huge amount is, thus, blocked in the form of material inventories
during such season, which gives rise to more working capital requirements.
6. Working Capital Cycle. In a manufacturing concern, the working capital
cycle starts with the purchase of raw material and ends with the realization
of cash from the sale of finished products. The cycle involves purchase of
raw materials and stores, its conversion into stocks of finished goods
through work-in-progress with progressive increment of labour and services
costs, conversion of finished stock into sales, debtors and receivables and
ultimately realization of cash and this cycle continues again from cash to
purchase of raw material and so on.
ESTIMATED WORKING CAPITAL REQUIREMENT
“Working capital is the life-blood and controlling nerve centre of
business.” No business can be successfully run without an adequate amount of
working capital. To avoid the shortage of working capital at once, an estimate
of working capital requirements should be made in advance so that
arrangements can be made to procure adequate working capital. But estimation
of working capital requirements is not an easy task and a large number of
factors have to be considered before starting this exercise.
COMPONENTS OF CURRENT ASSETS:
(i) Cash (in hand, in bank, and in transit)
(ii) Investments (short-term only, and not long-term)
(iii) Inventories (raw materials and consumable stores and
spares, work-in-process, and finished goods)
(iv) Sundry Debtors (also known Bills Receivable and
Accounts Receivable)
(v) Loans and advances (granted by the Company)
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COMPONENTS OF CURRENT LIABILITIES
(i) Sundry Creditors (also known as Bills Payable and
Accounts Payable)
(ii) Trade Advances (given to the company for supply of
goods)
(iii) Short-term Borrowings from Banks and Others
(iv) Provisions (for taxes, bad debts, exchange rate
fluctuations, etc.)
Better business sense, however, calls for keeping the currents assets at
the minimal level, whereby minimum sources of funds, (both current and non-
current Liabilities), may be required to finance them, and thereby, the
“inventory carrying Costs”, and the “interests outgo” may as well be kept at the
minimal level
WORKING CAPITAL MANAGEMENT
Effective management and control of the various components of
working capital has been rated as one of the most important and vital functions
of financial management in any of the industrial and business units, based on
varied parameters, discussed hereunder:
A. Flexibility:
Working capital Management is highly flexible in nature, so much so
that it can very easily be adapted to suit even extreme conditions, like rising
and falling demands in peak and off seasons, buoyant and sluggish economic
and market conditions, etc. Further, if some inappropriate policy or procedure
is detected at a later stage, remedial and right steps can be adopted henceforth,
any time. This, however, is not the position in the case of project management.
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B. Level of investments in various components of current assets
Investments in current assets constitute a very substantial percentage
(Usually more than 50%) of the total investments in most of the Indian
companies and firms.
C. Criticality
The under mentioned fact itself can bring home the extent of crucially
and Criticality of Working Capital Management. One of the components of the
Working Capital can make such a dramatic difference, the importance of
meticulous management of all the components of the Working Capital (viz.
Current Assets, Current Liabilities and even a portion of the deferred liabilities)
can very well be imagined and appreciated
D. Quantum of efforts and time
Empirical study and observations have revealed that a major portion of
the time of the Finance Managers, in most of the companies, is devoted (and
rightly so) towards the management of the various components of the working
capital, with a view to maximizing their profitability, and the prospects and
prosperity therewith.
Working capital Operating cycle
,
s
AVR&SVR CET. NANDYAL 36
Inventory
Sales
Cash
Semi-Finished Goods
Finished Goods
Debtors
Working Capital Management Nandi Pipes
Working capital cycle is more popularly known as the Operating cycle .
The title is more expressive in the sense that the normal business operations
of a manufacturing and trading company start with cash , go through with the
successive segments of the operating cycle, viz, raw materials storage period
conversion period, finished goods storage period and average collection period
before getting back cash along with profit. The total duration of all segments
mentioned above is known as gross operating cycle . in case the company is
placed in an advantageous position of being able to sell its products for cash
then the segment of average collection period will disappear from the gross
operating cycle period and to that extent the total duration of the cycle gets
reduced. In case advance payments are to be made for procuring materials, the
operating cycle period increases. The purchase of raw materials, components
etc., are usually made on a credit basis, thereby giving rise to the spontaneous
current liability , viz, accounts payable. When the average payment period of
the company to its suppliers is deducted from the gross operating cycle period
the resultant period or simply operating cycle period. It becomes obvious that
shorter the duration of operating cycle period , faster will be transformation of
current assets into cash. The operating cycle approach is quite useful both in
controlling and forecasting working capital.
The duration time required to complete the following sequence of
events, in case of manufacturing firm is called the operating cycle.
1. Conversion of cash into raw materials.
2. Conversion of raw materials into work in progress.
3. Conversion of work in progress into finished goods.
4. Conversion of finished goods into debtors and bills receivables
through sale.
5. Conversion of debtors and bills receivables into cash.
The firm needs working capital because the production sales and cash
flows are not instantaneous. The firm needs cash to purchase raw materials and
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pay expenses as there may not be perfect matching between each inflow and
outflow. cash may also be held to meet the future exigencies
INVENTORY MANAGEMENT
Inventories constitute the most significant part of constitute of a large
majorities of company in India. On an average, inventories are approximately
60% of the current assets in public limited companies in India. Because of the
large size of industries maintained by firms, a considerable amount of funds is
required to be committed to them. It is, therefore, absolutely imperative to
manage inventories efficiently and effectively in order to avoid unnecessary
investment.
Nature of inventories: Inventories are stock of the product a company is
manufacturing for sale and components that makeup the product the various
firms in which inventories exist in a manufacturing company are raw materials,
work-in-process and finishes goods.
Raw materials are those basic inputs that are converted in to finished
products through the manufacturing process. Raw materials inventories
are those units which have been purchased and stored for future
production.
Work-in- process .inventories are semi- manufactured products. They
represent products that need more work before they become finished
products for sale.
Finished goods inventories are those completely manufactured products
which are ready for sale. Stocks of raw materials work-in-process
facilitate production, while stock of finished goods is required for
smooth marketing operations. Thus, inventory serves as a link between
the production and consumption of goods.
The levels of three kinds of inventories of a firm depend on the nature of
its business. Firms also maintain a forth kind of inventory, supplies or stores
and spares. Supplies include office and plant cleaning materials like soaps,
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brooms, oil, fuel, light bulbs etc. These materials do not directly enter
production but are necessary for production process.
Objectives of inventory management
In the context of inventory management the firm is faced with the
problem of meeting two conflicting needs.
To maintain a large size of inventories of large materials and work-in-
process for efficient and smooth production and of finished goods for
uninterrupted sales operations.
To maintain a minimum investment to maximize profitability.
CASH 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 needed to keep the business running on the
continuous basis. It is also ultimate output expected to be realized by selling the
service or product manufacturing by the firm. The firm should keep sufficient
cash neither more nor less
Cash is the vital component of working capital. Steady and healthy
circulation of cash in entire business operations is the basis of business
running on a continuous basis. Cash management is concerned with the
managing of Cash management.
Cash flows into and out of the firm
Cash flows within the firm
Cash balance held by the firm at a point of time.
Need of cash management: Cash, either in hard or at bank, is the most
liquid of all the current assets. Thus larger cash and bank balances indicates
high liquidity position of a company. It must, however, be noted that cash lying
in the current account of banks fetches no return to the company.
Consequently, the higher liquidity position attained by holding a large amount
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of cash will result in lower profitability as idle cash fetches no return, while the
same when invested in the assets of the company will results in profits.
The firm should evolve strategies regarding the following four facts of
cash management.
Cash planning
Managing the cash flows
Optimum cash level
Investing idle cash
Objectives of cash management
To make short term forecasts about to cash inflows and outflows of the
firm.
To find profitable avenues for investing surplus cash. Arranging finance
Receivables Management
Trade credit arises when a firm sales its products or services on credit
and does not receive cash immediately. Trade credit is used by firm to protect
its sales from competitors and to attract potential customers to buy products
and favorable terns. Trade credit creates receivables or book debts that the firm
is expected to collect in the near future. The customers from whom book debts
have to be collected in the future are known as trade debtors.
Receivables helps the firm in the increasing sales level as clients will
prefer credit sales to cash helps the firm in sales. It also helps the firm in
maintaining the sales at an appropriate level in situation where there is intense
competition. As credit sales comprise a high profit margin. They generate more
profit than cash sales.
The objective of receivables management is to help the firm to manage
the receivables in an efficient manner such that the benefits arising as the result
of extending credit sales should be more than the cost associated with it.
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The Receivables arising out of delivery of goods or rendering of services on
credit and include
Book debts or accounts
Notes and bills
Accrued receivables
However in a broader sense the term receivables is used to include further.
o Any pre payents made against purchase and expense contract.
o Advances to subsidiaries employees and officers
Purpose of Receivables
The purpose of receivables is directly connected with the companies
objectives of making credit sales which are
To increase total sales: because when a company sells goods on credit it
will be in a position to sell more goods than if it insist on immediate
cash payment.
To increase profits: Because this results in an increasing sales not only
in volume but also because company charge a higher margin of profit on
credit sales as compared to cash sales.
To meet increasing competition: For this the company may have to grant
better credit facilities than those offered by its competitors.
Goals of credit management
The basic goal of credit management is to maximize the value of firm
achieving the trade of between equitability and profitability. The purpose of
credit management is not to maximize sales, not to minimize the risk of bad
debt. If the Objective was to maximize sales then the firm would sell on credit
to all.
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To achieve the goal of maximizing the value the firm should manage its
trade credit:
To obtain optimum volume of sales.
To control the cost of credit and keep it at minimum
To maintain investment in debtors at optimum level.
The purpose of credit management is not sales maximization. But
efficient and effective credit management does help to expand sales and can
prove to be an effective tool of marketing.
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DATA ANALYSIS AND INTERPRETATIONSStatement showing changes in working capital during the period 2007-08
PARTICULARS 2006-07 2007-08CHANGES IN W.C
INCREASE DECREASE
Current assets
Inventories 283.71 379.57 95.86 -
Sundry debtors 171.95 172.55 0.60 -
Cash & bank 56.26 61.60 5.34 -
Loans & advances 325.73 158.80 166.93
Total current assets 837.65 772.52 - -
Current liabilities
Liabilities 415.43 516.87 - 101.44
Provisions 23.87 39.18 - 15.31
Total current liabilities 439.30 556.05 - -
NET Working capital 398.35 216.47 - -
CHANGES IN W.C 188.88 188.88
398.35 398.35 283.68 283.68
Interpretation:
The above statement reveals that the net working capital decreases
188.88 crores. Due to the loans and advances are deceased more by 166.93
crores and also the current liabilities are increased by 101.44 crores
AVR&SVR CET. NANDYAL 43
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Statement showing changes in working capital during the period 2008-09
PARTICULORS 2007-08 2008-09CHANGES IN W.C
INCREASE DECREASE
Current assets
Inventories 379.57 433.58 54.01
Sundry debtors 172.55 183.50 10.95
Cash & bank 61.60 89.59 27.99
Loans & advances 158.80 253.50 94.7
Total current assets 772.52 960.17
Current liabilities
Liabilities 516.87 736.7 219.83
Provisions 39.18 18.47 20.71
Total current liabilities 556.05 755.18
NET Working capital 216.47 204.99
CHANGES IN W.C 11.48 11.48
216.47 216.47 219.83 219.83
Interpretation:
In this above statement the total current assets are increased by
Rs.187.65 crores and current liabilities are increased by Rs.199.13 crores.
Hence the working capital is decreased by Rs.11.48 crores.
AVR&SVR CET. NANDYAL 44
Working Capital Management Nandi Pipes
Statement showing changes in working capital during the period 2009-10
PARTICULORS 2008-09 2009-10CHANGES IN W.C
INCREASE DECREASE
Current assets
Inventories 433.58 609.76 176.18
Sundry debtors 183.50 216-61 33.11
Cash & bank 89.59 100.69 11.1
Loans & advances 253.50 376.83 123.33
Total current assets 960.17 1303.89
Current liabilities
Liabilities 736.7 1153.01 416.31
Provisions 18.47 125.55 107.08
Total current liabilities 755.18 1278.56
NET Working capital 204.99 25.33
CHANGES IN W.C 179.67 179.67
204.99 204.99 523.39 523.39
Interpretation:
This statement reveals that the net working capital decreases to 179.67
crores due to the liabilities and provisions are increased by 523.39.
AVR&SVR CET. NANDYAL 45
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Statement showing changes in working capital during the period 2010-11
PARTICULORS 2009-10 2010-11CHANGES IN W.c
INCREASE DECREASE
Current assets
Inventories 609.76 705.55 95.79
Sundry debtors 216-61 188.88 27.73
Cash & bank 100.69 104.68 3.99
Loans & advances 376.83 390.89 14.06
Total current assets 1303.89 1390.00
Current liabilities
Liabilities 1153.01 1128.97 24.04
Provisions 125.55 122.18 3.37
Total current liabilities 1278.56 251.15
NET Working capital 25.33 138.85
CHANGES IN W.C 113.52 113,52
138,85 138.85 141.25 141.25
Interpretation:
This statement reveals that the net working capital increases to 113.52
crores due to the decrease in sundry debtors and current liabilities
AVR&SVR CET. NANDYAL 46
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RATIO ANALYSIS
TYPES OF RATIOS:
Several ratios calculated from the accounting data can be grouped in to
various classes according to financial activity or function to be evaluated. As
stated earlier, the parties interested in financial analysis are short-term and
long-term creditors, owners and management. Short-term creditors. Main
interest in the liquidity position or the short-term solvency of the firm long
term creditors on the other hand are more interested in the long term solvency
and profitability of the firm.
We may classifies them in to the following from important categories
1. Liquidity ratios
2. Leverage ratios
3. Activity ratios
4. Profitability ratios
1. LIQUIDITY RATIOS
Liquidity ratios measure the firm’s ability to meet current obligations.
2. LEVERAGE RATIOS
Leverage ratios show the proportion of debt and equity in financing the
firm’s assets.
3. ACTIVITY RATIO
Activity ratios reflect the firm’s efficiency in utilizing its assets
4. PROFITABILITY RATIOS
Profitability ratios measure overall performance and Effectiveness of
the firm.
AVR&SVR CET. NANDYAL 47
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Current ratio
Current ratio may be defined as the relationship between current assets
and current liabilities. This ratio also known as working capital ratio. Current
assets include cash and these assets which can be converted in to cash with in a
one year such as cash & bank, marketable securities, debtors, inventories,
prepaid expenses include the represent the payments that will be made in future
obligation like creditors, bills payable etc.
Current assets
Current ratio = -------------------------------
Current liabilities
A relatively high current ratio is an indication that the firm is liquid and
has the ability to pay its current obligation in time as ad when they become due.
On the other hand a relatively low current ratio represents that the liquidity of
the is not good and the firm shall not be able to pay its current liabilities in time
without facing difficulties.
Standard ratio= current assets : current liabilities = 2:1
The following table shows the result of the current assets and current
liabilities of Sujala Pipes Pvt. Ltd.,
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Table No.4.1
Year Current assets Current liabilities Current ratio
2006-07 837.65 439.30 1.90
2007-08 772.52 556.05 1.38
2008-09 960.17 755.18 1.27
2009-10 1303.89 1278.56 1.01
2010-11 1390.00 1251.15 1.11
Graph No.4.1
Interpretation :
The current ratio gradually decreases due to increasing current liabilities
and decreasing loans and advances. For the last five years the liquidity position
of the firm is precarious.
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QUICK RATIO
It is defined as the relationship between quick assets and current
liabilities. This ratio is also known as “acid-test ratio”. While computing
current ratio, inventory is included as a of current assets.. Quick ratio provides
a better measure of liquidity unlike current ratio; it does not take inventories
into account. Standard ratio=1:1
Current assets-inventories
Quick ratio= --------------------------------------
Current liabilities
The following table shows the result of the Quick Ration of Sujala Pipes Pvt.
Ltd.,
Table No.4.2
Year Quick assets current liabilities
Quick ratio
2006-07 553.94 439.30 1.26
2007-08 392.95 556.05 0.70
2008-09 526.59 755.18 0.69
2009-10 694.13 1278.56 0.54
2010-11 684.45 1251.15 0.55
Graph No.4.2
Interpretation:
The Quick ratio gradually decreases from 2007 – 10 due to increasing in
inventories year by year. The Quick ratio was better in the year 2006-06 when
compare with the other years
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Cash Ratio
Cash is the most important liquid asset, a financial analyst may examine
cash ratio and its equivalent to current liabilities. Trade investment and
marketable securities are equivalent of cash.
Cash+ marketable securities
Cash ratio = ----------------------------------------
Current liabilities
Table No.4.3
Year CashCurrent
LiabilitiesCash Ratio
2006-07 56.26 439.30 12.81
2007-08 61.60 556.05 11.08
2008-09 89.59 755.18 11.86
2009-10 100.69 1278.56 7.88
2010-11 104.68 1251.15 8.37
Graph No.4.3
Interpretation:
During the period 2006-11 the cash ratio declined gradually due to the
current liabilities are more than the cash but it highly declines in the year
2008-09.
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Net working capital ratio
The difference between current assets and current liabilities excluding
short-term borrowings is called Net working capital (NWC) Or net current
assets (NCA). NWC is sometimes used as a measure of a firm liquidity.
Net working capital
Net working capital ratio =-------------------------------------
Net current assets
Table No.4.4
Graph No.4.4
Interpretation
The net working capital ratio was decreases gradually because of
increasing Net assets. But specifically in the year 2009-10 the working capital
highly decreased due to current assets are approximately equals to current
liabilities.
AVR&SVR CET. NANDYAL 52
YearNet working
capitalNet assets
Net working capital ratio
2006-07 398.35 837.65 0.47
2007-08 216.47 772.52 0.28
2008-09 204.99 960.17 0.21
2009-10 25.33 1303.89 0.01
2010-11 138.85 1390.00 0.09
Working Capital Management Nandi Pipes
DEBTORS TURNOVER RATIO
The ratio indicates the average time in number of days between sales
and cash collections from debtors. It explains the number of days of credit
enjoyed by the debtor
Net credit sales
Debtors turnover =------------------------
Average debtors
Opening debtors +closing debtors
Average debtors =------------------------------------------------
2
Table No.4.5
Year salesaverage debtors
Debtors turnover
ratio
2006-07 2681.05 174.76 15.34
2007-08 3299.45 172.25 19.15
2008-09 4910.83 178.02 27.58
2009-10 5509.22 200.05 27.53
2010-2011 6563.64 195.75 33.53Graph No.4.5
Interpretation:
The debtors turnover ratio gradually increases year-by-year. It shows
that management is efficient in maintaining debtors.
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Inventory turnover ratio
The inventory turnover ratio indicates the efficiency of the firm in
providing and selling its product. It is calculated by dividing cost of good sold
by the average inventory. The average inventory is the average of opening and
closing balances of inventory.
Cost of goods sold
Inventory turnover ratio= -----------------------------
Average inventory
Table No.4.6
Yearcost of goods
soldAverage
inventoryInventory
turnover ratio
2006-07 1772.61 253.44 6.9
2007-08 2004.14 331.64 6.04
2008-09 2468.23 406.57 6.07
2009-10 2760.72 521.67 5.29
2010-11 3741.52 662.60 5.64
Graph No.4.6
Interpretation
The inventory turnover ratio gradually decreases because of
increasing cost of goods sold as well as inventory.
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CURRENT ASSETS TURNOVER RATIO
Assets are used to generate sales. Therefore, the firm should manage
its assets efficiently to maximize sales. The relationship between sales and
current assets called as current assets turnover ratio.
Sales
Current assets turnover ratio =---------------------
Current assets
Table No.4.7
Year salesCurrent
assetsCurrent assets turnover
ratio
2006-07 2681.05 837.65 3.20
2007-08 3299.45 772.52 4.27
2008-09 4910.83 960.17 5.11
2009-10 5509.22 1303.89 4.22
2010-11 6563.64 1390.00 4.72
Graph No.4.7
Interpretation:
In the 2008-08, the current assets as well as sales are increases highly
that will leads to increasing the current assets turnover.
WORKING CAPITAL TURNOVER RATIO
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This ratio measures the relationship between working capital and sales.
The ratio shows the number of times the working capital results. In sales
working capital as usual is the excess of current assets over the current
liabilities.
Sales
Working capital turnover ratio = --------------------------
Working capital
Table No.4.8
Year Sales working capital WCTR
2006-07 2681.05 398.35 6.73
2007-08 3299.45 216.47 15.24
2008-09 4910.83 204.99 23.95
2009-10 5509.22 25.33 217.49
2010-11 6563.64 138.85 47.27
Graph No.4.8
Interpretation:
This ratio gradually increases because of increasing sales. But in the
year 2009-09 the working capital decreases to 25.33 this will leads to highly
increases in working capital turnover
DEBTORS COLLECTION PERIOD
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It indicates the time taken to collect money from the debtors. If this
average collection period is more than credit period granted to the debtors, it
indicates liberal policy and the firm is inefficient in collecting the due and vice
versa. It is computed as follows.
360
Holding period = ------------------------
Debtors turnover
Table No.4.9
Year Debtors turnover ratio
Debtors collection period
2006-07 15.34 23
2007-08 19.15 19
2008-09 27.58 13
2009-10 27.53 13
2010-11 33.53 11
Graph No.4.9
Interpretation:
The debtor’s collection period gradually decreases from 23 days to
11days.for the last five years. It indicates that the firm is efficient to collect
money from debtors. Hence, it is more profitable to the firm.
CREDITORS TRNOVER RATIO
Purchases
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Creditors turnover ratio= --------------------------
Average creditors
Table No.4.10
Year PurchasesAverage
creditors
Creditors
turnover ratio
2006-07 243.25 317.99 0.76
2007-08 284.06 283.89 1.00
2008-09 403.68 391.06 1.03
2009-10 556.60 620.39 0.90
2010-11 709.70 749.94 0.95
Graph No.4.10
Interpretation:
The creditors turnover gradually increases from 2006 to 08 and then it
slightly decreases because the purchases are increases year by year.
FINDINGS
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1. The current ratio and quick ratio of the firm for the last five years it is
found that the liquidity position of the company is precarious. Protection
for short term lenders is very marginal.
2. Inventory turnover has marginally declined from 6.9 times to 5.6 times
during the period 2006-11 indicating higher blockage of funds in
inventory.
3. Debtors collection period has come down from 23 days to11 days in the
last five years. This is a good sign as it improves profitability of the
firm.
4. The payment deferral period is very high in this firm (380-560 days).
Sujala is enjoying trade credit from its group and subsidiary companies
and this do not have any pressure to pay up. This is not a good practice
as it leads to lethargy and managerial complacency in the organization.
5. The cash ratio gradually declined from 12.81 to 8.37 during the period
2006-11 due to current liabilities more than the cash.
6. The debtors turnover ratio gradually increases year-by-year. It shows
that management is efficient in maintaining debtors.
7. In the year 2008-09 the current assets are approximately equals to
current liabilities, that means the firm does not maintain standard current
ratio
SUGGESTIONS
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Company should decreases reliance on funds from group and subsidiary
companies for working capital needs as this will affect the profitability
of those companies
Suggested to improve its current assets in relation to current liabilities to
improve liquidity and safety for trade and short term creditors
The working capital management is not proactive, the company needs to
concentrate on forecasting the working capital needs based on sales and
manage the current assets in a better way to improve liquidity as well as
profitability of the firm.
The company may reduce the length of operating cycle to improve the
asset utilization and profitability.
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CONCLUSION
Under the light of the inferences drawn from the analysis, it is no
exaggeration to conclude with information that the overall working capital
management of Sujala pvc pipes pvt ltd is fair and reasonably good and thus
promising future awaits the company.
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BIBLIOGRAPHY
Bhattacharya,Hrishikes, “Short term funds Management–Strategies and
Techniques”,2001
Pandey,I M(1978), ”Financial management” , 2009
Damodran, Aswath ,”Corporate finance”,2004
ICMR , “Financial Management”, 2007
www.google.com
www.wikipidia.com
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