Working capital

A training report submitted in partial fulfillment of the requirement for the degree of
MASTERS OF BUSINESS ADMINISTRATION
(2012-2014)
Submitted to: Submitted by:
Dr. SandeepS.Virdi Atish sharma
Assistant Professor MBA 2
nd
year, SE A
!oll"o#: $2%&2'%2(
SCHOOL OF MANAGEMENT STUDIES
PUN1ABI UNIVERSITY PATIALA
1
ACKNOWLEDGEMENTS
A pro)ect is golden opportunity for learning and self de*elopment# + considered myself is *ery lucky
and ,onored to ,a*e so many -onderful people lead me t,roug, in completion of t,is pro)ect#
My grateful t,anks to Mr# .is,al /,iman, finance department -,o in spite of being e0traordinarily
busy -it, ,is duties, took time out to ,ear, guide and keep me on t,e correct pat,# + do not kno- -,ere
+ -ould ,a*e been -it,out ,im# + ,umble 1t,ank you2 sir#
Ms# "a*neet 3aur, 4! department monitored my progress and arranged all facilities to make life
easier# + c,oose t,is moment to ackno-ledge ,er contribution gratefully#
Prof# Sugand,a S,et,i -,ose patience + ,a*e probably tested to t,e limited# S,e -as al-ays so
in*ol*ed in t,e entire process, s,ared ,er kno-ledge, and encouraged me to t,ink# 5,ank you dear
madam##
6ast but least t,ere -ere so many -,o s,ared *aluable information t,at ,elped in t,e successful
completion of t,is pro)ect#
Atis, s,arma
2
DECLARATION
+ Atis, S,arma of sc,ool of management studies Pun)abi uni*ersity patiala, ,ereby declare t,at + ,a*e
completed a summer pro)ect on 7-orking capital management8 in t,e Academic year 2%$9:2%$&# 5,e
information submitted is true and original to t,e best of my kno-ledge#
Signature of t,e Student
Atis, s,arma
3
PREFACE
+n today2s era of cut:t,roat competition, Master of Business Administration ;M#B#A< is sure to ,a*e an
edge o*er t,eir counterparts MBA education brings its students in direct contact -it, t,e real corporate
-orld t,roug, industrial training# 5,e MBA program pro*ides its students -it, an in dept, study of
*arious managerial acti*ities t,at are performed in any organi=ation# A detailed analysis of managerial
acti*ities conducted in *arious departments like production, marketing, finance, ,uman resources,
e0port:imports, credit dept, etc# gi*es t,e student a conceptual idea of -,at t,ey are e0pected to
manage , ,o- to manage and ,o- to obtain t,e ma0imum output t,roug, minimum inputs and ,o- to
minimi=e t,e -astage of resources#
+ ,a*e undergone my compre,ensi*e training at 46 A!EE! /E.E6>PME"5 E"5!E# +t is one
of t,e leading +5 educational centers in t,e country# + feel great pleasure to present t,is report -ork
after my training at 46 A!EE! /E.E6>PME"5 E"5!E t,at produced to be golden
opportunity for me by enric,ing my kno-ledge by comparing my t,eoretical kno-ledge -it, t,e
managerial skill and application#
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OB1ECTIVES OF THE STUDY
Since -orking capital management is one of t,e most important aspects of finance, it enables to study in:
dept, t,e met,ods in*ol*ed in it? so t,at as a student of finance it gi*es me a c,ance to study t,e financial
perspecti*es of t,e industry# +t offers scope to understand *arious aspects of finance and all t,ese aspects
are reflected in t,is report# 5,e estimation of re@uired -orking capital differs from organi=ation to
organi=ation# So doing t,is pro)ect in an industry -ill ,elp in kno-ing more about t,e -orking
capital, its preparation and e0ecution#
5,e study ,as t,e follo-ing ob)ecti*es::
1. 5o see -,et,er t,e -orking capital in 7468
is an effecti*e one#
2.
5o find out t,e e0tent of t,e need and ade@uacy of t,e -orking capital of t,e firm#
3. 5o e*aluate or analy=e t,e organi=ational financial discipline and fiscal soundness#
4.
5o find out t,e *ariance attained in related to pro)ected and actual figure#
5. 5o see t,e li@uidity position of t,e company#
6. 5o see t,e c,anges in t,e -orking capital#
7. 5o see t,e components of -orking capital is properly maintained#
8. 5o determine t,e re@uirements of -orking capital#

5
EXECUTIVE SUMMARY
Working capital management refers to t,e administration of all aspects of current assets, namely cas,,
marketable securities, debtors and stock ;in*entories< and current liabilities# 5,e financial manager
must determine le*els and composition of current assets# 4e must see t,at rig,t sources are tapped to
finance current assets, and t,at current liabilities are paid in time# 4e must see t,at rig,t sources are
tapped to finance current assets, and t,at current liabilities are paid in time# 5,ere are many aspects of
-orking capital management, -,ic, make it an important function of t,e financial manager:
A 5ime: -orking capital management re@uires muc, of t,e financial manager2s time#
A +n*estment: -orking capital represents a large portion of t,e total in*estments in assets#
A Significance: -orking capital management ,as great significance for all firms but it is *ery critical for
small firms#
A Bro-t,: t,e need for -orking capital is directly related to t,e firm2s gro-t,# +n*estment in current
assets represents a *ery significant portion of t,e total in*estment in assets#
Working capital management is critical for all firms# A small firm may not ,a*e muc, in*estment in
fi0ed assets, but it ,as to in*est to in current assets# Small firms in +ndia face a se*ere problem of
collecting t,eir debtors# Banks ,a*e t,eir o-n policies to assess t,e -orking capital of t,e firm to
finance t,em -it, t,e s,ortage# Bank of Ma,aras,tra adopts certain met,od for financing t,eir
customer2s -orking capital re@uirements# 5,ere are certain recommendations from t,e committees for
t,e banks to finance t,e -orking capital needs of t,eir clients# +t may, t,us, be concluded t,at all
6
precautions s,ould be taken for t,e effecti*e and efficient management of -orking capital# 5,e finance
manager s,ould pay regular attention to t,e le*els of current assets and t,e financing of current assets#
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8
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COMPANY OVERVIEW
Hindustan Computers Limited
4industan omputers 6imited, also kno-n as 46 Enterprise, is one of +ndiaGs largest electronics,
computing and information 5ec,nology ompany# Based in "oida, near /el,i, t,e company comprises
t-o publicly listed +ndian companies, 46 5ec,nologies and 46 +nfo systems#
46 -as founded in $(H' by S,i* "adar, A)ay ,o-d,ry and four of t,eir colleagues# 46 -as
focused on addressing t,e +5 ,ard-are market in +ndia for t,e first t-o decades of its e0istence -it,
some sporadic acti*ity in t,e global market# +n $(I$, 46 seeded a company focused on addressing t,e
computer training industry, "++5, t,oug, it ,as currently di*ested its stake in t,e company# +n $(($, 4P
took minority stake in t,e company ;2'J< and t,e company -as kno-n as 46 4P for t,e fi*e years
of t,e )oint *enture# >n termination of t,e )oint *enture in $((', 46 became an enterprise -,ic,
comprises 46 5ec,nologies ;to address t,e global +5 ser*ices market< and 46 +nfosystems ;to
address t,e +ndian and APA +5 ,ard-are market<# 46 ,as since t,en operated as a ,olding company#
HCL Technologies is a global +5 Ser*ices company ,ead@uartered in "oida, a suburb of /el,i, +ndia
led by Mr .ineet "ayar, 46 5ec,nologies, along -it, its subsidiaries, ,ad consolidated re*enues of
ESK L billion, as of 2%$%, and employed more t,an '%,%%% -orkers# 46 offers ser*ices including
soft-are:led +5 solutions, remote infrastructure management, Engineering and !M/ Ser*ices and
BP># 5,e company pro*ides ser*ices across industries including Cinancial Ser*ices, !etail M
10
onsumer, 6ife Sciences M 4ealt,care, Aerospace M /efense, Automoti*e, 5elecom and Media,
Publis,ing and Entertainment, amongst ot,ers# 462s key ser*ices include:
ustom Application Ser*ices
Enterprise Application Ser*ices
Enterprise 5ransformation Ser*ices
+nfrastructure Management
Engineering and !M/ Ser*ices
Business Processing outsourcing
Type
Public
BSE: L%%$H(
BSE: L922I$
Industry +5 Ser*ices
Founded August $$, $(H'
Headquarters
/el,i metropolitan area
"oida, +ndia
Key people
S,i* "adar, Counder:,airman and ,ief Strategy
>fficer, 46 5ec,nologies
!os,ni "adar, E> 46 orp#
N$O
A)ai ,o-d,ry : Counder:,airman and E>, 46
+nfosystems , .ineet "ayar : E>, 46 5ec,nologies#
Pagades,-ar Battu: .ise President of 46#
Revenue Q ESKL#% billion ;2%%(<
Employees '2,%%%R ;2%$%<
Website 46#in
11
Leadership of HCL
12
Founder and Chairman
HCL, Shiv Nadar
Foundaion
Mr# S,i* "adar establis,ed 46 as a startup in $(H' Ackno-ledged as a *isionary by t,e +5
industry and ,is peers? Mr# S,i* "adar ,as often made daring forays based on ,is con*iction
of t,e future# Albeit a more recent entrant in t,e soft-are ser*ices space, 46 is already
among top +ndian +5 soft-are ma)ors and a force to reckon -it, for global tec,nology giants#
Mr# "adar -as conferred t,e Padma B,us,an A-ard : t,e t,ird ,ig,est ci*ilian
,onorconferred by t,e President of +ndia in Panuary 2%%I, in recognition of not )ust ,is
contribution to trade M industry in +ndia but also ,is deep commitment to public good# +n
2%%(, Corbes Maga=ine featured ,im in its list of &I 4eroes of P,ilant,ropy in t,e Asia
Pacific region# +n September 2%%( t,e E3 5rade M +n*estment +ndia presented S,i* "adar t,e
2%%( Businessperson of t,e Fear A-ard in ackno-ledgement of 462s pioneering in*estment
in t,e E3# +n "o*ember 2%%( ,e -as conferred t,e "B Asia Business 6eader A-ard for
orporate Social !esponsibility, t,eir Asia .ie-ers2 ,oice A-ard and 1+ndia Business
6eader A-ard2 for t,e year#
/etermined to gi*e back to t,e society t,at supported ,im, Mr# "adar ,as been @uietly
supporting many significant social causes t,roug, t,e S,i* "adar Coundation. 5,e
Coundation is committed to pro*ide t,e means to empo-er indi*iduals to bridge t,e socio:
economic di*ide and to contribute to t,e creation of a more e@uitable, meritocracy based
society, and aims to ac,ie*e t,is primarily t,roug, outstanding educational institutions of
,ig,er learning# oncerned -it, t,e public ,ealt, issues in +ndia, ,e is in*ol*ed -it, t,e
Public 4ealt, Coundation of +ndia ;P4C+< : -orking to establis, standards in public ,ealt,
education and to create a net-ork of inno*ati*e -orld class +ndia:rele*ant institutes of public
,ealt,#
S4+. "A/A!

13
APA+ 4>W/4!F
An engineer by training, A)ai ,o-d,ry is one of t,e founder members of 46, +ndiaGs leading
5ec,nology and +5 Enterprise#A)ai took o*er t,e reins of 46 +nfosystems, t,e flags,ip
company of t,e group, as President and E> in $((&# 4e -as appointed t,e ,airman of 46
+nfosystems in "o*ember $(((# Ender A)aiGs ste-ards,ip, t,e companyGs turno*er ,as gro-n to
ESK 2#H billion for t,e last $2 mont,s from ESK I( Million in $((&# Employing S'$%% people,
it ,as emerged as t,e countryGs information:enabling po-er,ouse# A)ai ,as been a key force in
dri*ing t,e gro-t, of 46 +nfosystems# 5,e credit of setting up 46Gs o*erseas operations,
starting -it, Singapore in $(I% goes to ,im#
Counder at 46
,airman Board >f Bo*ernor at
++5: Patna
Leadership-
14
.+"EE5 "AFA!
.ineet "ayar is .ice ,airman and ,ief E0ecuti*e >fficer of 46 5ec,nologies 6td#
;465<, an +ndia:based global information tec,nology ser*ices company, and aut,or of t,e
book Employees Cirst, ustomers Second: 5urning on*entional Management Epside /o-n
;4ar*ard Business Press, Pune 2%$%<#.ineet )oined 46 in $(IL after earning ,is MBA from
one of t,e leading business management sc,ools in Asia# +n $((9, ,e created t,e start:up
company, omnet, -,ere ,e de*eloped and implemented many of t,e ideas -,ic, are core to
t,e Employees Cirst, ustomer Second ;ECS< p,ilosop,y
.ice ,airman M Point Managing
/irector
HCL Infosystems Limited An Overview About The Company
46 +nfosystems is no flas, in t,e +nformation 5ec,nology pan# Counded in $(H', t,e firm ,as
climbed into pant,eon of +ndiaGs corporate giants on t,e strengt, of its +5 products and ser*ices# 46
+nfosystems speciali=es in +5 ,ard-are ;PGs and ser*ers, as -ell as net-orking, imaging and
communications products<, and system integration ser*ices ser*ing t,e domestic +ndian market# +n
addition to its consumer products, t,e company pro*ides commercial +5 products, facilities
management, net-ork ser*ices, and +5 security ser*ices for clients in suc, industries as go*ernment,
financial ser*ices, and education# 46 orporation o-ns significant stakes in 46 +nfosystems ;about
&&J< and sister company 46 5ec,nologies#
History:
46 +nfosystems 6td is one of t,e pioneers in t,e +ndian +5 market, -it, its origins in $(H'# Cor o*er
@uarter of a century, -e ,a*e de*eloped and implemented solutions for multiple market segments,
across a range of tec,nologies in +ndia# We ,a*e been in t,e forefront in introducing ne- tec,nologies
and solutions#
Milestone:
$(H' 46 is born
$(HH Corms distribution alliance -it, 5os,iba for
copiers and notebooks
15
$(HI /e*eloped t,e first indigenous
Microcomputer
$(II /e*elopment of fine:grained multiprocessor
Eni0 operating system
$(I' 46 becomes t,e largest +5 company in
+ndia
$(I( 46 America is created -it, Sanmina S+
as its manufacturing partner#
$(($ Entered into a partners,ip -it, 4P to form
46 4P 6imited# /e*eloped a custom
Multiprocessor Eni0 for 4P
$((& 5ied up -it, "okia for mobile p,one
distribution and Ericsson for telep,one s-itc,
distribution
$((' Partners,ip -it, 4P ends#
$((H 46Gs !M/ di*ision is spun off as 46
5ec,nologies
2%%$ 46 BP> is created#
16
2%%9 46 become a first company to cross
$%%,%%% unit milestone in t,e +ndia desktop
market
2%%L Point *enture -it, "E, Papan#
2%%' 46 career de*elopment centre launc,ed#
2%%H 46 enterprise crosses K& billion marks#
2%%I 46 / is +S> (%%$:2%%% certified#
2%%( $%% 46 / centre signed up#
2%$% 46 learning di*ision launc,ed#
2%$$ A)ai ,o-d,ry conferred -it, t,e prestigious
Padma b,us,an
Segments:
5,e company operates under t,ree primary segments namely omputer Systems and related products
and ser*ices, 5elecommunication M >ffice Automation and +nternet and related ser*ices#
omputer Systems and related products and ser*ices: 5,e segment operations comprise of
manufacturing of computer ,ard-are systems, pro*iding compre,ensi*e Systems +ntegration, !oll out
17
and +nfrastructure Management solutions in different industry *erticals, pro*iding +5 ser*ices including
maintenance M facility management and +5 training# 5,e subsidiary 46 +nsys Pte 6imited,
Singapore and its step do-n subsidiary 46 +nfosystems MEA, /ubai along -it, its subsidiaries form
part of t,e omputer Systems segment#
5elecommunication M >ffice Automation: 5,e segment operations comprise of distribution of
telecommunication and ot,er digital lifestyle products, office automation products and related
compre,ensi*e maintenance and allied ser*ices# 5,e subsidiary 46 security 6imited and 46
+n*estment Pte 6imited, -it, its )oint *enture 5ec,mart 5elecom /istribution CT>, /ubai, form part
of 5elecommunication M >ffice Automation segment#
+nternet and !elated Ser*ices: 5,e segment pro*ides +nternet related ser*ices t,roug, t,e
companyGs -,olly o-ned subsidiary 46 +nfinet 6imited to business enterprises# 5,e offerings include
+nternet access ser*ices, *irtual pri*ate net-ork and ot,er connecti*ity ser*ices#
Vision and Mission Of HCL-
.ision:
>ur .ision is to be a global leader in pro*iding t,e ,ig,est le*el of +5 solutions and ser*ices# We stri*e
to e0ceed our client2s e0pectations and create a -orkplace in -,ic, all employees t,ri*e in a
collaborati*e en*ironment t,at celebrates e0cellence
18
Mission:
onduct our business according to t,e ,ig,est standards of ,onesty and integrity# Pro*ide a le*el of
ser*ice and support t,at allo-s our customers to confidently *ie- us as t,eir preferred solutions
pro*ider
reate a -ork en*ironment t,at recogni=es t,e e0pertise, contributions, and team-ork of our
*alued employees
5o pro*ide inno*ati*e, professional and personali=ed ser*ices to clients, associates and employees#
We s,all be sensiti*e to t,e needs of indi*iduals forming a sub)ect of our inter*ention#
LITERATURE REVIEW
Economic time
nine mont,s ended Marc, 9$, 2%$9, 46 +nfosystems standalone net loss stood at !s
&$#%( crore against a net profit of !s &L#9% crore in t,e year:ago period# 5,e company
follo-s t,e Puly:Pune fiscal# +ts standalone net sales declined to !s ',''(#LL crore from
!s H,H&%#HI crore in t,e re*ie- period# U5,e decline in our re*enues t,is @uarter -as
primarily due to a dip in our telecom distribution business as also a stagnant Personal
omputer +ndustry -,ic, impacted our re*enues in t,is segment,U 46 +nfosystems
,ief E0ecuti*e >fficer 4ars, ,itale said in a release#
19
Economic time
student in final year of t,eir medical and engineering courses# 4iPS ,as selected 46
+nfosystems for supplying t,ese laptops# U/espite our *olumes being lo-, -e are
procuring laptop -it, good configuration at *ery lo- price of around !s H,$(% per unit
from 46# Wit, ta0es, it -ill cost us around !s H,I%% -,ic, is less compared to rates at
-,ic, some of t,e states ,a*e procured,U Parial said#
46 orp buys $$#H$ lak, s,ares of 4
4e said !ico, +ndia ,as tied up -it, a ,inese manufacturer to supply t,ese tablet and
eac, unit -ill cost !s ','(( for t,e state go*ernment# U5,ese tablets are commercial
model and ,a*e (#H inc, multi:touc, screen# +t -ill ,a*e S+M slot -,ic, -ill support
bot, 2B and 9B net-ork# Students -ill find latest tec,nology features in t,e tablet,U
Parial said# Ender Fu*a Suc,na 3ranti Fo)ana, ,,attisgar, go*ernment -ill also
distribute free laptops to 6 +nfosystems
5,e purc,ase took place on BSE and "SE platforms# Cor t,e period ended /ecember
9$, 2%$2, S,i* "adar:o-ned 46 orpGs stake in 46 +nfosystems stood at &2#IL per
cent# 46 orporation is t,e ,olding company of 46 5ec,nologies and 46
+nfosystems# S,ares of t,e company on BSE today rose by $#L2 per cent to settle at !s
9(#(L apiece from t,e pre*ious close#

Research Methodology
46 Blobal Systems ,as a -ell:defined model for its outsourced pro)ect de*elopment process using a
combination of onsite, offsite and offs,ore processes# 5,is combination offers ,ig, @uality, cost:
effecti*e ser*ice to clients -,o also benefit from t,e significantly lo-er costs of offs,ore ser*ices
combined -it, local pro)ect management#

Method Of Data Collection
5,e collection is t,e process of enumeration toget,er -it, t,e proper recording of results# 5,e
success of an en@uiry is based up on t,e proper collection of data# 5,e data may be classified as
primary and secondary#
20
Primary Data
Primary data are t,ose, -,ic, are collected for t,e first time, and t,ey are original in c,aracter#
5,is study co*ers t,e en@uiry regarding t,e in*entory data# Ender t,is researc, t,e data collected
personally#
Secondary Data
Secondary data are t,ose t,at are already collected by someone for some purpose and are
a*ailable for t,e present study# 5,e co*ers *arious sources of secondary data including publis,ed
and unpublis,ed sources like ne-s papers, publis,ed books, maga=ines etcV,
Limitations Of The Study
Working capital management is an effecti*e tool for management control# 5,e follo-ing is t,e
limitation -,ic, + obser*ed in 75+ F6ES >C +"/+A 6+M+5E/8#
Since t,e report is e0clusi*ely made from secondary source of data, t,e direct
obser*ation is literally impossible#
5,ere -as no scope for gat,ering sufficient financial information as it is
confidential#
/uring t,e time allotted for t,e pro)ect t,e internal audit is going on and t,ey could not
spare muc, time for t,e detailed discussion on t,e sub)ect#
5,ey t,emsel*es ,a*e not maintained t,e data so accurately but seem to be sufficient
for t,e pro)ect#
5,ese limitations -ere mainly due to t,e organi=ational setup of t,e company# 5,e company2s orporate
>ffice is located at Parrys, -,ere all t,e data are a*ailable? but it is accessible to me#
21

22
Alliances:
Since our inception, our alliances ,a*e played a critical role in our dri*e for ecosystem:based
inno*ation# >ur ser*ice offerings and solutions across industry *erticals are strengt,ened by alliances
-it, global tec,nology *endors, customers, and nic,e solution pro*iders# >ur ecosystem consists of
close to $%% companies in *arious tec,nology areas -it, -,ic, -e form go:to:market alliances,
specialist partners,ips for nic,e tec,nologies, and teaming partners,ips for specific customers#
Partnering with HCL is a mutually beneficial experience
>ur ecosystem of alliances allo- us to pro*ide best:in:class solutions t,at meet our customersG business
re@uirements and ,elps t,em
!educe total cost of o-ners,ip,
!educe risk of implementation, and
Accelerate time to market#
And 46 ,elps its alliance partners
Benerate incremental re*enue gro-t, t,roug, differentiated solutions and ser*ice offerings,
E0tend market and geograp,ic reac,, and
En,ance t,eir product and ser*ice offerings#
46 ,as in*ested in dedicated alliance partner oEs t,at build solution frame-orks and accelerators,
and gets certified in partner products# +n addition, -e in*est in )oint solutions -it, partners to create
inno*ati*e solutions for customers#
23
5,e 46 AMP6+CF frame-orkW ,elps us identify, de*elop, and assess our alliances# >ur strategic
alliances are go*erned and measured at t,e corporate le*el -it, a focus on )oint re*enue, *alue
proposition, and alignment -it, our business goals#
HCL Career Development Centre
+ntroduction:
46 areer /e*elopment entre or 6EA!"+"B /+.+S+>" is an initiati*e t,at enables indi*iduals to
benefit from 46 e0pertise in t,e space and become +ndustry ready +5 professionals# 46 dominates
t,e +5 space as a leader# &L,%%% gifted professionals, a colossal ES K& Billion turno*er, an international
presence in $H countries, and most importantly a deep:rooted commitment to inno*ate, makes it a true
5ec,nology Biant# 46 A!EE! /E.E6>PME"5 E"5!E career program e@uips a student to
meet emerging industry c,allenges -it, finesse and ease# >pportunities to gro- -it, 46 A!EE!
/E.E6>PME"5 E"5!E are limitless, catapulting a student to ,ig, le*el controlling positions in
Mega orporate# Wit, top 46 professionals as t,e trainers, customi=ed career programs, ,ands on
e0perience, state of art infrastructure and -orld class training program t,e studentGs career grap, is
bound to follo- a steep rise#

46 A!EE! /E.E6>PME"5 E"5!E pro*ides specially designed courses in ,ig,:end soft-are,
,ard-are and net-orking integration to groom students into industry:ready professionals# 46
A!EE! /E.E6>PME"5 E"5!E also offers placement support to all t,eir students -,o e0cel in
t,eir academics and display a remarkable performance during t,e course#
As t,e training arm of 46 +nfo systems, 46 A!EE! /E.E6>PME"5 E"5!E carries fort, a
legacy of e0cellence spanning across more t,an t,ree decades# 46 A!EE! /E.E6>PME"5
24
E"5!E is an initiati*e t,at enables indi*iduals and organi=ations to benefit from 46Gs deep
e0pertise in t,e +5 space#
Among t,e fastest gro-ing +5 education brands in +ndia, 46 A!EE! /E.E6>PME"5 E"5!E
offers a complete spectrum of @uality training programs on soft-are, ,ard-are, net-orking as -ell as
global certifications in association -it, leading +5 organi=ations -orld-ide#

Quality at HCL CDC:
UWe s,all de*elop and impart +ndustry rele*ant +5 Education to meet t,e re@uirement of customers,
+ndustry and society by continually updating tec,nology content and impro*ing our process
Certification of quality standards:
U+n its pursuit of e0cellenceU, t,e company ,as de*eloped a @uality management system in line -it,
ISO 9001:2000 standards#
Business Excellence Initiatives:
5,e organi=ation follo-s a frame-ork de*eloped by ECXM ;European Coundation for Xuality
Management<# >rgani=ation policies and strategies are aligned -it, ECXM Model# 5,e UXuest of
E0cellenceU is taken as a mission -,o dri*es t,e @uality of 5raining /eli*ery and associated ser*ices#
Advantage of HCL CAREER DEVELOPMENT CENTRE
At 46 A!EE! /E.E6>PME"5 E"5!E, -e pride upon t,e fact t,at our training programs
pro*ide students -it, a sustainable competiti*e edge t,at not only ,elps t,em secure t,e initial
placement but rat,er remains as an asset t,roug,out t ,eir career span#

25
6earn industry nitty:gritty from 5op 46 professionals#
ustomi=ed and industry specific career program# 4ands on e0perience#
After 46 A!EE! /E.E6>PME"5 E"5!E certification lea*e be,ind your placement
-orriesY
HCL CAREER DEVELOPMENT CENTRE Advantage
46 4eritage: - 46 A!EE! /E.E6>PME"5 E"5!E combines our ,eritage of e0cellence
-it, cutting:edge +5 e0pertise across multiple +5 domains#
+S> (%%$:2%%% ertification: - >ur students s,are t,e benefit of +S> (%%$:2%%% certified training
practices and procedures# Must ,a*e a attitude and be a self starter# 5,e rig,t candidate -ill progress really
fast -it,in t,e organi=ation#
utting:Edge ourse-are: - >ur course-are is designed and de*eloped in consultation -it, seasoned
+5 professionals and is continuously updated as per t,e c,anging industry trends#
Blobal Alliances: - 5,roug, partners,ip -it, leading tec,nology companies including Microsoft, >racle
and !ed 4at, 46 A!EE! /E.E6>PME"5 E"5!E conducts certification programs in soft-are,
system and net-ork administration offering you a distinct edge in t,e )ob market#
+nternational !ecognition: - All our training programs is backed by 46 successful brand image t,at
is -ell recogni=ed all across t,e -orld#
26
4ands:on 5raining: - We place ma)or emp,asis upon t,e application and practical training aspect of +5
training to make t,e students industry:ready from day one#
Widespread "et-ork: - 46 A!EE! /E.E6>PME"5 E"5!E ,as set up premier +5 5raining
centres across t,e geograp,y of +ndia and t,e net-ork is gro-ing at a rapid pace -it, ambitious global
e0pansion plans on t,e an*il#
$%%J Placement !ecord: - >ur dedicated team of placement professionals offers employment support
t,roug, regular interface -it, t,e industry# A!EE! /E.E6>PME"5 E"5!E prides upon a $%%J
placement record -it, students ,a*ing been placed in leading organisations in t,e +5Znon:+5 space#
Findings:
1. /uring my sur*ey -ell asking t,at -,ic, +5 institute do you prefer t,en out of $%%
ustomer 9%J said t,at t,ey -ill prefer 46 learning di*ision# 5,e reason -,ic, is gi*en by t,em is 46
learning di*ision is one of t,e good brand in +5 firm M by )oining 46 t,ere placement got secure#
2. As 46 learning di*ision is pro*iding ma)or type of courses -,ic, + ,a*e sur*eyed t,e area of interest
-,ic, + find out of student more to-ards "A# W,ic, is one of t,e ,ard-are courses t,e reasons be,ind
t,at is most of t,e student are mainly concern -it, ,ard-are or t,ey may be ,a*ing a degree or diploma in
soft-are -,ic, is pro*ided by many ot,er institute#
3. W,en + asked from t,e student -,y t,ey like 46 learning di*ision t,en most of t,em ,ad ans-ered t,at
t,ey -ill get a @uality instead of @uantity in 46 -,ic, is later on follo-ed by brand name because t,e
student kno- t,at 46 company is kno-n to e*eryone M is *ery muc, ob*ious t,at t,e courses -,ic,
pro*ided by 46 -ill be @uality oriented#
27
4. /uring my sur*ey related to its a-areness amongst student most of t,e student replied t,ey get t,e
information related to 46 learning di*ision is mainly t,roug, ne-spapers and broac,ers# As one of t,e
ne- courses so most of t,e students are not a-are of t,ese courses so because of *ery fe- students can able
to kno- about t,e courses to t,eir friends#
5. As 46 is pro*iding *arious facilities like discount coupons, Bank loans so -,ere asking -,ic, offer is
beneficial to students most of t,em i#e# almost '&J is said t,at t,ey -ill prefer opt for Bank loan instead for
discount and coupon t,e reason -,ic, is got is most of t,em -ere ,a*ing t,e perception t,at t,ey -ill go for
loan it -ill be t,e responsibility of 46 to pro*ide t,e )ob#
6. 5,e promotion acti*ities of 46 -ere graded as fair by I%J of t,e students because for its facility of loan
brand name and courses t,at is offered#
7. Well + curiously asked for most of t,e students t,at -,y t,ey are c,oosing t,e 46 learning di*ision t,e
ans-er -,ic, + got *ery muc, similar -,ic, + e0pected most of t,em c,oosing 46 learning di*ision
because 46 ,a*ing brand and good reputation in t,e market# 5,e marker apart from its @uality and price#
8. ompany -as doing *arious promotional acti*ities like 4and Billing, !oad s,o-s,
Seminar and area campaign but -,ere asking -,ic, -as t,e most prefer by t,e students &$J said t,at area
campaign is one of t,e best -ay to contact -it, t,em 9LJ -ere agreed for seminar and 29J for 4and
billing t,is is so because area campaign t,e -ay by -,ic, most of t,e students -eat,er ,e is from college or
sc,ool going or road side one can able to kno- -,at e0actly 46 learning di*ision offering t,em -,ic, is
not fulfill by seminar or ,and billing in a satisfactory position#
9. After asking -,ic, courses mostly preferred by t,e students t,e ans-er -,ic, + got is ma)ority for s,ort
term courses -,ic, is ,a*ing duration of si0 mont, or one year minority -ere asking long term courses
-,ic, is ,a*ing duration of t-o year# 5,is is so because t,e ma)ority of students -,ic, + sur*eyed -ere
doing )ob so t,ey mostly preferred s,ort term courses o*er -it,in si0 mont, and one year#
28
10.6astly + asked t,at -,ic, timing is mostly suits t,em &HJ said t,at e*ening is most suitable for t,em as +
,a*e said earlier t,at most of t,em doing )ob so t,ey don2t -ant to ,amper t,eir )ob for t,is course but as
t,is course -as really suited to t,em t,ey really -ant to do it as a part time courses#
SWOT Analysis HCL Technologies-
Strengths:
1. Wide !ange of Products and Ser*ices like Soft-are Ser*ices, +nfrastructure Management -,ic,
enter into bot, large and medium si=e companies#
2. Blobal o*erage in countries like E#S, Europe, Papan etc
3. Strong employees base of up to L%%%%Pa0#
4. Support sales acti*ities by understanding t,e customer business better#
5. 3eep up to date on -,at competition is doing#
6. +ts re*enue ,as increased from '%#Hbn in 2%%H from $$&bnin2%%( -,ic, s,o-s its increasing trend#
Weakness:
1. >ne of t,e key -eaknesses of 46 is t,at it ,as lost pro)ects in continuation like recently BCS+
cuts pro)ects#
2. 46 ,as al-ays a -eakness in 5+E!$ sectors#
29
3. 5otal asset turno*er is one of t,e -eaknesses of 46 as t,ey ,a*e al-ays failed to materiali=e its
assets in rig,t direction#
4. 6ack of inno*ation and distribution net-ork especially in case of laptops ,as reflected 462s
-eakness#
Opportunities:
1. Ac@uisitions::46 ,as already done 9 ma)or ac@uisitions like 6iberta# 5,is enables t,em to e0pand
and create opportunity for t,em to -ide t,ere spectrum#
2. 3ey opportunities lie in t,e countries like Eastern Europe and APA ;Asia:Pacific !egion<#
3. Mid Market segment is t,e opportunity area as againstfortune2%% companies#
4. >pportunity of doing better on return on e@uity from 2$#&2J by beating Satyam ;2'#%IJ<
5. +ncreasing its market s,are from (#IJ *s# $(#H J; 4P<
Threats:
1. >ne of key t,reat for 46 and t,e industry as a -,ole is t,e ban of outsourcing from +ndia due
to ne- regulations from E#S
2. /ip in @uarterly Sales by LJ can lead to loss of market s,are and product depreciation#
3. Small Players and manufactures are trying to enter into t,e segment -,ere t,ey can pro*ide muc,
c,eaper products t,en 46 -,ic, -ill be a rising competition for 46 to stand#
30
31
Working Capital
Introduction:
+n a -orking capital -e focus on s,ort term finance of a company# +n a business -e include t-o terms
of finance i#e# s,ort term and long term finance it lies in t,e timing of cas, flo-s# S,ort term financial
decisions typically in*ol*e cas, inflo-s and outflo-s t,at take place -it,in a year or less# Cor
e0amples, s,ort term financial decisions are in*ol*ed -,en a firm orders ra- material, pays in cas,,
and anticipate selling finis,ed goods -it,in one year for cas,# >n t,e ot,er ,and, long term financial
decisions are in*ol*ed -,en a firm buys a mac,ine t,at is e0pected to reduce operating costs o*er,
says, t,e ne0t se*en year#
5,e types of decisions t,at fall under t,e general ,eading of s,ort term finance are many? to mention a
fe-:
5,e le*el of cas, t,e firm s,ould maintain#
5,e le*el of s,ort term borro-ing to ,a*e#
redit to be e0tended to customers#
32
+n*entories to be maintained and so on#
Cre@uently, t,e term -orking capital management is used in place of s,ort term financial decisions and
-e s,all also stick only to t,is only# We start -it, t,e types of -orking capital follo-ed by concept and
application of operating cycle in estimating -orking capital needs# We also discuss t,e factors affecting
-orking capital re@uirements and t,e policy of financing -orking capital#
Definition of working capital:
Working capital can be defined as t,e amount of capital required for the smooth and interrupted
functioning of normal business operations of a company.
Working apital refers to t,at part of t,e firm2s capital, -,ic, is re@uired for financing s,ort:term or
current assets suc, a cas, marketable securities, debtors and in*entories# Cunds t,us, in*ested in
current assets keep re*ol*ing fast and are constantly con*erted into cas, and t,is cas, flo- out again in
e0c,ange for ot,er current assets# Working apital is also kno-n as re*ol*ing or circulating capital or
s,ort:term capital#
+n t,e -ords of Shubin, 7Working capital is t,e amount of funds necessary to co*er t,e cost
of operating t,e enterprise8#
According to Genestenberg, 7irculating capital means current assets of a company t,at are
c,anged in t,e ordinary course of business from one form to anot,er, as for e0ample, from
cas, to in*entories, in*entories to recei*ables, recei*ables into cas,8#
33
According to 1.S. Mill, 75,e sum of t,e current assets is t,e -orking capital of a business8#
It is helpful for us, as a business owner, to think of working capital in terms of five components:
1. Cash and equivalents. 5,is most li@uid form of -orking capital re@uires constant super*ision# A
good cas, budgeting and forecasting system pro*ides ans-ers to key @uestions suc, as: +s t,e cas,
le*el ade@uate to meet current e0penses as t,ey come due[ W,at is t,e timing relations,ip bet-een
cas, inflo- and outflo-[ W,en -ill peak cas, needs occur[ W,en and ,o- muc, bank borro-ing
-ill be needed to meet any cas, s,ortfalls[ W,en -ill repayment be e0pected and -ill t,e cas,
flo- co*er it[
2. Accounts receivable. Many businesses e0tend credit to t,eir customers# +f you do, is t,e amount of
accounts recei*able reasonable relati*e to sales[ 4o- rapidly are recei*ables being collected[
W,ic, customers are slo- to pay and -,at s,ould be done about t,em[
3. Inventory. +n*entory is often as muc, as L% percent of a firmGs current assets, so naturally it
re@uires continual scrutiny# +s t,e in*entory le*el reasonable compared -it, sales and t,e nature of
your business[ W,atGs t,e rate of in*entory turno*er compared -it, ot,er companies in your type
of business[
4. Accounts payable. Cinancing by suppliers is common in small business? it is one of t,e ma)or
sources of funds for entrepreneurs# +s t,e amount of money o-ed suppliers reasonable relati*e to
-,at you purc,ase[ W,at is your firmGs payment policy doing to en,ance or detract from your
credit rating[
34
5. Accrued expenses and taxes payable. 5,ese are obligations of your company at any gi*en time
and represent a future outflo- of cas,#
Types of working capital:
Basis of concept:-
35
5,ere are t-o type of -orking capital on t,e basis of concept, namely gross and net -orking capital#
Gross working capital is firm2s total in*estment in current assets# urrent assets are t,e assets
-,ic, can be con*erted into cas, -it,in a year# Cor e0amples cas,, s,ort term securities, account
recei*able, bills recei*able and in*entory#
Net working capital, on t,e ot,er ,and, refers to t,e difference bet-een current assets and current
liabilities# urrent liabilities are t,ose claims of outsiders -,ic, are e0pected to mature for payment
-it,in an accounting year: e0amples include accounts payable, bills payable and outstanding
e0penses#+t must be noted t,at net -orking capital could be bot, positi*e as -ell as negati*e# A
positi*e net -orking capital -ill be arise -,en current assets e0ceeds current liabilities# A negati*e
net -orking capital occurs -,en current liabilities are in e0cess of current assets#
5,e term -orking capital is commonly used interc,angeably -it, net -orking capital# 5,e
definition of -orking capital gi*en abo*e s,o-s t,at purpose of current assets is to pro*ide
sufficient co*er for current liabilities# 4o-e*er, amount of -orking capital, seen from t,is angle, is
obtained from t,e data contained in t,e balance s,eet, -,ic, merely indicates t,e financial position
of a company as on a specific date? it only offers a snaps,ot of current assets and current liabilities
as on t,e balance s,eet date, it fails to capture t,e true and dynamic picture of -orking capital
-,ic, can be obtained only by combining information from bot, balance s,eet and income
statement#
Working capital is t,e amount of capital re@uired for t,e smoot, and interrupted functioning of normal
business operations of a company ranging from t,e procurement of ra- material, con*erting t,e same
into finis,ed products for sale and reali=ing cas, along -it, profit from t,e accounts recei*ables t,at
arise from sale of finis,ed goods on credit# +t can be seen t,at all t,ese aspects are not picked by t,e
balance s,eet based concept to get a true picture of -orking capital position of a company#
36

Concept of time:-
Permanent Working capital and
5emporary Working capital#
Permanent Working capital
Permanent -orking capital refers to t,e minimum amount of all current assets t,at is re@uired at all
times to ensure a minimum le*el of uninterrupted business operations# Some minimum amount of ra-
materials, -ork:in:progress, bank balance, finis,ed goods etc#, a business ,as to carry all t,e time
irrespecti*e of t,e le*el of manufacturing or marketing operations# 5,is le*el of -orking capital is
referred to as core -orking capital or core current assets# But t,e le*el of core current assets is not a
constant sum at all t,e times#
Cor a gro-ing business t,e permanent -orking capital -ill be rising, for a declining business it -ill be
decreasing and for a stable business it -ill almost remain t,e same -it, fe- *ariations# So, permanent
-orking capital is perennially needed one t,oug, not fi0ed in *olume# 5,is part of t,e -orking capital
being a permanent in*estment needs to be financed t,roug, long:term funds# 5,e permanent -orking
capital can be furt,er di*ided into t-o parts:
!egular -orking capital
!eser*e -orking capital
+t re@uired ensuring circulation of current assets from cas, to in*entories, from in*entories to
recei*ables and from recei*ables to cas, and so on# !eser*e -orking capital is t,e e0cess amount o*er
t,e re@uirement for regular -orking capital -,ic, may be pro*ided for contingencies t,at -ay arise at
unstated period suc, as strikes, rise in prices, depression, etc#
Temporary Working capital
37
5,e temporary or *arying -orking capital *aries -it, t,e *olume of operations# +t fluctuates -it, t,e
scale of operations# 5,is is t,e additional -orking capital re@uired from time to time o*er and abo*e
t,e permanent or fi0ed -orking capital#
/uring seasons, more productionZsales take place resulting in larger -orking capital needs# 5,e re*erse
is true during off:seasons# As seasons *ary, temporary -orking capital re@uirement mo*es up and
do-n# 5emporary -orking capital can be financed t,roug, s,ort term funds like current liabilities#
W,en t,e le*el of temporary -orking capital mo*es up, t,e business mig,t use s,ort:term funds and
-,en t,e le*el for temporary -orking capital recedes, t,e business may retire its s,ort:term loans#
.ariable -orking capital can be furt,er classified as:
Seasonal -orking capital
Special -orking capital
Most of enterprises ,a*e to pro*ide additional -orking capital to meet t,e seasonal and special needs#
5,e capital re@uired to meet t,e seasonal needs of t,e enterprise is called seasonal -orking capital#
Special -orking capital is t,at part of -orking capital -,ic, is re@uired to meet special e0igencies suc,
as launc,ing of e0tensi*e marketing campaigns for conducting researc, etc#
Bot, permanent and temporary -orking capitals are necessary to facilitate t,e sales and production
process t,roug, operating cycle#
Operating cycle and cash cycle:
5,e primary concerns in -orking capital management include firms s,ort run operating and financing
acti*ities# Cor a typical manufacturing firm, t,e ma)or s,ort run acti*ities -ill consist of t,e follo-ing
acti*ities and related decisions:
38
5,ese acti*ities entail cas, inflo-s and cas, outflo-s? but t,e cas, flo-s are bot, unsync,roni=ed and
uncertain# 5,ey are unsync,roni=ed because t,e payment of cas, for ra- materials does not take place
at t,e same time as t,e receipt of cas, from sales of t,e finis,ed product# 5,ey are uncertain because
future sales and costs cannot be precisely predicted# 5,ese gi*e rise to -,at is called as operating
cycles and cas, cycle#
Operating cycle:
5,e entire cycle, from t,e time t,e firm ac@uires in*entory to t,e time it collects t,e cas,, takes $%%
days# 5,is is called t,e operating cycle# 5,e operating cycle is t,e lengt, of time it takes to ac@uire
in*entory, sell it, and collect for it# 5,is cycle ,as t-o distinct parts: t,e time it takes to ac@uire and sell
t,e in*entory? a '% day span in our case, is called t,e in*entory con*ersion period? and t,e time it takes
to collect cas, for t,e sales, &% days in our case? called as accounts recei*able ;debtors< con*ersion
period# 5,us, operating cycle is )ust t,e sum of t,e in*entory con*ersion period and accounts
recei*able con*ersion periods:
>perating \ in*entory con*ersion R accounts recei*able
ycle period con*ersion period
$%% days \ '% days R &% days
W,at t,e operating cycle describes is ,o- a product mo*es t,roug, t,e current asset accounts# 5,e
product begins life as in*entory? it is con*erted to a recei*able -,en it is sold, and it is finally
con*erted to cas, -,en -e collect for t,e sales#
Cor a typical manufacturing company, t,e in*entory con*ersion period is t,e total time needed for
producing and selling t,e product and includes:
39
!a- material con*ersion period#
Work in process con*ersion period#
Cinis,ed goods con*ersion period#
Cash cycle
5,ere are number of days t,at pass before t,e firm collects cas, for sales, measured
from it actually pays for t,e in*entory# 5,us, cas, cycle is t,e difference bet-een t,e operating
cycle and t,e accounts payment period#
Cor e0ample, t,e firm does not pay cas, for in*entory until 9% days after ac@uiring it# 5,e inter*ening
9% days period is called t,e accounts payable ;creditors< period# "e0t, t,oug, t,e firm spends cas, on
9%
t,
day, it does not collect cas, till $%%
t,
day# Some,o-, t,e firm must arrange to finance t,e !s $%%%
for $%%:9% \ H% days# 5,is period is called t,e cash cycle or net operating cycle.
as, cycle \ operating accounts payable
ycle period
\ $%% days 9% days
\ H% days
40
Cinis,ed Boods
+n diagram, t,e s,ort term operating acti*ities and cas, flo-s for a typical manufacturing firm by -ay
of a cas, flo- time line# As s,o-n, t,e need for s,ort term financial management arises from gap
41
Work +n
Progress
Wages M Salaries Sundry /ebtors
;aZc recei*ables
!a- material
component
Sundry creditors
;aZc payable<
as,
Selling R distribut
ion general Administration
bet-een t,e cas, inflo-s and t,e cas, outflo-s, -,ic, is related to t,e lengt,s of t,e operating cycle
and t,e accounts payable period#
5,is gap can be filled eit,er by borro-ing or by ,olding a li@uidity reser*e in t,e form of cas, or
marketable securities# Alternati*ely, t,e gap can be s,ortened by c,anging t,e in*entory, recei*able,
and payable periods: all of -,ic, comprise t,e areas of -orking capital management#
Determining Operating And Cash Cycle:-
Raw material conversion period:-
!a- material con*ersion period is t,e a*erage time period taken to con*ert material into -ork in
process#
!. Annual consumption of ra- material component etc#
". A*erage daily consumption ;A Z9'%<
C. A*erage stock of ra- material \ ;>pening stock R closing stock<
2
#. !a- material storage period
42
; Z B< \ n
$
days
Conversion / work in progress period:
Work in progress con*ersion period is t,e a*erage time taken to complete t,e semi finis,ed goods
con*ert -ork in progress into finis,ed goods#
A# Annual cost of production \ opening stock of W+P R consumption of ra- material R
ot,er manufacturing ost Suc, as -ages, salary R
/epreciation losing Stock W+P
B# a*erage daily cost of production ;A Z 9'%<
# a*erage stock of W+P \ ;>pening stock R closing stock<
2
E# a*erage con*ersion period
; Z B< \ n
2

Finished goods storage period:
Cinis,ed goods con*ersion period is t,e a*erage time taken to sell t,e finis,ed goods#
!. Annual cost \ opening stock of finis,ed goods R cost of production R >f sales
E0cise /uty R selling M distribution cost R general Administration cost
R financial cost closing stock >f finis,ed goods
43
". A*erage daily cost of sales ;A Z 9'%<
C. A*erage stock of finis,ed goods \ ;>pening stock R closing stock<
2
#. Cinis,ed goods storage period
; Z B< \ n
9
Average Collection Periods:
+t is t,e a*erage time taken to con*ert accounts recei*ables into cas,#
!. Annual credit sales of company
". A*erage daily credit sales ; A Z 9'%<
C. A*erage balance of sundry debtors \ ;opening stock R closing stock<
2
#. A*erage collection period
Z B \ n
&
Average Payment Periods:
+t is a*erage time taken to con*ert accounts payable into cas, payment#
!. Annual credit purc,ase company
". A*erage daily credit purc,ase ; A Z 9'% <
44
C. A*erage balance sundry creditors \ ; opening balance R closing balance <
2
#. A*erage payment period
n
L
\ Z B
Operating cycle \ ra- material con*ersion period R -ork in progress con*ersion period R
finis,ed goods con*ersion period Raccount recei*able con*ersion period
>perating ycle \ n
$
R n
2
R n
9
R n
&
Cash cycle \ ra- material con*ersion period R -ork in progress con*ersion period R finis,ed
goods con*ersion period Raccount recei*able con*ersion period accounts payable con*ersion
period
as, ycle \ n
$ R
n
2
R n
9
R n
&
n
L
E0ample:
Particulars
!a- material, component etc#
Work in progress
Cinis,ed goods
AZc recei*able
AZc payable
Purc,ases of ra- materials
Opening
Balance
9&L&#I&
L'#$L
'9H#(2
HL'#&L
2L%&#$I
Closing
Balance
&%(L#&$
H2#L%
$%92#H&
$$''#92
9%I&#&H
$%'H'#$%
45
Manufacturing e0penses
/epreciation
ustom M e0cise duties
Selling, administration, financial e0penses
Sales
$$&'#H'
2&H#H2
9L%2L#L'
&LLH#&I
L&2$%#'L
alculate operating cycle [
Answer:
Raw Material Storage Period:
!. Annual consumption \ opening stock R purc,ase closing stock
\ 9&L&#I& R $%'H'#$% &%(L#&$ \ $%%9L#L9
". A*erage daily consumption \ $%%9L#L9Z9'%
\ 2H#II
C. A*erage stock of ra- material \ ;9&L&#I& R &%(L#&$<Z 2
\ 9HHL#$2L
#. !a- material storage period \ 9HHL#$2L Z 2H#II
46
n
$
\ $9L#&% \ $9L
Conversion Period:
!. Annual cost of production \ L'#$L R $%%9L#L9 R $$&'#H' R 2&H#H2 :H2#L% \
$$&$9#''
". A*erage daily cost of production \ $$&$9#''Z9'%
\ 9$#H%
C. A*erage stock of Work in progress\ ;L'#$L R H2#L%< Z 2
\ '&#92
#. A*erage con*ersion period \ '&#92Z 9$#H%
n
2
\ 2
Finished goods storage period:
!. Annual cost of sales \ '9H#(2 R $$&$9#'' R 9L%2L#L' R &LLH#&I $%92#H&
\ L%'%$#II
". A*erage daily ost of sales \ L%'%$#II Z 9'%
\ $&%#L'
C. A*erage stock of Cinis,ed goods \ ;'9H#(2 R $%92#H&< Z 2
\ I9L#99
#. Cinis,ed goods Storage period \ I9L#99Z$&%#L'
n
9
\ L#( ] 'days
47

Average collection period:

!. Annual credit sales \ L&2$%#'L

". A*erage daily credit sale \ L&2$%#'L Z 9'%
\ $L%#L(
C. A*erage balance of Sundry debtors \ ; HL'#&L R $$''#92< Z 2
\ ('$#9I
#. A*erage collection period \ ('$#9IZ $L%#L(
n
&
\

'#9I ] ' days
Average payment period
!. Annual credit purc,ase2s company \ $%'H'#$%
". A*erage daily credit purc,ases \ $%'H'#$%Z9'%
\ 2(#''
C. A*erage balance sundry creditors \ ;2L%&#$IR9%I&#&H<Z2
\ 2H(&#92
#. A*erage payment period \ 2H(&#92Z2(#''
n
L
\ (&#2$ ] (&days
48
Operating cycle \ $9L R 2 R ' R '
\ $&( days
Net operating/ cash cycle $9L R 2 R ' R ' (&
\ LL days
Deferred wages :
5,e firm pays to labor ager a gap of $% days# 5,e amount could be calculated in t,e same -ay as
accounts payable for purc,ases:
Wages Payment Period \ A*erage Wages Payable ^ 9'%Z total -ages
$% \ A*erage Wages Payable ^ 9'%Z total -ages
A*erage Wages Payable \ $%^ total -ages Z 9'%
E0ample:
"umber of toys per year \ H%%%%
6abor cost per unit Z toy \ !s#$(#L
A*erage -ages payable \ [
So,
Wages Payment Period \ A*erage Wages Payable ^ 9'% Z 5otal Wages
$% \ A*erage Wages Payable ^ 9'% Z ;H%%%%^$(#L<
A*erage Wages Payable \ $% ^ H%%%% ^ $(#L Z $%
49
\ !s# 9H($'
Deferred overheads:
>ne mont, ;9% days<, means t,at o*er,eads are paid after one mont,# 5,e
amount -ill be as follo-s:
>*er,eads Payment Period \ A*erage >*er,eads Payable ^ 9'% Z 5otal >*er,ead
9% \ A*erage >*er,eads Payable ^ 9'% Z 5otal >*er,ead
A*erage >*er,eads Payable \ 9%^ 5otal >*er,eads Z 9'%
E0ample
"umber of toys per year \ H%%%%
>*er,eads per unit \ !s# 9(
A*erage o*er ,eads payable \[
So,
>*er,eads Payment Period \ A*erage >*er,eads Payable ^ 9'% Z 5otal >*er,eads
9% \ A*erage >*er,eads Payable ^ 9'% Z ;H%%%%^9(<
A*erage >*er,eads Payable \ 9%^H%%%%^9(Z9'%
\ !s# 2, 2H,L%
Importance of Working Capital Ratios:
!atio analysis can be used by financial e0ecuti*es to c,eck upon t,e efficiency -it, -,ic, -orking
capital is being used in t,e enterprise# 5,e follo-ing are t,e important ratios to measure t,e efficiency
of -orking capital# 5,e follo-ing, easily calculated, ratios are important measures of -orking capital
utili=ation#
50
Ratio Formulas Result Interpretation
Stock
5urno*er
;in days<
A*erage Stock ^ 9'LZ
ost of Boods Sold
\ 0 days >n a*erage, you turn o*er t,e *alue of your entire
stock e*ery 0 days# Fou may need to break t,is
do-n into product groups for effecti*e stock
management#
>bsolete stock, slo- mo*ing lines -ill e0tend
o*erall stock turno*er days# Caster production, fe-er
product lines, )ust in time ordering -ill reduce
a*erage days#
!ecei*ables
!atio
;in days<
/ebtors ^ 9'LZ
Sales
\ 0 days +t take you on a*erage 0 days to collect monies due
to you# +f your official credit terms are &L day and it
takes you 'L days### -,y[
>ne or more large or slo- debts can drag out t,e
a*erage days# Effecti*e debtor management -ill
minimi=e t,e days#
Payables
!atio
;in days<
reditors ^ 9'LZ
ost of Sales ;or
Purc,ases<
\ 0 days >n a*erage, you pay your suppliers e*ery 0 days# +f
you negotiate better credit terms t,is -ill increase# +f
you pay earlier, say, to get a discount t,is -ill
decline# +f you simply defer paying your suppliers
;-it,out agreement< t,is -ill also increase : but your
reputation, t,e @uality of ser*ice and any fle0ibility
pro*ided by your suppliers may suffer#
51
urrent !atio5otal urrent AssetsZ
5otal urrent
6iabilities
\ 0 times urrent Assets are assets t,at you can readily turn in
to cas, or -ill do so -it,in $2 mont,s in t,e course
of business# urrent 6iabilities are amount you are
due to pay -it,in t,e coming $2 mont,s# Cor
e0ample, $#L times means t,at you s,ould be able to
lay your ,ands on K$#L% for e*ery K$#%% you o-e#
6ess t,an $ times e#g# %#HL means t,at you could
,a*e li@uidity problems and be under pressure to
generate sufficient cas, to meet oncoming demands#
Xuick !atio ;5otal urrent Assets
: +n*entory<Z
5otal urrent
6iabilities
\ 0 times Similar to t,e urrent !atio but takes account of t,e
fact t,at it may take time to con*ert in*entory into
cas,#
Working
apital !atio
;+n*entory R
!ecei*ables :
Payables<Z
Sales
As J Sales A ,ig, percentage means t,at -orking capital needs
are ,ig, relati*e to your sales#
52
>t,er -orking capital measures include t,e follo-ing:
Bad debts e0pressed as a percentage of sales#
ost of bank loans, lines of credit, in*oice discounting etc#
/ebtor concentration : degree of dependency on a limited number of customers#
>nce ratios ,a*e been establis,ed for our business, it is important to track t,em o*er time and to
compare t,em -it, ratios for ot,er comparable businesses or industry sectors#
Significance Of Working Capital:
+n*estment in fi0ed assets only is not sufficient to run t,e business# Working capital or in*estment in
current assets, ,o-soe*er small it is, is a must for purc,ase of ra- materials, and for meeting t,e day:
to:day e0penditure on salaries, -ages, rents, ad*ertising etc#, and for maintaining t,e fi0ed assets# 75,e
fate of large scale in*estment in fi0ed capital is often determined by a relati*ely small amount of
current assets#8 Working capital is )ust like a ,eart of industry if it is -eak, t,e business cannot prosper
and sur*i*e, alt,oug, t,ere is a large body ;in*estment< of fi0ed assets#
Moreo*er, not only t,e e0istence of -orking capital is a must for t,e industry, but it must be ade@uate
also# Ade@uacy of t,e -orking capital is t,e lifeblood and controlling ner*e center of a business#
+nade@uate as -ell as redundant -orking capital is dangerous for t,e ,ealt, of industry# +t is said,
1+nade@uate -orking capital is disastrous? -,ereas redundant -orking capital is a criminal -aste2# Bot,
situations are not -arranted in a sound organi=ation#
5,e ad*antages of -orking capital or ade@uate -orking capital may be enumerated as belo-: :

1. Cash Discount:
+f a proper cas, balance is maintained, t,e business can a*ail t,e ad*antage of cas, discount by paying
cas, for t,e purc,ase of ra- materials and merc,andise# +t -ill result in reducing t,e cost of
production#
2. It creates a Feeling of Security and Confidence:
53
5,e proprietor or officials or management of a concern are @uite carefree, if t,ey ,a*e proper -orking
capital arrangements because t,ey need not -orry for t,e payment of business e0penditure or creditors#
Ade@uate -orking capital creates a sense of security, confidence and loyalty, not only t,roug,out t,e
business itself, but also among its customers, creditors and business associates#
3. Must` for Maintaining Solvency and Continuing Production:
+n order to maintain t,e sol*ency of t,e business, it is but essential t,at t,e sufficient amount t of fund
is a*ailable to make all t,e payments in time as and -,en t,ey are due# Wit,out ample -orking capital,
production -ill suffer, particularly in t,e era of cut t,roat competition, and a business can ne*er
flouris, in t,e absence of ade@uate -orking capital#
4. Sound Goodwill and Debt Capacity:
+t is common e0perience of all prudent businessmen t,at promptness of payment in business creates
good-ill and increases t,e debt of t,e capacity of t,e business# A firm can raise funds from t,e market,
purc,ase goods on credit and borro- s,ort:term funds from bank, etc# +f t,e in*estor and borro-ers
are confident t,at t,ey -ill get t,eir due interest and payment of principal in time#
5. Easy Loans from the Banks:
An ade@uate -orking capital i#e# e0cess of current assets o*er current liabilities ,elps t,e company to
borro- unsecured loans from t,e bank because t,e e0cess pro*ides a good security to t,e unsecured
loans, Banks fa*or in granting seasonal loans, if business ,as a good credit standing and trade
reputation#
6. Distribution of Dividend:
+f company is s,ort of -orking capital, it cannot distribute t,e good di*idend to its s,are,olders inspite
of sufficient profits# Profits are to be retained in t,e business to make up t,e deficiency of -orking
capital# >n t,e ot,er contrary, if -orking capital is sufficient, ample di*idend can be declared and
distributed# +t increases t,e market *alue of s,ares#
7. Exploitation of Good Opportunity:
+n case of ade@uacy of capital in a concern, good opportunities can be e0ploited e#g#, company may
make off:season purc,ases resulting in substantial sa*ings or it can fetc, big supply orders resulting in
good profits#
54
8. Meeting Unseen Contingency:
/epression s,oots t,e demand of -orking capital because sock piling of finis,ed goods become
necessary# ertain ot,er unseen contingencies e#g#, financial crisis due to ,ea*y losses, business
oscillations, etc# can easily be o*ercome, if company maintains ade@uate -orking capital#
9. High Morale:
5,e pro*ision of ade@uate -orking capital impro*es t,e morale of t,e e0ecuti*e because t,ey ,a*e an
en*ironment of certainty, security and confidence, -,ic, is a great psyc,ological, factor in impro*ing
t,e o*erall efficiency of t,e business and of t,e person -,o is at t,e ,ell of fairs in t,e company#
10.Increased Production Efficiency:
A continuous supply of ra- material, researc, programme, inno*ations and tec,nical de*elopment and
e0pansion programmes can successfully be carried out if ade@uate -orking capital is maintained in t,e
business# +t -ill increase t,e production efficiency, -,ic, -ill, in turn increases t,e efficiency and
morale of t,e employees and lo-er costs and create image among t,e community#
Strategies to overcome the problem:
A Manage -orking capital in*estment or financing suc, as
A 4olding additional cas, balances beyond e0pected needs
A 4olding a reser*e of s,ort term marketable securities
A Arrange for a*ailability of additional s,ort:term borro-ing capacity
A >ne of t,e -ays to address t,e problem of fi0ed set:up cost may be to ,old
in*entory#
A >ne or combination of t,e abo*e strategies -ill target t,e problem
55
Factors Determining Working Capital:
1. "ature of t,e Business
2. Si=e of business
3. Production policies
4. Production cycle
5. redit policy
6. !apidity of turno*er
7. Seasonal fluctuation
8. Price le*el c,anges
9. >t,ers factors

1. Nature of the business:
Working capital also depends upon t,e nature of t,e business# Public utility concerns like rail-ay,
electricity etc# ,a*e a *ery little need of -orking capital since most of t,eir transaction are on cas, basis#
>n t,e ot,er ,and ordinary manufacturing and trading concerns re@uire sufficient -orking capital,
since t,ey ,a*e to in*est substantially in in*entories and debtors#
2. Size of Business
Si=e of business is anot,er influencing factor# As si=e increases, t,e -orking capital re@uirement is also
more and *ice *ersa#
3. Production policies:
5,e production policies pursued by t,e management ,a*e a significant effect on t,e re@uirement of
-orking capital of t,e business# 5,e decision about t,e management regarding automation, etc# -ill also
56
,a*e its effect on -orking capital# >n case of labor intensi*e industries t,e -orking capital
re@uirements -ill be more# W,ile in t,e case of ,ig,ly automatic plant t,e re@uirement of long term
funds -ill be more#
4. Production cycle
5,e time lapse bet-een feeding of ra- material into t,e mac,ine and obtaining t,e finis,ed goods out
from t,e mac,ine is -,at is described as t,e lengt, of manufacturing process# +t is ot,er-ise kno-n as
con*ersion time# 6onger t,is time period, ,ig,er is t,e *olume and *alue of -ork:in:progress and
,ence ,ig,er t,e re@uirement of -orking capital and *ice *ersa#
5. Credit policy:
A company -,ic, allo-s liberal credit to its customers may ,a*e ,ig,er sales but -ill need more
-orking capital# A concern t,at purc,ases its re@uirements on credit and sells its productsZser*ices on
cas, re@uires less amount of -orking capital#
6. Rapidity of turnover:
A company ,a*ing ,ig, rate of turno*er -ill need lo-er amount of -orking capital as compared to a
company -,ic, ,as a lo-er turno*er#
7. Seasonal fluctuations:
+n case of seasonal industries like sugar and -oolen te0tiles, t,eir -orking capital re@uired during t,e
particular season -ill be ,ig,er t,an ot,er periods#
8. Price level changes:
,anges in t,e price le*el also affect t,e -orking capital re@uirements# Benerally, t,e rising prices -ill
re@uire t,e firm to maintain larger amount of -orking capital as more funds -ill be re@uired to maintain
t,e same current assets#
5,e effect of rising prices may be different for different firms# Some firms may be affected muc,
-,ile some ot,ers may not be affected at all by t,e rise in prices#
57
9. Other factors:
ertain ot,er factors suc, as operating efficiency, management ability, irregularities of supply,
import policy, asset structure, importance of labour, banking facilities, etc# also influences t,e re@uirements
of -orking capital#
Excess Or Inadequate Working Capital:
E*ery business concern s,ould ,a*e ade@uate -orking capital to run its business operations# +t
s,ould ,a*e neit,er redundant or e0cess -orking capital nor inade@uate nor s,ortage of -orking
capital# Bot, e0cess as -ell as s,ortage of -orking capital situations are bad for any business#
4o-e*er, out of t,e t-o, inade@uacy or s,ortage of -orking capital is more dangerous from t,e
point of *ie- of t,e firm#
Disadvantages of Redundant or Excess Working Capital -
+dle funds, non:profitable for business, poor !>+#
Ennecessary purc,asing M accumulation of in*entories o*er re@uired le*el#
E0cessi*e debtors and defecti*e credit policy, ,ig,er incidence of BZ/#
>*erall inefficiency in t,e organi=ation#
W,en t,ere is e0cessi*e -orking capital, redit -ort,iness suffers
/ue to lo- rate of return on in*estments, t,e market *alue of s,ares may fall
58
Disadvantages or Dangers of Inadequate or Short Working Capital -
an2t pay off its s,ort:term liabilities in time#
Economies of scale are not possible#
/ifficult for t,e firm to e0ploit fa*ourable market situations
/ay:to:day li@uidity -orsens
+mproper utili=ation t,e fi0ed assets and !>AZ!>+ falls s,arply

5,e rate of return on in*estments also falls -it, t,e s,ortage of -orking capital#
The need or objects of working capital:

5,e need for -orking capital cannot be o*er emp,asi=ed# E*ery business needs some amount of
-orking capital# 5,e need for -orking capital arises due to t,e gap bet-een production and reali=ation
of cas, from sales# 5,ere is an operating cycle in*ol*ed in t,e sales and reali=ation of cas,# 5,ere are
time gaps in purc,ase of ra- materials and production? and sales and reali=ation of cas,# 5,us, -orking
capital is needed for t,e follo-ing purpose:
1. Cor t,e purc,ase of ra- materials, components and spares#
59
2. 5o pay -ages and salaries#
3. 5o incur day to day e0penses and o*er,eads costs suc, as fuel, po-er and office e0penses, etc#
4. 5o meet t,e selling costs as packing, ad*ertising, etc#
5. 5o pro*ide credit facilities to t,e customers#
6. 5o maintain t,e in*entories of ra- material, -ork in progress, stores and spares and finis,ed stock#
Management Of Working Capital (WCM):
Management of -orking capital is concerned -it, t,e problems t,at arise in attempting to manage t,e
current assets, t,e current liabilities and t,e inter:relations,ip t,at e0ists bet-een t,em# +n ot,er -ords,
it refers to all aspects of administration of A and 6# management -ill use a combination of policies
and tec,ni@ues for t,e management of -orking capital# 5,e policies aim at managing t,e current assets
;generally cas, and cas, e@ui*alents, in*entories and debtors< and t,e s,ort term financing, suc, t,at
cas, flo-s and returns are acceptable#
Cash management # +dentify t,e cas, balance -,ic, allo-s for t,e business to meet day to day
e0penses, but reduces cas, ,olding costs#
Inventory management# +dentify t,e le*el of in*entory -,ic, allo-s for uninterrupted
production but reduces t,e in*estment in ra- materials : and minimi=es reordering costs : and ,ence
increases cas, flo-# Besides t,is, t,e lead times in production s,ould be lo-ered to reduce Work in
Process ;W+P< and similarly, t,e Cinis,ed Boods s,ould be kept on as lo- le*el as possible to a*oid
o*er production : see Supply c,ain management? Pust +n 5ime ;P+5<? Economic order @uantity ;E>X<?
Economic @uantity.
Debtors management# +dentify t,e appropriate credit policy, i#e# credit terms -,ic, -ill attract
customers, suc, t,at any impact on cas, flo-s and t,e cas, con*ersion cycle -ill be offset by increased
re*enue and ,ence !eturn on apital ;or *ice *ersa<? see /iscounts and allo-ances#
60
Short term financing# +dentify t,e appropriate source of financing, gi*en t,e cas, con*ersion
cycle: t,e in*entory is ideally financed by credit granted by t,e supplier? ,o-e*er, it may be necessary
to utili=e a bank loan ;or o*erdraft<, or to Ucon*ert debtors to cas,U t,roug, UfactoringU
Working apital Management Policies of a firm ,a*e a great effect on its profitability, li@uidity and
structural ,ealt, of t,e organi=ation# +n t,is conte0t, -orking capital management is t,ree dimensioned
in nature:
3D Nature of Working Capital Management
$. /imension first is concerned -it, t,e formulation of policies -it, regard to profitability, risk
and li@uidity#
$$. /imension second is concerned -it, t,e decision about t,e composition and le*el of current
assets#
$$$. /imension t,ird is concerned -it, t,e decision about t,e composition and le*el of current
liabilities#
Aims of Working Capital Management:
61
1. 5,e goal of -orking capital management is to manage t,e firm2s current assets and current
liabilities in suc, a -ay t,at a satisfactory le*el of -orking capital is maintained, to meet t,e
s,ort:term obligations as and -,en t,ey arise#
2. A significant ob)ecti*e of -orking capital management is to ensure s,ort:term li@uidity and to
see t,at profitability is not affected by t,e -ay current assets and current liabilities are
managed#
3. 5,e main t,eme of -orking capital management is t,e interaction bet-een t,e current assets
and t,e current liabilities and arri*es at t,e optimum le*el of bot,# 5,e optimum le*el t,us
arri*ed must ,a*e pro*ision for contingencies#
4. 5rade:off bet-een Profitability and !isk: 5,e le*el of a firm2s "et -orking capital ,as a
bearing on its profitability as -ell as risk# 5,e term profitability used in t,is conte0t is measured
by profits after e0penses# 5,e term risk is defined as t,e probability t,at a firm -ill become
tec,nically insol*ent so t,at it -ill not be able to meet its obligations -,en t,ey become due for
payment# 5,e risk of becoming tec,nically insol*ent is measured using "et Working apital#
5,e greater t,e net -orking capital, t,e more li@uid t,e firm is and t,erefore t,e less likeli,ood
of it becoming tec,nically insol*ent# 5,e relations,ip bet-een li@uidity, net -orking capital and
risk is suc, t,at if eit,er net -orking capital or li@uidity increases, t,e firmGs risk decreases#
5. 5rade:off: +f a firm -ants to increase its profits, it must also increase its risk# +n*ersely, if it
decreases risk, its profitability too tends to decrease# 5,e trade:off bet-een t,ese *ariables is
t,at regardless of ,o- t,e firm increases its profitability t,roug, t,e manipulation of -orking
capital, t,e conse@uence is a corresponding increase in risk as measured by t,e le*el of "et
-orking capital#
6. Apart from t,e profitability risk trade:off, anot,er important ingredient of t,e t,eory of
-orking capital management is determining t,e financing mi0# Cinancing mi0 refers to t,e
proportion of current assets t,at -ould be financed by current liabilities and by long:term
resources#
Principles Of Working Capital Management /Policy:
62
1. Principle of risk variation:-
!isk ,ere refers to t,e inability of a firm to meet its obligation as and -,en
t,ey become due payment# 6arger in*estment in current assets -it, less dependence on s,ort term
borro-ings increase li@uidity, reduces dependence on s,ort term borro-ings increases li@uidity,
reduces risk and t,ereby decrease t,e opportunity for gain or loss# >n t,e ot,er ,and less in*estment in
current assets -it, dependence on s,ort term borro-ings, reduce li@uidity and increase profitability#
+n ot,er -ords, t,ere is a definite in*erse relations,ip bet-een t,e degree of risk and profitability# A
conser*ati*e management prefers to minimi=e risk by maintaining a ,ig,er le*el of current assets or
-orking capital -,ile a liberal management assumes greater risk by reducing -orking capital#
4o-e*er, t,e goal of t,e management s,ould be to establis, a suitable tradeoff bet-een profitability
and risk#
2. Principle of cost of capital:-
5,e *arious sources of raising -orking capital finance ,a*e different cost
of capital and degree of risk in*ol*ed# Benerally, ,ig,er t,e risk lo-er is t,e cost and lo-er t,e risk
,ig,er is t,e cost# A sound -orking capital management s,ould al-ays try to ac,ie*e a proper balance
bet-een t,ese t-o#
3. Principle of Equity position:-
5,is principle is concerned -it, planning t,e total in*estment in current
assets# According to t,is principle, t,e amount of -orking capital in*ested in eac, component s,ould
be ade@uately )ustified by a firm2s e@uity position# E*ery rupee in*ested in current &assets s,ould
63
contribute to net -ort, of t,e firm# 5,e le*el of current assets may be measured -it, t,e ,elp of t-o
ratios:
$. urrent assets as a percentage of total assets#
$$. urrent assets as a percentage of total sales#
W,ile deciding about t,e composition of current assets, t,e financial manager may consider t,e
rele*ant industrial a*erage2s#
4. Principle of maturity of payment:-
5,is principle is concerned -it, planning t,e sources of finance for
-orking capital# According to t,is principle, a firm s,ould make e*ery effort to relate maturities of
payment to its flo- of internally generated funds# Maturity pattern of *arious current obligations is an
important factor in risk assumptions and risk assessments# Benerally, s,orter t,e maturity sc,edule of
current liabilities in relation to e0pected cas, inflo-s, t,e greater inability to meet its obligations in
time#
Forecasting / Estimation Of Working Capital Requirements:
7Working capital is t,e life blood and controlling ner*e centre of a business#8 "o business can be
successfully run -it,out an ade@uate amount of -orking capital# 5o a*oid t,e s,ortage of -orking
capital at once, an estimate of -orking capital re@uirements s,ould be made in ad*ance so t,at
arrangement can be made to procure ade@uate -orking capital#
Methods of forecasting working capital requirements-
64
5,e follo-ing met,ods are usually follo-ed in forecasting -orking capital re@uirements of a firm:
1. Percentage of sales met,od
2. !egression analysis met,od ;a*erage relations,ip bet-een sales and -orking capital<
3. as, forecasting met,od
1. Percentage of sales method:-
5,is met,od of estimating -orking capital re@uirements is based on t,e
assumption t,at t,e le*el of -orking capital for any firm is directly related to its sales *alue# +f past
e0perience indicates a stable relations,ip bet-een t,e amount of sales and -orking capital, t,en t,is
basis may be used to determine t,e re@uirements of -orking capital for future period# +f sales for t,e
year 2%%H amounted to 9%, %%,%%% and -orking capital re@uired as ', %%,%%%? t,e re@uirement of
-orking capital for t,e year 2%%I on an estimated sales of &%, %%,%%% s,all be I,%%,%%%? i#e# 2%J
of &%,%%,%%%# 5,e indi*idual items of current assets and current liabilities can also be estimated on
t,e basis of t,e past e0perience as a percentage of sales# 5,is met,od is simple to understand and easy
to operate but it cannot be applied in all cases because t,e direct relations,ip bet-een sales and
-orking capital may not be estimated#
E0ample: t,e follo-ing information ,as been pro*ided by a company for t,e year ended 9%#'#2%%I#
6iabilities Assets
E@uity s,are capital
IJ debenture
2,%%,%%%
$,%%,%%%
Ci0ed assets less depreciation
+n*entories
9,%%,%%%
$,%%,%%%
65
!eser*e and surplus
6ong term loan
Sundry creditors
L%,%%%
L%,%%%
I%,%%%
&,I%,%%%
Sundry debtors
as, and bank
H%,%%%
$%,%%%
&,I%,%%%
Sales for t,e ended 9%#'#2%%I amounted to $%,%%,%%% and it is estimated t,at t,e same -ill amount
to $2,%%,%%% for t,e year 2%%I:%(#
Fou are re@uired to estimate t,e -orking capital re@uirements for t,e year 2%%I:%( assuming a linear
relations,ip bet-een sales and -orking capital#
Solution:
Estimating of -orking capital re@uirements
Actual
2007-08
( )
age to sales
2007-08
Estimate
2008-09
( )
Sales $%,%%,%%% $%% $2,%%,%%%
urrent assets:
+n*entories
Sundry debtors
as, and bank
5otal current assets ;A<
$,%%,%%%
H%,%%%
$%,%%%
$,I%,%%%
$%
H
$
$I
$,2%,%%%
I&,%%%
$2,%%%
2,$',%%%
66
urrent liabilities:
Sundry creditors
5otal current liabilities ;6<
I%,%%%
I%,%%%
I
I
(',%%%
(',%%%
Working capital ;A:6< $,%%,%%% $% $,2%,%%%
2. Regression analysis method (average relationship between sales and working capital):-
5,is met,od of forecasting -orking capital re@uirements is based upon t,e statistical
tec,ni@ue of estimating or predicting t,e unkno-n *alue of a dependent *ariable from t,e kno-n *alue
of an independent *ariable# +t is t,e measure of t,e a*erage relations,ip bet-een t-o or more *ariables,
i#e#? sales and -orking capital, in terms of t,e original units of data#
5,e relations,ip bet-een sales and -orking capital is represented by e@uation:
W,ere, y \ -orking capital ;dependent *ariable<
a \ intercept of t,e least s@uare
67
y \ a R b0
b \ slope of t,e regression line
0 \ sales ;independent *ariables<
Cor determining t,e *alue 1a2 and 1b2 t-o normal e@uations are used -,ic, can be sol*ed
simultaneously:

E0ample: 5,e sales and -orking capital figures of Su*id,a ltd# for a period of L years are gi*en as
follo-s:
Fear Sales
;in lak,s<
Working capital
;in lak,s<
2%%9:%&
2%%&:%L
2%%L:%'
2%%':%H
'%
I%
$2%
$9%
$2
$L
2%
2$
68
_y \ na R b_0
_0y \ a_0 R b_0
2
2%%H:%I $'% 29
Fou are re@uired to forecast t,e -orking capital re@uirements of t,e company for t,e year 2%%I:%(
taking t,e estimated sales of 2%% lak,s#
Solution:
5,e relations,ip bet-een sales and -orking capital can be represented by:
y \ a R b0
Fear Sales
;0<
Working capital
;y<
Dy 0
2
2%%9:%&
2%%&:%L
2%%L:%'
2%%':%H
2%%H:%I
'%
I%
$2%
$9%
$'%
$2
$L
2%
2$
29
H2%
$2%%
2&%%
2H9%
9'I%
9'%%
'&%%
$&&%%
$'(%%
2L'%%
n \ L _x 550 _y 91 _xy 10730 _x
2
66900
69
_y \ na R b_0
_0y \ a_0 R b_0
2
Putting t,e *alues in t,e abo*e e@uations:
($ \ La R LL%b ;$<
$%H9% \ LL%a R ''(%%b ;2<
Multiplying e@uation ;$< -it, $$%, -e get:
$%%$% \ LL%a R '%L%%b ;9<
Subtracting e@uation ;9< e@uation ;2<
H2% \ % R '&%%b
b \ %#$$2L
Putting t,e *alue of b in e@uation ;$<
($ \ La R LL% ^ %#$$2L
($ \ La R '$#IHL
La \ 2(#$2L
a \ L#I2L
"o-, putting t,e *alue of 1a2 and 1b2 in t,e e@uation y \ a R b0 ;-,ere y and 0 are estimated -orking
capital and estimated sales respecti*ely<
y \ a R b0
y \ L#I2L R %#$$2L ^ 2%%
y \ 2H#I2L
70
5,us, -,en estimated sales for 2%%I:%( are 2%% lak,s, t,e amount of estimated -orking capital s,all
be 2H#I2L lak,s#
3. Cash forecasting method:-
5,is met,od of estimating -orking capital re@uirements in*ol*es
forecasting of cas, receipts and disbursements during a future period of time# as, forecast -ill
include all possible sources from -,ic, cas, -ill be recei*ed and t,e c,annels in -,ic, payments are
to be made so t,at a consolidated cas, position is determined#
5,is met,od is similar to t,e preparation of a cas, budget# 5,e e0cess of receipts o*er payments
represents surplus of cas, and t,e e0cess of payments o*er receipts causes deficit of cas, or t,e amount
of -orking capital re@uired# 5,e follo-ing e0ample e0plains t,e cas, forecasting met,od of estimating
-orking capital re@uirements#
E0amples: 5e0as manufacturing company 6td# is to start production on $ Panuary 2%%(# 5,e
prime cost of a unit is e0pected to be &% out of -,ic, $' is for materials and 2& for labor#
+n addition, *ariable e0pense per unit are e0pected to be I and fi0ed e0pense per mont,
9%%%%# Payment for material is to be made in t,e mont, follo-ing t,e purc,ases# >ne t,ird of sales
-ill be for cas, and t,e rest on credit for settlement in t,e follo-ing mont,# E0pense are payable in
t,e mont, in -,ic, t,ey are incurred# 5,e selling price is fi0ed at I% per unit#
5,e numbers of units manufacturing and sold are e0pected to be as under:
71
Panuary (%%
Cebruary $2%%
Marc, $I%%
April 2$%%
May 2$%%
Pune 2&%%
/ra- up a statement s,o-ing re@uirements of -orking capital from mont, to mont,, ignoring t,e
@uestion of stocks#

Statement S,o-ing !e@uirement >f Working apital
1an.

Feb.

March

April

May

1une

72
Payments:
Materials
Wages
Ci0ed e0penses
.ariable e0penses
!eceipts:
as, sales
/ebtors
Working capital re@uired
;payments:receipts<
Surplus
umulati*e
!e@uirements of -orking
capital:
Surplus -orking capital
:
2$'%%
9%%%%
H2%%
LII%%
2&%%%
:
2&%%%
9&I%%
:
9&I%%
$&&%
%
2II%
%
9%%%
%
('%%
I2I%
%
92%%
%
&I%%
%
I%%%
%
2I%%
:
9H'%
%
$(2%%
&92%%
9%%%%
$&&%%
$%'I%%
&I%%%
'&%%%
$$2%%%
:
L2%%
92&%%
2II%%
L%&%%
9%%%%
$'I%%
$2'%%%
L'%%%
('%%%
$L2%%%
:
2'%%%
'&%%
99'%%
L%&%%
9%%%%
$'I%%
$9%I%%
L'%%%
$$2%%%
$'I%%%
:
9H2%%
:
9%I%%
99'%%
LH'%%
9%%%%
$(2%%
$&%&%%
'&%%%
$$2%%%
$H'%%%
:
9L'%%
:
''&%%
73
Working note:
As payment for material is made in t,e mont, follo-ing t,e purc,ase, t,ere is no payment for
material in Panuary# +n Cebruary, material payment is calculated as (%% ^ $' \ $&&%% and in t,e
same manner for ot,er mont,s#
as, sales are calculated as:
Cor Panuary (%% 1I%2$Z9 \ 2&%%% and in t,e same manner for ot,er mont,s#
!eceipts from debtors are calculated as:
Cor Pan# "il because cas, from debtors is collected in t,e mont, follo-ing t,e sales#
Cor Ceb# (%%2I%22Z9 \ &I%%%
Cor Marc, $2%%2I%22Z9 \ '&%%%, and so on#
Factors requiring consideration while estimating working capital:
74
5,e estimating of -orking capital re@uirement is not an easy task and large numbers of factors ,a*e to
be considered before starting t,is e0ercise# Cor a manufacturing organi=ation, t,e follo-ing factors
,a*e to be taken into consideration -,ile making an estimate of -orking capital re@uirements:

Factors to be considered-
A 5otal costs incurred on materials, -ages and o*er,eads
A 5,e lengt, of time for -,ic, ra- materials remain in stores before t,ey are issued to production#
A 5,e lengt, of t,e production cycle or W+P, i#e#, t,e time taken for con*ersion of !M into CB#
A 5,e lengt, of t,e Sales ycle during -,ic, CB are to be kept -aiting for sales#
A 5,e a*erage period of credit allo-ed to customers#
A 5,e amount of cas, re@uired to pay day:to:day e0penses of t,e business#
A 5,e amount of cas, re@uired for ad*ance payments if any#
A 5,e a*erage period of credit to be allo-ed by suppliers#
A 5ime lag in t,e payment of -ages and ot,er o*er,eads
A 5,e a*erage amount of ad*ance recei*ed, if any
Crom t,e total amount blocked in current assets estimated on t,e basis of first se*en item of gi*en
abo*e, t,e total of t,e current liabilities, i#e#, t,e last t,ree items, is deducted to find out t,e
re@uirements of -orking capital#
+n case of purely trading concerns, points $, 2 and 9 -ould not arise but all ot,er factors from points &
to $% are to be taken into consideration#
75
+n ot,er to pro*ide for contingencies, some e0tra amount generally calculated as a fi0ed percentage of
t,e -orking capital may be added as a margin of safety#
Suggested proformas for estimation of -orking capital re@uirements are gi*en as belo-:
Proforma - Working Captial Estimates:
1. Trading Concern-
2. Manufacturing concern -
3. Columnar form:
An alternati*e proforma for estimating of -orking capital re@uirements in columnar
form gi*en belo-:
76
WORKING CAPITAL FINANCING POLICIES:-
A gro-ing firm can be t,oug,t of as ,a*ing a total assets re@uirement consisting of t,e current assets
and long term assets and long term assets for its efficient operations# 5,e total assets re@uirement may
e0,ibit c,ange o*er time for many reasons, suc, as general gro-t, trend, seasonal *ariations around
t,e trend, and unpredictable day to day and mont, to mont, fluctuations# 5,ese fluctuations are
depicted in diagram# +t seldom ,appens t,at net -orking capital goes to =ero# As discussed earlier,
companies ,a*e some permanent -orking capital, -,ic, is t,e net -orking capital on ,and at t,e lo-
point of t,e business cycle# 5,en, as sales increase, net -orking capital must be increased, and t,is
addition is t,e temporary part of net -orking capital# 5,e manner in -,ic, t,e permanent and
temporary portions of net -orking capital are financed is called as -orking capital financing policies#
Broadly speaking, a company can follo- t,ree approac,es namely, maturity matc,ing approac,,
aggressi*e approac,, and conser*ati*e approac,# We briefly discuss eac, of t,ese as follo-s:
Seasonal .ariation

!upees

5otal assets
!e@uirement

77
Beneral gro-t, in
6ong term assets M
Permanent Mcurrent assets
5ime
1. Maturity Matching / Self-Liquidating Approach:-
Maturity matc,ing means to matc, asset and liability maturities# As s,o-n in panel 1a2 of figure t,e
maturity matc,ing approac, focuses on matc,ing maturity of assets and liability# 5,is strategy
minimi=es t,e risk t,at t,e firm -ill be unable to pay off its maturing obligations# 5o illustrate, suppose
a company arises a one year loan to and uses t,e funds obtained to build and e@uip a plant# >b*iously,
cas, flo- from t,e plant ;t,at is profits and depreciation< -ould not be enoug, to pay off t,e loan at t,e
end of only one year, t,erefore t,e firm -ould be force to rene- t,e loan# 4o-e*er, if t,e lender
refuses to rene- t,e loan, t,e company -ould be in trouble# 4o-e*er, if t,e plant ,ad been financed
-it, long term debt, t,e re@uired loan payments -ould ,a*e been better matc,ed -it, cas, flo-s from
t,e plant, and t,e rene-al -ould not be needed#
As a limiting case, t,e company could try to matc, e0actly t,e maturity of all of its assets and
liabilities# Cor e0ample, in*entory e0pected to be sold in 9% days could be financed -it, a 9% days bank
loan? and a 2% year building could be financed -it, a 2% year mortgage and so on# +n simple -ords, t,e
source of finance use ,as same maturity as t,e life of t,e assets for -,ic, t,e financing ,as been done#
5,e policy looks @uite useful as it minimi=es t,e -astage of funds# 4o-e*er, t,e risk t,at t,is policy
entails is t,at if t,e cas, from t,e assets do not take place on time, t,e firm -ould not be able to pay
78
back and forced into rene-al situation# 5,e cost of funds for t,e rene-al case could be unattracti*e,
and mig,t it t,e profit of t,e company#
2. Aggressive Approach:-
4ere, as s,o-n in panel 1b2 of figure, a relati*ely aggressi*e company
finances all of its long term assets and a part of permanent net -orking capital -it, long term assets
and rest permanent -orking capital -it, s,ort term debt# 5,e term 1relati*ely2 ,as been used because
t,ere can be different degrees of aggressi*eness# Cor e0ample, t,e das,ed line in panel 1b2 could ,a*e
been dra-n belo- t,e line s,o-ing long term assets, indicating t,at all of t,e permanent net -orking
capital e*en some part of long term assets ,a*e been financed -it, s,ort term debt? t,is -ould be a
,ig,ly aggressi*e position, and t,e firm -ould be *ery muc, e0posed to dangers from rising interest
rates as -ell as to loan rene-al problems# 4o-e*er, because s,ort term debt is generally c,eaper t,an
long term debt, some companies are ready to sacrifice safety for t,e c,ance of better profit#
79
3. Conservative Approach:-
As s,o-n in panel 1c2 of figure t,e das,ed line is abo*e t,e line
s,o-ing permanent net -orking capital, meaning t,at long term sources ,a*e been employed to
finance all permanent assets and also to meet some of t,e temporary re@uirements# 5,e peak
re@uirements could be met out of small amount of s,ort term debt? but it also finances a part of t,e
seasonal needs by putting t,e money in marketable securities# 5,e ,umps abo*e t,e das,ed line
represent s,ort term financing, -,ile t,e troug,s belo- t,e das,ed line represent in*esting in
marketable securities# 5,is approac,, as t,e name suggests, is a *ery safe, conser*ati*e -orking capital
financing policy as t,ere is no risk of going out of li@uidity# 4o-e*er, since long term debt is normally
costlier, in*estments in cas, and marketable securities are =ero net present *alue in*estments at best,
t,e safety comes at t,e cost of lo-er profits#
80
Three alternative working capital investment policies
Conclusion:
Any c,ange in t,e -orking capital -ill ,a*e an effect on a businessGs cas, flo-s# A positi*e c,ange in
-orking capital indicates t,at t,e business ,as paid out cas,, for e0ample in purc,asing or con*erting
in*entory, paying creditors etc# 4ence, an increase in -orking capital -ill ,a*e a negati*e effect on t,e
businessGs cas, ,olding# 4o-e*er, a negati*e c,ange in -orking capital indicates lo-er funds to pay off
s,ort term liabilities ;current liabilities<, -,ic, may ,a*e bad repercussions to t,e future of t,e
company#
81

82
AAEDE!E

Xuestionnaire
5,is @uestionnaire is to be used entirely for t,e purpose of conducting a study# 5,e information
pro*ided by you s,all be kept confident# + t,erefore s,all appreciate your cooperation for being frank
an e0pressi*e in your ans-ers#
83
"ame: : Age: : Education:
+ncome le*el: : >ccupation: ontact "o:
1. 5o financial analysts, U-orking capitalU means t,e same t,ing as ``````````#
o 5otal Assets
o Ci0ed assets
o urrent assets
o urrent assets minus current liabilities
2. 5,e amount of current assets re@uired to meet a firmGs long:term minimum needs is referred to as
`````````` -orking capital#
o Permanent
o 5emporary
o "et
o Bross
3. 5,e amount of current assets t,at *aries -it, seasonal re@uirements is referred to as ``````````
-orking capital#
o Permanent
84
o 5emporary
o "et
o Bross
4. 5o financial analysts, Unet -orking capitalU means t,e same t,ing as ``````````#
o 5otal assets
o Ci0ed assets
o urrent assets
o urrent assets minus current liabilities
5. ompanies may adopt an aggressi*e or a conser*ati*e -orking capital policy# An aggressi*e policy
means t,at a company
o 4olds ,ig, le*els of cas, and in*entories
o 4as a lo- le*el of fle0ibility
o Caces a lo- le*el of risk
o E0pects a lo-er le*el of profitability
6. Bi*en t,e follo-ing information, -,at is t,e cas, con*ersion cycle in days of PP plc[
a%%%
85
5otal sales 2H'
osts of goods sold 2%%
Purc,ases $2%
Stocks 9H
/ebtors &9
reditors $L
o HI#I days
o $2L#' days
o '%#2 days
o $H%#% days
7. W,ic, of t,e follo-ing -ould be consistent -it, a ,edging ;maturity matc,ing< approac, to
financing -orking capital[
o Cinancing s,ort term needs -it, s,ort term funds
o Cinancing s,ort term needs -it, long term debt
o Cinancing seasonal needs -it, long term funds
o Cinancing some long term needs -it, s,ort term funds
86
8. 4a*ing defined -orking capital as current assets, it can be furt,er classified according to
``````````#
o Cinancing met,od and time
o !ate of return and financing met,od
o 5ime and rate of return
o omponents and time
9. .aries in*ersely -it, profitability#
o 6i@uidity
o !isk
o Blue
o Calse
10.+deally, -,ic, of t,e follo-ing types of assets s,ould be financed -it, long:term financing[

o Ci0ed assets only
o Ci0ed assets and temporary current assets
o Ci0ed assets and permanent current assets
o 5emporary and permanent current assets#
87
BIBLOGRAHY
S,as,i 3# Bupta
M
!#3# S,arma ;2%%L< financial management , india
Satish B. Mathur (2007) Working Capital Management And Control, india
Mccleary, kw,, & weaver working capital and control 1-2 85-89
Websites Search-
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