05 Project Sasikalargfgdfgncfghfhghgfh

WORKING CAPITAL
INTRODUCTION
Finance is one the basic foundations of all kinds of economic activities It is the maste! ke"# $hich %!ovides access to all the sou!ces fo! bein& em%lo"ed in manufactu!in& 'ence it is !i&htl" said that finance is lifeblood of an" ente!%!ise# besides bein& the sca!cest elements# it is also the most indis%ensable !e(ui!ement Without finance neithe! an" business can be sta!ted no! successfull" !un P!ovision of sufficient funds at the !e(ui!ed time is the ke" to success of conce!n As matte! of fact finance ma" be said to be the ci!culato!" s"stem of economic bod"# makin& %ossible the needed co)o%e!ation amon& man" units of the activit"
FINANCIAL MANAGEMENT
*ana&ement eme!&ed as a distinct financial field of stud" at the tu!n of this Centu!" *an" eminent %e!sons defined it in the follo$in& $a"s DEFINITIONS
+Acco!din& to GUTHMANN AND DOUGHAL +,usiness finance can b!oadl" be defined as the activit" conce!ned $ith %lannin&# !isin&# cont!ollin& and administe!in& of funds used in the business +Acco!din& to BONNEVILE AND DEWEY +Financin& consists in the !isin&# %!ovidin& and mana&in& of all the mone"# ca%ital o! funds of an" kind to be used in connection $ith the business +Acco!din& to Prof. EZRA SOLOMAN +Financial mana&ement is conce!ned $ith the efficient use of an" im%o!tant economic !esou!ce# namel" ca%ital funds -
VCR INSTITUTE OF MANAGEMENT STUDIES
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FINANCE The $o!d .Finance/ comes di!ectl" f!om the latin $o!d .finis/ Finance ma" be defined as the %!ovision of mone" at that time it is $anted Fo! e0am%le !ec!uitment of $o!ke!s in a facto!"# is clea!l" a !es%onsibilit" of the %!oduction de%a!tment In addition to this# finance ma" be !e(ui!ed eithe! fo! settin& 1 u% a ne$ unit o! e0%ansion o! mode!ni2ation of the %!esent unit etc # these financial !e(ui!ements ma" be b!oadl" classified as sho!t)te!m finance and lon&)te!m finance TYPES OF FINANCE: Finance is usuall" divided into t$o cate&o!ies vi2 # %ublic finance and business finance PUBLIC FINANCE: Public Finance is no!mall" conce!n $ith the $a"s of secu!in& mone" fo! the conduct of &ove!nment and the administ!ation of %ublic funds BUSINESS FINANCE: It involves an anal"sis of va!ious means of secu!in& mone" fo! business ente!%!ises and the administ!ation of this mone" b" individuals o! volunta!" association etc # business finance is the fu!the! sub divided into Pe!sonal Finance# Pa!tne!shi% Finance 3 Com%an" Finance
MEANING OF FINANCING:
Financin& is the %!ocess of o!&ani2in& the flo$ of funds so that a business fi!m can ca!!" out its ob4ectives in the most efficient manne! and meet its obli&ations as and $hen the" fall due
MEANING OF MANAGEMENT:
*ana&ement is the A!t of &ettin& the thin&s done th!ou&h othe!s In othe! $o!ds +*ana&ement is What the *ana&e!s does-
MEANING OF FINANCIAL MANAGEMENT:

Financial *ana&ement is conce!ned $ith the %!o%e! *ana&ement of Financial Resou!ces Thus# the finance mana&e! must see that the funds a!e %!ocu!ed in a
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manne! that the !isk# cost and cont!ol conside!ations a!e %!o%e!l" balanced in a &iven situation and the!e is o%timum utili2ation of funds
EVALUATION OF FINANCIAL MANAGEMENT:

+Financial *ana&ement- eme!&ed as a distinct field of stud" at the tu!n of the 56th Centu!" Its evaluation ma" be divided into th!ee b!oad Phases7 8 5 9 T!aditional Phase T!ansititional Phase *ode!n Phase
1. THE TRADITIONAL PHASE:

The t!aditional %hase $as found its fi!st manifestation in 8:;< in the book .co!%o!ate finance/ $!itten b" Thomas G!eene A T"%ical $o!k of the t!aditional %hase is the .Financial %olic" of co!%o!ations/ b" A!thu! = >e$in& This book discusses t"%es of secu!ities# %!ocedu!es used in issuin& these secu!ities etc #
2. THE TRANSITIONAL PHASE:

The t!ansitional %hase be&an a!ound the ea!l" 8;?6/s and continued th!ou&h the ea!l" 8;@6/s Th!ou&h the natu!e of Financial *ana&ement du!in& this %hase $as simila! to that of the t!ansitional %hase In this %hase &!eate! em%hasis $as %laced on the da") to)da" %!oblems faced b" a Financial *ana&e! in the a!eas of funds anal"sis# %lannin& and cont!ol A !e%!esentative $o!k of this %hase is .Assa"s on ,usiness/ b" Wilf!ed B Witman et al
3. THE MODERN PHASE:

The mode!n %hase be&an in the 8;@6/s =ince the be&innin& of this %hase# man"
si&nificant develo%ments have occu!!ed in the fields of ca%ital bud&etin&# $o!kin& ca%ital mana&ement# ca%ital st!uctu!e theo!ies etc
FINANCIAL MANAGEMENT: SCIENCE OR AN ART?

The Financial *ana&ement is neithe! a %u!e science no! an a!t It deals $ith va!ious methods and techni(ues $hich can be ado%ted de%endin& on the situation of business and %u!%ose of the decision As a science it uses va!ious statistical# mathematical models and com%ute! a%%lications fo! solvin& the financial %!oblems !elatin& to the
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fi!m# fo! e0am%le# ca%ital investment a%%!aisal# ca%ital st!uctu!e mi0# %o!tfolio mana&ement etc # Alon& $ith the above a Finance *an&e! is !e(ui!ed to a%%l" his anal"tical skills in decision 1 makin& science as $ell as an a!t 'ence# Financial *ana&ement is both a
NATURE OF FINANCIAL MANAGEMENT:Finance *ana&ement is no$ !e&a!ded both as a science and as an a!t It is based on ce!tain fundamental theo!ies %!o%ounded b" financial e0%e!ts As a science it heavil" d!a$s on !elated b!anches Ackno$led&e like economics# accountin&# statistics# o%e!ations !esea!ch and decision)makin&
FINANCIAL MANAGEMENT AND ECONOMICS:Financial *ana&ement is in fact an inte&!al %a!t of mana&e!ial economics i e # economics a%%lied to decision makin& Financial mana&ement d!a$s heavil" both f!om mac!o and mic!oeconomics *ac!oeconomics %!ovides the finance mana&e! $ith an insi&ht into the &ene!al economic envi!onment and the va!iables like national income# &ene!al %!ice level etc # $hich influence the business activit" *ic!oeconomics enables the finance mana&e! to kno$ ho$ fo!ces like elasticit" of demand# su%%l" and demand influences the economics of a fi!m and its %!icin& %olic"
FINANCIAL MANAGEMENT AND ACCOUNTING:Financial *ana&ement and Accountin& a!e closel" !elated and a!e com%limenta!" to each othe! While accountin& is conce!ned $ith !eco!din&# classif"in& and summa!i2in& financial t!ansactions and inte!%!etin& the !esults the!eof# financial mana&ement is conce!ned $ith decision makin& and $ealth ma0imi2ation In accountin& !evenue is !eco&ni2ed based on acc!ual method b" matchin& e0%enses $ith sales In financial mana&ement the focus is on cash flo$s and thei! timin& It !eco!ds %ast data and hence it is ob4ective Accountin& is histo!ical in natu!e unce!taint"
Financial mana&ement looks to the futu!e It involves decision makin& in the face of 'ence it is sub4ective in natu!e In the follo$in& !es%ects# both a!e com%limenta!" to each othe! P!ofit as dete!mined unde! accountin& fo!ms the basis fo! com%utation of ea!nin& %e! sha!e# $hich is of vital inte!est to the finance mana&e!
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>ivided %olic" dete!mined b" the finance mana&e! de%ends u% on the fi&u!e of %!ofits asce!tained unde! financial accountin& Investment decision taken b" the finance mana&e! a!e based on info!mation fu!nished b" the accounts de%a!tment
FINANCIAL MANAGEMENT AND COST ACCOUNTING :Financial *ana&ement is conce!ned not onl" $ith %!ocu!ement of funds but also $ith effective utili2ation The cost data fu!nished b" the costin& de%a!tment hel%s the finance mana&e! to evaluate ho$ effectivel" the funds a!e utili2ed and su&&est measu!es to kee% costs unde! cont!ol
FINANCIAL MANAGEMENT AND STATISTICS:=tatistics %!ovide detailed data fo! decision makin& The %!obabilit" theo!" of
statistics offe!s the lo&ic fo! dealin& $ith the unce!taint" of futu!e events It enables the finance mana&e! to unde!stand the va!iables affects decision makin&
FINANCIAL MANAGEMENT AND OPERATION RESEARCH:This is a b!anch of (uantitative science used to anal"2e a business situation to find an o%timal solution Fo! e0am%le# %!oblems like allocation of sto!a&e s%ace# utili2ation of t!ans%o!t facilities# choice of invento!" etc Can be solved $ith the hel% of o%e!ation !esea!ch Linea! %!o&!ammin& is useful in makin& best of sca!ce !esou!ces
FINANCIAL MANAGEMENT AND DECISION MAKING:Financial mana&ement involves decision)makin& The theo!" of decision makin&
deals $ith the %!ocesses b" $hich e0%ectations unde! conditions of unce!taint" a!e fo!med Finance is the life a blood of an o!&ani2ation it is all)%e!vasive in natu!e and affects all the activities in the o!&ani2ation In fact# it is a se!vice function to othe! de%a!tments It is closel" inte!linked $ith the othe! functions of %!oduction# These de%a!tments mutuall" e0chan&e info!mation fo! The functional mana&e!s have the ma!ketin& and %e!sonal
fo!mulation of %olicies and decision makin&
f!eedom to take decisions on matte!s %e!tainin& to thei! line of activit"# but the" have to take into conside!ations the financial im%lication involved
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In a fi!m $ith %lent" of funds# financial conside!ations do not matte! much in fo!mulatin& %olicies !e&a!din& %!oduction# ma!ketin& and %e!sonnel ,ut in a fi!m facin& financial difficulties# financial conside!ations must be &iven due $ei&ht in fo!mulatin& %olicies The linka&e bet$een financial mana&ement and othe! functional a!eas of mana&ement is e0%lained belo$
FINANCIAL MANAGEMENT AND PRODUCTION:P!oduction of &oods !e(ui!es la!&e amounts of $o!kin& ca%ital# fo! $hich funds have to be %!ocu!ed b" the finance mana&e! >ive!sification of %!oduction# chan&es in %!oduction %!ocess necessitate ca%ital e0%enditu!e# fo! $hich the finance mana&e! should make funds available afte! %!o%e! evaluation
FINANCIAL MANAGEMENT AND MARKETING:The success of fi!m de%ends not onl" on the efficient utili2ation of funds# but also its ma!ketin& effo!t and %!icin& %olic" The ma!ketin& mana&e! %!ovides the finance mana&e! $ith info!mation as to ho$ diffe!ent %!ices affect the demand fo! %!oducts# so that an a%%!o%!iate %!icin& %olic" can be fo!mulated based on costs estimated at diffe!ent levels of %!oduction
FINANCIAL MANAGEMENT AND PERSONNEL MANAGEMENT:Rec!uitment# t!ainin& and %lacement of staff !e(ui!e finance >ecisions on these
issues can onl" be taken afte! conside!in& the financial im%lications involved In the face of eve! inc!easin& com%etition# heav" investments have to be made on develo%ment of human !esou!ces Revision of %a" scales# schemes fo! volunta!" !eti!ement etc # !e(ui!e funds on a massive scale 'ence the finance mana&e! should identif" ne$ sou!ces to %!ocu!e the funds !e(ui!ed
SCOPE OF FINANCIAL MANAGEMENT

The a%%!oach to the sco%e and functions of financial mana&ement is divided fo! the
%u!%ose of e0%osition t$o b!oad cate&o!ies C C The T!aditional A%%!oach The *ode!n A%%!oach
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THE TRADITIONAL APPROACH

The t!aditional a%%!oach to the sco%e of Financial *ana&ement !efe!s to its sub4ect matte! in academic lite!atu!e# in the initial sta&es of its evolution as a se%a!ate b!anch of academic stud" The te!m .Co!%o!ation Finance/ $as used to desc!ibe $hat is no$ kno$n in the academic $o!ld as .Financial *ana&ement/ The t!aditional a%%!oach to the sco%e of finance function evolved du!in& the 8;56/s and 8;96/s and dominated academic thinkin& du!in& the 8;?6/s and th!ou&h the "ea!l" 8;@6/s no$# it has been disca!ded as its suffe!s f!om se!ious limitations The $eakness of the t!aditional a%%!oach fall into t$o b!oad cate&o!ies Those !elatin& to the t!eatment of the va!ious to%ics and the em%hasis attached to them Those !elatin& to the basic conce%ts and anal"tical f!ame $o!k of the definitions and sco%e of finance function
THE MODERN APPROACH

Dnde! the mode!n conce%t# finance function is conce!ned $ith the financial activities of %lannin&# !aisin&# allocatin&# and cont!ollin& of funds and usin& them fo! &ene!atin& !etu!ns Thus# Finance Function acco!din& to mode!n e0%e!ts ma" be classified into t$o &!ou%s A0ecutive Finance Function Incidental E Routine Finance Function
EXECUTIVE FINANCE FUNCTION

The e0ecutive finance function calls fo! administ!ative skills in %lannin& and e0ecution of finance function It includes the follo$in& decisions A , C Investment >ecisions Finance >ecisions >ividend >ecisions
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A. INVESTMENT DECISIONS
It is conce!ned $ith the allocation of funds to both ca%ital and cu!!ent assets Ca%ital assets a!e financed th!ou&h lon& 1 te!m funds and the cu!!ent assets a!e financed th!ou&h sho!t)te!m funds Thus# it consists of the follo$in&
A) CAPITAL BUDGETING:Affective allocation of ca%ital is one of the most im%o!tant functions of the financial mana&ement in mode!n times This function involves the fi!m/s decision to commit its funds in lon&)te!m assets The investment in lon&)te!m assets Ffi0ed assetsG $ill be (uite heav" and to be made immediatel" but the !etu!ns $ill be available afte! a ce!tain %e!iod The investment decisions of a com%an" a!e commonl" called as the ca%ital bud&etin& decisions a!e ca%ital e0%enditu!e decisions
B)
ORKING CAPITAL MANAGEMENT:-
The mana&ement of cu!!ent assets is kno$n as $o!kin& ca%ital mana&ement *ana&in& cu!!ent assets !e(ui!es mo!e attention than mana&in& fi0ed assets
B. FINANCING DECISIONS
The second im%o!tant decision to be %e!fo!med b" the Finance *ana&e! is the financin& decisions b!oadl" s%eakin& he must decide $hen# $he!e and ho$ to ac(ui!e funds to meet the fi!m/s investment needs Gene!all"# the finance mana&e! obtained funds th!ou&h %!ima!" ma!kets# financial institutions and# comme!cial banks A %!o%e! balance has to be ke%t bet$een the fi0ed and non)fi0ed cost)bea!in& secu!ities
C. DIVIDENDS DECISIONS
The !etu!n on sha!eholde!/s ca%ital is kno$n as .>ividend/ The decision of finance mana&e! !elated to the dist!ibution of ea!nin&s to the sha!eholde!s and the amount to be !etained in the fi!ms is te!med as dividend decisions This decisions has been The sha!e) conside!ed th!ou&h $hich a business fi!m/s %e!fo!mance is measu!ed
holde!s# &ovt # banke!s and othe!s $ill unde!stand the soundness of the business th!ou&h dividend decisions The!e fo!e# the dividend decisions have been conside!ed as anothe! im%o!tant decisions of the finance function
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The investment# finance and dividend decisions a!e inte!)!elated to each othe! and the!efo!e# the finance mana&e! $hile takin& an" decisions should conside! the im%act f!om all the th!ee an&les simultaneousl"
INCIDENTAL!ROUTINE FINANCE FUNCTION:It does not !e(ui!e a &!eat mana&e!ial abilit" to ca!!" %ut finance functions These a!e chiefl" cle!ical and a!e incident to the effective handlin& of mana&e!ial finance functions =ome of these functions a!e listed belo$7 =u%e!vision of cash !ecei%ts and %a"ments =afe custod" of secu!ities# insu!ance %olicies etc # *aintenance of !eco!ds Re%o!tin& to mana&ement etc #
GOALS!OB"ECTIVES OF FINANCIAL MANAGEMENT:

The ob4ectives of financial mana&ement a!e b!oadl" classified into t$o cate&o!ies ,asic Ob4ectives Othe! Ob4ectives
1. BASIC OB"ECTIVES:T!aditionall"# the basic ob4ectives of financial mana&ement a!e the maintenance of li(uid assets and ma0imi2ation of %!ofitabilit" *aintenance of li(uid assets means that the fi!m has ade(uate cash in hand to meet its obli&ations at all time And ma0imi2ation of %!ofitabilit" can be e0%lained in the follo$in& lines
PROFIT MAXIMI#ATION:The financial ob4ective of a fi!ms is to ma0imi2e the o$ne!/s economic $elfa!e The!e is a cont!ove!s" as to ho$ the economic $elfa!e of o$ne!s can be ma0imi2ed Acco!din& to this a%%!oach actions that inc!ease %!ofits should be unde!taken and those that de&!ees %!ofits should be avoided 'ence ma0imi2ation of %!ofits is !e&a!ded as an o%e!ational c!ite!ion fo! ma0imi2in& the o$ne!s economic $elfa!e
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Thus# %!ofit is the cent!al economic ob4ective of an" business ente!%!ise ob4ective of %!ofit ma0imi2ation is 4ustified on account of the follo$in& !easons
The
A human bein& %e!fo!min& an" economic activit" !ationall" aims at utilit" ma0imi2ation Dtilit" can be measu!ed in te!ms of %!ofits ma0imi2ation is 4ustified on the &!ound of !ationalit" The fi!m b" %u!suin& its ob4ective of %!ofit ma0imi2ation also ma0imi2es social economic $elfa!e P!ofit ma0imi2atio;n $ill be a motive fo!ce to ac(ui!e mono%ol" in the im%e!fect ca%ital ma!kets 'o$eve!# the ob4ective of %!ofit ma0imi2ation is sub4ect to c!itici2e in !ecent "ea!s on the follo$in& counts7) It is a!&ued that %!ofit ma0imi2ation is the !esult of %e!fect com%etition ,ut# in mode!n ma!kets# the!e e0ists no %e!fect com%etitions In mode!n ma!kets# it is !e&a!ded as immo!al difficult and un!ealistic The %!ecise meanin& of %!ofit ma0imi2ation is not clea! The!e is a lack of unanimit" !e&a!din& the conce%t of %!ofit i e # %!ofit befo!e ta0 o! %!ofit afte! ta0 It does not s%ecif" the timin& of e0%ected !etu!ns It does not conside! the !isk and unce!taint" of %!os%ective ea!nin&s In vie$ of the above !easons# the t!aditional theo!" of %!ofit ma0imi2ation has often been c!itici2ed It has lost its !elevance in the mode!n business envi!onment 'ence# the mode!n financial e0%e!ts a!e su&&ested the ma0imi2ation of $ealth as the ob4ective of the fi!m Thus# the %!ofit
EALTH MAXIMI#ATION
Wealth ma0imi2ation means ma0imi2in& the net %!esent $o!th of a cou!se of action The net %!esent $o!th of a cou!se of action is the diffe!ence bet$een the &!oss %!esent $o!th of benefits and the amount of investment !e(ui!ed to achieve those benefits
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OTHER OB"ECTIVES:,esides the above basic ob4ectives# the follo$in& a!e the othe! ob4ectives of financial mana&ement C C C C C C Ansu!in& !etu!n on ca%ital em%lo"ed Halue addition and %!ofitabilit" G!o$th in ea!nin& %e! sha!e and %!ice ea!nin& !atio Afficient utili2ation of sho!t)te!m# medium and lon&)te!m finances *a0imi2ation of finance cha!&es Ansu!in& financial disci%line in the o!&ani2ation
FINANCIAL FUNCTIONS
The finance functions of !aisin& funds# investin& them in assets and dist!ibutin& !etu!ns ea!ned f!om assets to sha!eholde!s a!e !es%ectivel" kno$n as financin&# investment and dividend decisions decision The finance functions can be divided into th!ee b!oad cate&o!ies Investment o! lon&)te!m asset mi0 decision Financin& o! ca%ital mi0 decision >ividend o! %!ofit allocation decision Li(uidit" o! sho!t)te!m asset mi0 decision While %e!fo!min& these functions# a fi!m attem%ts to balance cash inflo$s and outflo$s This is called as li(uidit"
INVESTMENT DECISION
Investment o! ca%ital bud&etin& involves the decisions of allocation of cash o! commitment of funds to lon&)te!m assets# $hich $ould "ield benefits in futu!e It involves measu!ement of futu!e %!ofitabilit"# $hich involves !isk# because of unce!tain futu!e Investment %!o%osal should the!efo!e be evaluated in te!ms of both e0%ected !etu!n and !isk Othe! ma4o! as%ect of investment decision is the
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measu!ement of standa!d o! hu!dle !ate a&ainst $hich the e0%ected !etu!n of ne$ investment can be com%a!ed
FINANCING DECISIONS
Financin& decision is the second im%o!tant function to be %e!fo!med b" the fi! ,!oadl"# he must decide $hen# $he!e# and ho$ to ac(ui!e funds to meet the fi!m/s investment needs 'e has to dete!mine the %!o%o!tion of debt and e(uit" This mi0 of debt and e(uit" is kno$n as the fi!ms .ca%ital st!uctu!e/ The financial mana&e! must st!ive to obtain the least financin& mi0 o! the .o%timum ca%ital st!uctu!e/ $he!e the ma!ket value of sha!e is ma0imi2ed
DIVIDEND DECISIONS
It is the thi!d ma4o! financial decision The financial mana&e! decides $hethe! the fi!m should dist!ibute all %!ofits# o! !etu!n them# o! dist!ibute a %o!tion and !etu!n the balance The o%timum dividend %olic" should be dete!mined $he!e is ma0imi2es the ma!kets value of the sha!e
LI$UIDITY DECISIONS
Cu!!ent assets mana&ement# $hich affects fi!m/s li(uidit"# is "et anothe! finance function in addition to the mana&ement of lon&)te!m assets Cu!!ent assets should be mana&ed effectivel" safe&ua!din& the fi!m a&ainst the dan&e!s of li(uidit" and insolvenc" Investment in cu!!ent assets affects the %!ofitabilit"# li(uidit"# and !isk A conflict e0ists bet$een %!ofitabilit" and li(uidit" $hile mana&in& cu!!ent assets If the fi!m doesn/t invest sufficient funds in cu!!ent assets it ma" ,ecome illi(uid ,ut it could lose %!ofitabilit"# as idle CA $ould not ea!n an"thin& Thus a %!o%e! takeoff must be achieved bet$een %!ofitabilit" and li(uidit"
GOALS OF FINANCIAL MANAGEMENT

*a0imi2e the value of the fi!m to its e(uit" sha!eholde!s This means that the Goals of the fi!m should be to ma0imi2e the ma!ket value of its e(uit" sha!es FWhich !e%!esent the value of the fi!m to its e(uit" sha!eholde!sG *a0imi2ation of %!ofit *a0imi2ation of ea!nin&s %e! sha!e
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*a0imi2ation of !etu!n on e(uit" Fdefined as e(uit" ea!nin&sEnet $o!thG Ansu!in& ma0imum o%e!ational efficienc" th!ou&h %lannin&# di!ectin& and Cont!ollin& of the utili2ation of the funds i e # th!ou&h the effective em%lo"ment of funds
Ansu!in& a fai! !etu!n to the sha!eholde!s on thei! investment The ke" challen&es fo! the finance mana&e! in India a%%ea! to be in the
follo$in& a!eas Investment Plannin& Financial =t!uctu!e T!easu!e O%e!ations Fo!ei&n A0chan&e Investo! Communication
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INDUSTRY PROFILE
DAIRY E$UIPMENTS
>esi&ned $ith the aid of latest technolo&"# ou! !an&e of >ai!" A(ui%ment is a%%!eciated fo! o%timum %e!fo!mance and du!abilit" Offe!ed at indust!" leadin& %!ice# these a!e $idel" in milk indust!" to sto!e and %!ocess milk We offe! ou! !an&e in diffe!ent s%ecifications %!ovided b" ou! clients
HOMOGENI#ER
We a!e !eckoned as one of the chief >ai!" 'omo&eni2e! *anufactu!e!s# A0%o!te!s and =u%%lie!s based in India *ade usin& su%e!io! (ualit" !a$ mate!ial# these >ai!" 'omo&eni2e!s a!e $idel" demanded in dai!" indust!" due to thei! bette! %e!fo!mance and hi&h efficienc" The >ai!" 'omo&eni2e!s offe!ed b" us a!e $idel" a%%!eciated fo! enhancin& the consistenc" of a %!oduct b" dis%e!sion The >ai!" P!ocessin& Plants offe!ed b" us a!e kno$n fo! u%&!adin& the co lou!# flavo! and a%%ea!ance of the %!oducts and even avoid occu!!in& of the !in& fo!mation A%&'()'*+, :

,ette! %!oduct stabilit" =moothness of %!oduct Avoids !ise of the c!eam la"e!
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WORKING CAPITAL
DAIRY PRODUCTS
Dtili2in& ou! "ea!s of e0%e!ience and advanced inf!ast!uctu!e# $e offe! ou! clients >ai!" e(ui%ment# $hich is in com%liance $ith inte!national (ualit" standa!ds In)built featu!es# fo! bette! com%atibilit" $ith continuous as $ell as batch mode of %!ocess desi&nin&# makes it %e!fect choice fo! va!ious indust!ies such as food %!ocessin& and milk dai!"
INDUSTRIAL HOMOGENI#ER
We a!e one of the leadin& manufactu!e!s of Tu!n Ke" Li(uid *ilk >ai!" Plants o! dai!" %!ocessin& %lants# $hich a!e manufactu!ed usin& su%e!io! (ualit" !a$ mate!ial These a!e heavil" demanded in dai!" indust!" due to efficient %e!fo!mance and cost effectiveness Ou! !an&e is e(ui%%ed $ith in)built featu!es to ensu!e %!o%e! functionin&
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WORKING CAPITAL
MILK PASTEURI#ERS
'T=T continuous %asteu!i2e!s a!e e0tensivel" used fo! %asteu!i2ation of milk and c!eam in dai!" 3 food indust!ies Plate heat e0chan&e!s based %asteu!i2e! offe! eno!mous convenience fo! %!ocessin& milk# c!eam $ith fle0ibilit"# hi&h the!mal efficienc" and effective heat t!ansfe! The s"stem is com%act# !e(ui!es minimal s%ace and is ve!" eas" to e0%and ca%acit" b" addin& additional %lates
SKID MOUNTED PROCESS

We have utili2ed ove! a decade e0%e!ience fo! c!eatin& s"ne!&ies $ith &lobal technolo&ies so as to b!in& out a locall" acce%table techno)comme!ciall" viable !an&e of dai!" e(ui%ments We have utili2ed a &ene!ic st!ate&" of cost leade!shi% th!ou&h focus on (ualit" and inte&!ation of diffe!ent dai!" e(ui%ments in a dai!" %!o4ect Iou ma" al$a"s !el" on ou! e(ui%ment fo! inte!national (ualit" at domestic %!ices The e(ui%ments have inbuilt featu!es fo! bette! com%atibilit" $ith continuous as $ell as batch mode of %!ocess desi&nin& S+-&./+, 01- D'.-2 I(%3,)-2:
,oile!s# 'ot Wate! Gene!ato!# The!mal Fluid 'eate!Js A!ection and Commissionin& 'T E LT Cablin&# Po$e! Cont!ol Cent!e# *oto! Cont!ol Cent!e# Com%lete Fab!ication A!ection and commissionin&
Affluent t!eatment %lant fo! dai!" indust!" *ilk# ,utte!fat and *ilk Po$de! Packin& Automatic Fo!m Fill and =eal FFF=G machines
Conve"o! and %!oduct flo$ automation s"stem Page 1"
WORKING CAPITAL
Com%lete !ef!i&e!ated chain s"stems fo! dai!" and food indust!"
PASTEURI#ER
We a!e the la!&est manufactu!e! of hi&h (ualit" %asteu!i2in& machine
CREAM SEPARATOR
We a!e the la!&est manufactu!e! of hi&h (ualit" c!eam se%a!ato! machines It can %!ocess :6 lite!s milk %e! hou! *a0 milk out%ut# lEh >!um !otational s%eed# min)8 Numbe! of disks in d!um# %cs *ilk bo$l ca%acit"# l *a0 butte!)fat content in skimmed milk# K C!eamEskimmed milk volume %!o%o!tion ad4ustment !an&e 87? to 8786 :6 86@66 86 to 85 85 6 6@
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WORKING CAPITAL
STORAGE TANK
We manufactu!e custom sto!a&e tanks fo! the chemical# %ha!maceutical and food %!ocess indust!ies
MILK PUMP
We manufactu!e! and e0%o!te! of milk %um% and dai!" milk %um% $ith hi&h (ualit" and full" automatic O3- -'(*+ 10 4354, ., '44-+/.')+% 16.(* )1 )7+ 018816.(* 0+')3-+,: C Lo$ %o$e! consum%tion C'i&h %e!fo!mance C A0cellent suction %e!fo!mance C 'i&h ca%acit"
EIGH BO
The su%e!io! (ualit" of Wei&h ,o$l manufactu!ed b" ou! com%an" is made f!om &ood (ualit" !a$ mate!ial $hich makes them du!able
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WORKING CAPITAL
HOT
ATER GENERATOR
We desi&n 3 manufactu!e va!ious t"%es of %!ocess heat e(ui%ments like hot $ate! &ene!ato!s# a&!o $aste fi!ed hot $ate! &ene!ato!s and hot $ate! boile!s Featu!es a!e 8 5 9 Ru&&ed const!uction Lo$ maintenance 'i&h efficienc"
REFRIGERATION SYSTEM
We a!e en&a&ed in the su%%l" of ice bank tank that a!e in hi&h demand in the domestic ma!ket *anufactu!ed f!om su%e!io! (ualit" == F96?G these a!e used fo! dai!"# chilled milk tank# %late heat e0chan&e!
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WORKING CAPITAL
COLD ROOM
Ca!!ie! %anels a!e manufactu!ed in thickness of L6mm#:6mm#866mm#856mm and 8@6mm Ca!!ie! offe!s indi&enous e(ui%ments !an&in& f!om 8 'P to @ 'P fo! %ositive tem%e!atu!e and 8 L 'P to 9 5 'P fo! ne&ative tem%e!atu!e a%%lications Fo! la!&e! !ef!i&e!ation e(ui%ments# Ca!!ie! offe!s im%o!ted e(ui%ments f!om o$n ove!seas facto!ies and sou!cin& %a!tne!s Ca!!ie! offe!s end to end solutions f!om fa!m to !etail cove!in& $ide s%ect!um of a%%lications such as P!e)coolin&# ,last f!ee2e!# IMF# Cont!olled atmos%he!eE*odified atmos%he!e and la!&e cold sto!a&es
CONVEYOR
We a!e the la!&est manufactu!in& of hi&h (ualit" automaticall" o%e!ated conve"e!s Conve"o! s"stems a!e used $ides%!ead ac!oss a !an&e of indust!ies These s"stems a!e commonl" used in man" indust!ies# includin& the automotive# a&!icultu!al# com%ute!# elect!onic# food %!ocessin&#N?O ae!os%ace# %ha!maceutical# chemical# bottlin& and cannin&# %!int finishin& and %ackin& T"%es of conve"e! s"stems a!e7 8 5 9 ,elt conve"e! Fle0ible conve"e! He!tical conve"e! etc
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WORKING CAPITAL
KHOVA MAKING MACHINE

We a!e the la!&est manufactu!e! of hi&h (ualit" $ith full" automatic khova makin& machine M1)1- G+'-: 8 'P =in&le Phase B816+- M1)1-: 6 @ 'P =in&le Phase F>iesel ,u!ne!G F3+8 C1(,354).1(: 8 to 5 Lite! >iesel E Ke!osene o! @66 to L66 &m of LP Gas E 86Lit!e P-1%3/).1( C'4: 96 Lite! *ilk conve!t to khova %e! hou! O4+-')+% B2: Onl" one un)skilled labou!
BUTTER CHURNING MACHINE

The com%an" e0clusive !an&e of butte! chu!n that can chu!n out (ualit" butte! *ade of (ualit" mate!ials these butte! makin& machine a!e in acco!dance $ith an inte!national standa!ds
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WORKING CAPITAL
We a!e the la!&est manufactu!e! of hi&h (ualit" milk bulk coole! ="stems and e(ui%ment on offe! O%en t"%e in ca%acit" of @66 lite!s to 9#666 lite!s C"lind!ical sha%e closed t"%e bulk milk coole! in ca%acit" 9#666 lite!s to 86#666 lite!s A//+,,1-.+, Auto cleanin& units =e!vo volta&e stabili2e! >i&ital di% stick# load cells 'ot $ate! &ene!ato! s"stem fo! cleanin&
COMPANY PROFILE
We ou!selves as e0%e!ienced %!ofessionals in >ai!"# Food and ,eve!a&e Indust!" With ou! vast e0%e!ience in this field of ou! activates include manufactu!in& and se!vicin& of >ai!" 3 Food Indust!ial A(ui%ments and othe! custom build %!oducts as mentioned belo$
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WORKING CAPITAL
It is obse!ved that in the field of >ai!" 3 Food Indust!" A(ui%ments# da")b") da" !e(ui!ement of hi&hl" so%histicated e(ui%ments We a!e ha%%" to announce that *Es =!ee Ram Tech havin& full)fled&ed manufactu!in& unit $ith e0%e!ienced en&inee!s in desi&n# and manufactu!in& P!o4ects a!e $ith skilled $o!ke!s to ensu!e com%lete e!ection and commissionin& of *ilk >ai!ies# Ref!i&e!ation# and Ice Plants etc on Tu!n Ke" ,asis We can su%%l" e(ui%ments as %e! "ou! !e(ui!ements $ith %!om%t delive!"# 'i&h (ualit" and an assu!ed afte! sales se!vice 8 5 Rece%tion A(ui%ments Ref!i&e!ation A(ui%ments
K+2 /3,)15+-,.
8 5 9 ? @ 'e!ita&e Foods FIG Ltd # Ti!umala *ilk P!oducts FPvt G ltd # H"shnavi Foods FPvt G Ltd # C!eam line >ai!" P!oducts FPvt G Ltd # >odla >ai!" P!oducts#
R+/+4).1( E93.45+(),:
Rolle! Conve"o! ,elt Conve"o! Can T!i%%in& ,a! Can >!i% =ave! >um% Tank Wei&h ,o$l Can =c!ubbe! Can Lid Washe! T!ou&h
SS MILK DUMP TANK

The Tank is in !ectan&ula! in sha%e and it is made out of 5 6 thick == 96? G sheet and $ill be $elded $ith A!&on a!c $eldin& %!ocess All the $elds $ill be %olished 3 finished to dai!" standa!ds $ith L6 3 :6 &!it %a%e!s All the co!ne!s $ill be $ell !educed The tank $ill have th!ee 1 $a" slo%e to$a!ds outlet fo! f!ee 3
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WORKING CAPITAL
com%lete d!aina&e of li(uid The tank $ill have ? nos of == lu&s fitted $ith == ball fits ca%able of ve!tical ad4ustment of @6mm %!ovided $ith @8 No mm outlet endin& on outside
SS MILK
EIGH BO
The $ei&h bo$l is in Rectan&ula! in sha%e and it is made out of $ith 5 6 thick == 96? G sheet The $ei&h bo$l $ill be $elded $ith A!&on A!c $eldin& All the $elds $ill be &!ound smooth and $ill be tested $ith d"e %enet!ation test All the inne! co!ne!s $ill be tested $ith d"e %enet!ation test All the inne! co!ne!s $ill be $ell !educed 3 all == su!faces $ill be %olished to sanita!" finish The bo$l $ill have 9) $a" slo%e to$a!ds discha!&e valve fo! f!ee and com%lete d!aina&e of li(uid The $ei&h bo$l $ill be %!ovided $ith == !in& 3 == dumm" alon& $ith !ubbe! &asket alon& $ith han&in& bolts 3 also %!ovided liftin& a!!an&ement $ith B b!acket s"stem Filte! mesh $ill be %!ovided and the $ei&h bo$l $ill be $elded $ith A!&on a!c $eldin& and finished $ith L6 3 :6 &!it %a%e! 3 alon& $ith 866mm dia d!ain %!ovision
ROLLER CONVEYOR
It is made out of $ith *= st!uctu!al f!ame $ith standa!d desi&n and $ill be %!ovided $ith GI !olle!s alon& $ith Teflon bushes at both the ends of Rolle!s and t$o !ods $ill be locked $ith a %in to move smoothl" $ith out an" distu!bances $hile !unnin&
CAN TRIPPING BAR

It is made u% of $ith teak $ood havin& a %!ovision to tilt a milk can and it is cove!ed $ith == 96? G 5 mm Thk =heet
COMPUTER TABLE
The Com%ute! cabin made $ith 8 @mm thick ==96? &!ade sheet The com%ute! cabin suitable fo! installation monito! and C P D# and doo!s $ill be
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WORKING CAPITAL
%!ovided fo! lockin& Fou! le&s $ill be %!ovided and %olished $ith :6 and 856 &!it %a%e!s
SS CAN LID
ASH TROUGH
The can Lid $ashe! t!ou&h $ill be made $ith 5 mm Thk 96? G =heet havin& !ectan&ula! in sha%e and it is ta%e! and $elded $ith A!&on A!c $eldin& and $ill be &!inded 3 finished $ith L6 3 :6 G!it %a%e! The thou&h $ill be fitted $ith sc!e$s to the == st!uctu!e
HORI#ONTAL STORAGE TANK

The inne! shell of the tank is made u% of 5mm thick 96? & sheet alon& $ith dishes $ith 5 @mm Thk 96?& sheet The oute! shell is made u% of $ith 5mm Thk 96?& sheet and bet$een these shells insulated $ith hi&h densit" "ello$ $ool and 866mm Thk The!mocoal sheets $ill be %!ovided The shell $ill be Ti& $elded#&!inded $ith L6 &!it %a%e! and finish $ith :6 &!it %a%e!s The tank $ill be fou! le&s alon& $ith ==ball fits and othe! standa!d accesso!ies like &ea! bo0 moto! $ith a&itato!# si&ht &lass and li&ht &lass etc
VERTICAL STORAGE TANK.

The inne! shell of the tank is made u% of 5mm thick 96? & sheet alon& $ith dishes $ith 5 @mm Thk 96?& sheet The oute! shell is made u% of $ith 5mm Thk 96?& sheet and bet$een these shells insulated $ith hi&h densit" "ello$ $ool and 866mm Thk The!mocoal sheets $ill be %!ovided The shell $ill be Ti& $elded#&!inded $ith L6 &!it %a%e! and finish $ith :6 &!it %a%e!s The tank $ill be fou! le&s alon& $ith ==ball fits and othe! standa!d accesso!ies like &ea! bo0 moto! $ith a&itato!# si&ht &lass and li&ht &lass etc
SS CAN SCRUBBER
The sc!ubbe! made out of $ith 8 Lmm thk == 96?& =heet and havin& a half !ound in sha%e and it $ill be %!ovided $ith &ea! bo0 and *oto! $ith chain d!ive and Page 2!
WORKING CAPITAL
havin& standa!d accesso!ies and it is cove!ed $ith == 96?& $ith 8 LThk =heet All the 4oints $elded $ith A!&on a!e Weldin& and &!inded 3 finished $ith L6 3 :6 &!it %a%e! Fo! this sc!ubbe! %!ovided =tanda!d b!ushes to clean inside the can and at the same time outside also
ACCUMULATORS
The Accumulato! made $ith * = sheet# ,oth side of the Accumulato!s >ish ends $ill be %!ovided Atc.:
SS FLOAT BALANCE TANK

The Tank is made out of 5 6 mmThk ==96?& sheet and $ill be $elded $ith A!&on a!c $eldin& %!ocess All the $elds $ill be %olished 3 finished to dai!" standa!ds $ith L6 3 :6 &!it %a%e!s All co!ne!s $ill be $ell !educed The tank $ill have fou! nos of == le&s fitted $ith == ball fits ca%able of ve!tical ad4ustment of 5@mm %!ovided $ith L9mm outlet $ith @8mm == Float
AMMONIA RECEIVER
The Ammonia Receive! made out of * = Tub of 85mm thick# >ish ends $ill be %!ovided fo! ,oth ends of the Receive!
SS PO
DER MIXING HOOPER
It is made out of ==96?& sheet havin& cone sha%e P!ovidin& 9 no/s of le&s fitted $ith ball fits# and == =%!a" No22le $ill %!ovided fo! %o$de! s%!a"
NEED FOR THE STUDY
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WORKING CAPITAL
An" o!&ani2ation must have to maintain ade(uate $o!kin& ca%ital to meet its da" to da" o%e!ation In o!de! to maintain flo$s of !evenues f!om o%e!ation# eve!" fi!m need ce!tain amount of cu!!ent assets Fo! e0am%lesP cash is !e(ui!ed to meet obli&ations fo! se!vices !eceived etc ," a fi!m on identical %lan in invento!ies a!e !e(ui!ed etc b" a fi!m on identical %lan in invento!ies a!e !e(ui!ed to %!ovide the line bet$een %!oduction and sales The stud" is !e(ui!ed to unde!stand the $o!kin& ca%ital %osition in =RAA RA* TAC'
NEED AND IMPORTANCE OF THE STUDY

Thus =RAA RA* TAC' P!oducts is ve!" vital f!om count!"/s >ai!" A(ui%ment/s %oint of vie$ The demand $ould be &!o$in& $ith inc!easin& technolo&ies and is likel" to !each a sta&&e!in& level in the decades to come On the othe! hand# the %!ice of =tainless =teel has !emained sta&nant# because %!ices a!e dete!mined b" ma!ket fo!ces and %!esentl" %!oduction levels a!e &!eate! than su%%l"
SCOPE OF THE STUDY

FINANCIAL MANAGEMENT
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WORKING CAPITAL
Financial mana&ement is that the mana&e!ial activit" is conce!ned $ith the %lannin& and cont!ollin& of the fi!m/s financial !esou!ces Thou&h it $as a b!anch of economics till 8:;6 as a se%a!ate activit" o! disci%line# it is of !ecent o!i&in =till it has no uni(ue bod" of kno$led&e of its o$n and heavil" on economics fo! its theo!etical conce%ts even toda" The sub4ect of financial is of immense inte!est to both academician and %!acticin& mana&e!s It is of &!eat inte!est of academicians because the sub4ect is still develo%in& and the!e a!e still ce!tain a!eas $he!e cont!ollin& e0ists fo! $hich no unanimous solutions have been !eaches as "et T7+ 4-+,+() ,)3%2 '.5, ') )7+ 018816.(* 'i&hli&htin& the necessit" of cu!!ent assets and cu!!ent liabilities A0%lain the %!inci%les of cu!!ent assets# investment and financin& Focus on the %!o%e! mi0 of sho!t te!m financin& fo! cu!!ent assets Am%hasis the need and &oal of establishin& a sound c!edit %olic" =u&&est the need of monito!in& the !eceivables 'i&hli&ht the need fo! holdin& cash >iscuss the techni(ues of %!e%a!in& cash bud&et Focus on the mana&ement of cash collection and disbu!sement
OB"ECTIVES OF THE STUDY
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WORKING CAPITAL
To evaluate the %e!fo!mance of =RAA RA* TAC' anal"2in& the %!ofitabilit" and li(uidit" %osition of the com%an" To stud" chan&es in $o!kin& ca%ital %osition at the o!&ani2ation f!om 566:) 5689 To e0amine the tu!nove! of the com%an" To identif" and anal"2e !elationshi% bet$een $o!kin& ca%ital# sales# fi0ed asset to sales etc To su&&est measu!es if an" fo! im%!ovin& financial %e!fo!mance of com%an"
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WORKING CAPITAL
LIMITATIONS OF THE STUDY

It is based on the data su%%lied b" the com%an" %e!sonnel It is based on consultation# decisions of all conce!ned officials Time is the ma4o! limitation fo! the stud" i e # stud" conducted based on the ? "ea!s financial !e%o!ts We can/t dete!mine the ove! all financial %osition of the com%an" >ue to limitation of time# it $as unable to &o fa! a de%th stud" in to the sub4ect
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WORKING CAPITAL
RESEARCH METHODOLOGY
MEANING OF ORKING CAPITAL
O!dina!il"# the te!m +$o!kin& ca%ital- stands fo! that %a!t of the ca%ital# $hich is !e(ui!ed fo! the financin& of $o!kin& o! cu!!ent needs of the com%an" Wo!kin& ca%ital is the lifetime of eve!" conce!n Whethe! it is manufactu!in& o! non) manufactu!in& one $ithout ade(uate $o!kin& ca%ital# the!e can be no %!o&!ess in the indust!" Inade(uate $o!kin& ca%ital means sho!ta&e of !a$ mate!ials# labo! etc # !esultin& in %a!tial cu!!ent assets less cu!!ent liabilities)has no economic meanin& in the sense of im%l"in& some t"%e of no!mative behavio! Acco!din& to this line of !easonin&# it is la!&el" an accountin& a!tifact Wo!kin& ca%ital mana&ement# then# is a misnome! The $o!kin& ca%ital of the fi!m is not mana&ed The te!m desc!ibes a cate&o!" of mana&ement decisions affects s%ecific t"%es of cu!!ent assets and cu!!ent liabilities In tu!n# those decisions should be !ooted in the ove!all Haluation of the fi!m CONCEPTS OF ORKING CAPITAL
The te!m $o!kin& ca%ital can be used in t$o diffe!ent $a"s7 the" a!e 1. GROSS ORKING CAPITAL
The &!oss $o!kin& ca%ital !efe!s to investment in all the cu!!ent assets taken to&ethe! The total of investments in all cu!!ent assets is kno$n as &!oss $o!kin& ca%ital 2. N+) 1-;.(* C'4.)'8 The te!m net $o!kin& ca%ital !efe!s e0cess of total cu!!ent assets ove! total cu!!ent liabilities It ma" be noted that the cu!!ent assets !efe!s to these liabilities $hich a!e %a"able $ith in a %e!iod of one "ea!
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WORKING CAPITAL
METHODS
TYPES OF ORKING CAPITAL
F!om the %oint of vie$ of time# the te!m $o!kin& ca%ital can be divided into t$o cate&o!ies 1. PERMANENT ORKING CAPITAL
It is also !efe!s to the ha!d co!e $o!kin& ca%ital it is the minimum level of investment in the cu!!ent assets that is ca!!ied b" the business at all times to ca!!ies ou! minimum level of its activities 2. TEMPORARY ORKING CAPITAL
It !efe!s to the %a!t of total $o!kin& ca%ital $hich is !e(ui!ed b" a business ove! and about %e!manent $o!kin& ca%ital It is also called va!iable $o!kin& ca%ital =ince the volume of the tem%o!a!" $o!kin& ca%ital kee%s on fluctuatin& f!om time to time acco!din& to the business activities it ma" be financed f!om sho!t te!m !esou!ces PERMANENT T O TYPES 8 Re&ula! Wo!kin& Ca%ital 5 Rese!ve Wo!kin& Ca%ital 1. REGULAR ORKING CAPITAL ORKING CAPITAL CAN BE FURTHER DIVIDED INTO
It is the minimum amount of li(uid ca%ital needed to kee% u% the ci!culation of the ca%ital f!om cash to invento!ies to !eceivables and a&ain to cash 2. RESERVE ORKING CAPITAL
It is the e0cess ove! the needs o! !e&ula! $o!kin& ca%ital that should be ke%t in !ese!ve fo! contin&encies that ma" a!ise at an" time these contin&encies include !isin& %!ices# business de%!ession# st!ikes and s%ecial o%e!ations such as e0%e!iments $ith ne$ %!oducts
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WORKING CAPITAL
COMPOSITION OF 1.C3--+() A,,+), a Invento!ies
ORKING CAPITAL
Ra$ *ate!ials
Wo!k in %!o&!ess Finished &oods =to!es and s%a!es *iscellaneous Goods
b Receivables
T!ade debto!s Loans and advances Othe! debto! balances
c *a!ketable secu!ities
Govt secu!ities =emi)Gove!nment secu!ities =ha!es# >ebentu!e# etc #
d Cash and bank balance
Cash in 'and Cash At ,ank Cash in T!ansit
5 C3--+() L.'<.8.).+, a =und!" c!edito!s
Inte!est accused on loan Advances !eceived f!om customs =ho!t te!m loans f!om banks T!ade dues and othe! liabilities >e%osits f!om %ublic# etc #
b Pa"ables
T!ade c!edito!s Loans Othe! c!edito! balances
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WORKING CAPITAL
SOURCES OF 8 =ale of sha!es
ORKING CAPITAL 8 >e%!eciation funds 5 P!ovision of Ta0ation 9 Acc!ued A0%enses 8 T!ade c!edit 5 C!edit %a%e!s 9 ,ank c!edit ? Public >e%osits
5 =ale of >ebentu!es 9 =ale of idle fi0ed assets ? Lon&)te!m loans @ Custome!s c!edit L Loans f!om di!ecto!s < =ecu!it" of em%lo"ee : Facto!in&
GENERAL FACTORS DETERMINING RE$UIREMENTS:
ORKING CAPITAL
The $o!kin& ca%ital needs of a fi!m a!e dete!mined 3 influenced b" va!ious facto!s A $ide va!iet" of conside!ations ma" affect the (uantum of $o!kin& ca%ital !e(ui!ed 3 these conside!ations ma" va!" f!om time to time The $o!kin& ca%ital needed at one %oint of time ma" not be &ood enou&h fo! some othe! situation The dete!mination of $o!kin& ca%ital !e(ui!ements is a continuous %!ocess 3 must be unde!taken on a !e&ula! basis in the li&ht of the chan&in& situations Follo$in& a!e some of the facto!s $hich a!e !elevant in dete!minin& the $o!kin& ca%ital need of the fi!ms 8 5 9 ? @ L < : P!oduction %olic" Natu!e of the business C!edit %olic" Invento!" %olic" Abno!mal facto!s *a!ket conditions Conditions of su%%l" ,usiness c"cle
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WORKING CAPITAL
G!o$th and e0%ansion
86 Level of ta0es 88 >ividend %olic" 85 P!ice level chan&es 89 O%e!atin& efficienc" 1. PRODUCTION POLICY: The %!oduction schedule i e # the %lan fo! %!oduction# has &!eat influence on the level of the invento!ies In some cases !a$ mate!ials can be %!oduced onl" in a %a!ticula! season and have to be stocked fo! the %!oduction of the $hole "ea! In man" othe!s the %!oduction c"cle is limited to a %a!t of the "ea! and !a$ mate!ials have to be accumulated th!ou&hout the "ea! Thus# need fo! $o!kin& ca%ital $ill va!" acco!din& to the %!oduction %lans 2. NATURE OF THE BUSINESS The si2e of business also has an im%o!tant im%act on its $o!kin& ca%ital needs =i2e ma" be measu!ed in te!ms of the scale of o%e!ations A fi!m $ith la!&e scale of o%e!ation $ill need $o!kin& ca%ital than small te!m The $o!kin& ca%ital !e(ui!ements of a fi!m a!e basicall" influenced b" the natu!e of the business t!adin& and financial fi!m has a ve!" less investment in fi0ed assets# but !e(ui!e a la!&e sum of mone" to be invested in $o!kin& ca%ital 3. CREDIT POLICY A com%an"# $hich allo$s libe!al c!edit to its custome!s# ma" have hi&he! sales but conse(uentl" $ill have la!&e amount of funds tied u% in sund!" debto!s C!edit te!ms# >ebt collection s"stem also influences the level of $o!kin& ca%ital =. INVENTORY POLICY La!&e amount of funds is no!mall" locked u% in invento!" An efficient fi!m ma" stock !a$ mate!ial fo! a smalle! %e!iod and ma" the!efo!e !e(ui!e lesse! amount of $o!kin& ca%ital
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WORKING CAPITAL
>. ABNORMAL FACTORS Abno!mal facto!s like st!ikes# lockouts also !e(ui!e additional $o!kin& ca%ital Recessiona!" conditions necessitate a hi&he! amount of stock of finished &oods ?. MARKET CONDITIONS *a!ket conditions like com%etition la!&e invento!" a!e essential as delive!" has to be off the self o! c!edit has to be e0tended on libe!al te!ms $hen ma!ket com%etition is fie!ce @. CONDITIONS OF SUPPLY If %!om%t and ade(uate su%%l" of !a$ mate!ials !e(ui!es small investment in invento!" If su%%l" is scant# seasonal canali2ed# it is essential to kee% lon&e! stocks inc!easin& $o!kin& ca%ital !e(ui!ements A. BUSINESS CYCLE ,usiness fluctuations lead to c"clical and seasonal chan&es in %!oduction# sales and effect the $o!kin& ca%ital !e(ui!ements B. GRO TH AND EXPANSION The $o!kin& ca%ital needs of fi!m inc!eases in &!o$th in te!ms sales of fi0ed assets If is difficult to %!ecisel" dete!mine the !elationshi% bet$een volume of sales and the $o!kin& ca%ital needs The c!itical fact ho$eve! that is the need fo! inc!eased $o!kin& ca%ital funds does not fallo$ &!o$th in business activities but %!ecedes it 1C. LEVEL OF TAXES Ta0ation is a sho!t te!m liabilit" %a"able in cash Advance %a"ment of cash ma" have to be %aid on the basis of antici%ated %!ofits Ta0 is fi!st a%%!o%!iation out of %!ofits 'i&he! the ta0# &!eate! is the stain on the $o!kin& ca%ital of the com%an" Wo!kin& ca%ital va!ies $ith ta0 !ate and advanced ta0 %!ovisions
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11. DIVIDEND POLICY Pa"ment of dividend utili2es cash $hile !etainin& %!ofits acts as a sou!ce of $o!kin& ca%ital 12. PRICE LEVEL CHANGES Inflationa!" t!ends in the econom" necessitate mo!e $o!kin& ca%ital maintain the same level of activit" 13. OPERATING EFFICIENCY The o%e!atin& efficienc" of the fi!m !elates to the o%timum utili2ation of !esou!ces at minimum costs The fi!m $ill be effectivel" cont!ibutin& in kee%in& the $o!kin& ca%ital investment at a lo$e! level if it is efficient to cont!ollin& o%e!atin& costs and utili2in& cu!!ent assets The use of $o!kin& ca%ital is im%!oved and %ace of a cash conve!sion c"cle is accele!ated $ith o%e!atin& efficienc"
OTHERS
ORKING CAPITAL CYCLE DTHE OPERATING CYCLE) The $o!kin& ca%ital c"cle !efe!s to the len&th of time bet$een the fi!m/s %a"in& cash fo! mate!ials# etc # ente!in& in to the %!oduction %!ocessE stock and the inflo$ of cash f!om debto!s =u%%ose a com%an" has a ce!tain amount of cash it $ill need !a$ mate!ials =ome !a$ mate!ials $ill be available on c!edit but# cash $ill be %aid out fo! the othe! %a!t immediatel" Then it has to %a" labou! cost and incu!s facto!" ove!heads These th!ee combined to&ethe! $ill constitute $o!k)in)%!o&!ess Afte! the %!oduction c"cle is com%lete# $o!k)in)%!o&!ess $ill &et conve!ted into sund!" debto!s =und!" debto!s $ill be !eali2ed in cash afte! the e0%i!" of c!edit %e!iod this cash can a&ain be used fo! financin& of !a$ mate!ials# $o!k)in)%!o&!ess# etc thus the!e is a com%lete c"cle f!om cash to cash $he!e in cash &ets conve!ted into !a$ mate!ials# $o!k)in)%!o&!ess# finished &oods# debto!s and finall" into cash a&ain =ho!t te!m funds a!e !e(ui!ed to meet the !e(ui!ements of funds du!in& this %e!iod This time %e!iod is de%endent u%on the len&th of time $ithin $hich the o!i&inal cash &ets conve!ted into cash a&ain This c"cle is also kno$n as o%e!atin& c"cle o! cash c"cle
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WORKING CAPITAL
OPERATING CYCLE
Cash
Bills Receivabl es Or Debtors Credit Sales Working in progress Raw Materials
Finished goods
Wo!kin& ca%ital c"cle indicates the len&th of time bet$een com%anies %a"in& fo! mate!ials# ente!in& into stock and !eceivin& the cash f!om sales of finished &oods It can be dete!mined b" addin& the numbe! of da"s !e(ui!ed fo! each sta&e in the c"cle Fo! e & # a com%an" holds !a$ mate!ials on an ave!a&e fo! L6 da"s# it &ets c!edit f!om the su%%lie! fo! 8@ da"s# %!oduction %!ocess needs 8@ da"s# finished &oods a!e held fo! 96 da"s and 96 da"s c!edit is e0tended to debto!s The total of all these 856 da"s# i e # L6)8@Q8@Q96Q96 da"s is the total $o!kin& ca%ital c"cle The dete!mination of $o!kin& ca%ital c"cle hel%s in the fo!ecast# cont!ol and mana&ement of $o!kin& ca%ital It indicates the total time la& and the !elative si&nificance of its constitutin& %a!ts The du!ation of $o!kin& ca%ital c"cle ma" va!" de%endin& on the natu!e of the business The O%e!atin& C"cle consists of the follo$in& events $hich continues th!ou&h the life of business conve!sion of cash into !a$ mate!ials conve!sion of !a$ mate!ials into $o!k in %!o&!ess conve!sion of WIP into finished stock
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WORKING CAPITAL
conve!sion sales conve!sion of account !eceivable into cash ORKING CAPITAL
COMPONENTS OF
Wo!kin& Ca%ital mana&ement involves diffe!ent com%onents such as 8 5 9 *ana&ement of cash *ana&ement of Invento!" *ana&ement of Receivables
1. MANAGEMENT OF CASH Cash is the im%o!tant cu!!ent asset fo! the o%e!ation of the business Cash is the basic in%ut needed to kee% the business !unnin& on continuous basisP it is also the ultimate out%ut e0%ected to be !eali2ed b" sellin& the se!vices of %!oduct manufactu!es b" the fi!m The fi!m should kee% sufficient cash# neithe! mo!e no! less Cash sho!ta&e $ill dis!u%t the fi!m/s manufactu!in& o%e!ations $hile e0cessive cash $ill sim%l" !emain idle# $ithout cont!ibutin& an"thin& to$a!ds the fi!m/s %!ofitabilit" Thus# ma4o! functions of the financial mana&e! to maintain a sound cash %osition Cash is the mone"# $hich a fi!m can disbu!se immediatel" $ithout an" !est!iction The te!m cash includes coins# cu!!enc" and che(ues held b" the fi!m# and balance in its bank accounts =ometimes nea! cash items# such as ma!ketable secu!ities o! bank times de%osits# a!e also includes in cash The basic cha!acte!istic of nea! cash assets is that the" can !eadil" be conve!ted to cash Gene!all" $hen a fi!m has e0cess of nea! cash# it invests it in ma!ketable secu!ities This kind of investment cont!ibutes some %!ofit to the fi!m A. FACETS OF CASH MANAGEMENT Cash mana&ement is conce!ned $ith the mana&in& of 8G Cash flo$s into and out of the fi!m 5G Cash flo$s $ithin the fi!m and 9G Cash balance held b" the fi!m a %oints of time b" financin& deficit o! investin& su!%lus cash It can be !e%!esented b" a cash mana&ement c"cle as sho$in& fi&8 sales &ene!ates cash# $hich has to be disbu!sed out The su!%lus cash
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WORKING CAPITAL
has to be invested $hile deficit has to be bo!!o$ed Cash mana&ement seeks to accom%lish this c"cle at a minimum cost At the same time# it also seeks to achieve li(uidit" and cont!ol Cash mana&ement assumes mo!e im%o!tance than othe! cu!!ent assets because it is the most si&nificant and the least %!oductive asset that a fi!m holds It is a si&nificant because it is used to %a" the fi!m/s obli&ations 'o$eve!# cash is un%!oductive Dnlike fi0ed assets o! invento!ies# it does not %!oduce &oods fo! sales B. CASH PLANNING Cash inflo$s and outflo$s should be %lanned to %!o4ect cash su!%lus o! deficit fo! each %e!iod of the %lannin& %e!iod Cash bud&et should be %!e%a!ed fo! this %u!%ose C. MANAGING THE CASH FLO S The flo$ of cash should be %!o%e!l" mana&ed The cash should be accele!ated $hile# as fa! as %ossible# the cash outflo$s should be decele!ated D. OPTIMUM CASH LEVEL The fi!m should decide about the a%%!o%!iate level of cash balances The cost of e0cess cash and dan&e! of deficienc" should be matched to dete!mine the o%timum level of cash balances E. INVESTING SURPLUS CASH The su!%lus balance should be %!o%e!l" invested to ea!n %!ofits The fi!m should decide about the division of cash balances bet$een alte!native sho!t)te!m investment o%%o!tunities such as bank de%osits# ma!ketable secu!ities# o! inte! co!%o!ation lendin& The ideal cash mana&ement s"stem $ill de%ends on the fi!m/s %!oducts# o!&ani2ation st!uctu!e# com%etition# cultu!e and o%tion available The task is com%le0# and decisions taken can affect im%o!tant a!eas of the fi!m Fo! e0am%le# to im%!ove collection if the c!edit %e!iod is !educed# it ma" affect sales 'o$eve!# in ce!tain cases# even $ithout fundamental chan&es# it %ossible to si&nificantl" !educe cost of
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WORKING CAPITAL
cash mana&ement s"stem b" choosin& a !i&ht bank and cont!ollin& the collections %!o%e!l" F. MOTIVES FOR HOLDING CASH The fi!m/s needs fo! cash ma" be att!ibuted to the follo$in& needs i ii iii iv I. T!ansaction motive P!ecautiona!" motive =%eculation motive T!anslation motive
TRANSACTION MOTIVE The t!ansaction motive !e(ui!es a fi!m to hold cash to conduct its business in
the o!dina!" cost The fi!m needs cash %!ima!il" to make %a"ments fo! %u!chases# $a&es and sala!ies# othe! o%e!atin& e0%enses# ta0es# dividends etc the need to hold cash $ould not a!ise if the!e $e!e %e!fect s"nch!oni2ation bet$een cash !ecei%ts and cash %a"ments# i e # enou&h cash is !eceived $hen the %a"ment has to be made ,ut cash !ecei%ts and %a"ments a!e not %e!fectl" s"nch!oni2ed Fo! those %e!iods# $hen cash %a"ments e0ceed cash !ecei%ts# the fi!m should maintain some cash balance to be able to make !e(ui!ed %a"ments Fo! t!ansaction %u!%ose# a fi!m ma" invest its cash in ma!ketable secu!itiesP usuall" the fi!m $ill %u!chase secu!ities $hose matu!it" co!!es%onds $ith some antici%ated %a"ments H. PRECAUTIONARY MOTIVE A fi!m also kee%s cash balances to meet une0%ected cash needs a!isin& out of une0%ected contin&encies such as floods# st!ikes# %!esentment of bills fo! %a"ment ea!lie! than e0%ected date# sha!% inc!ease in !a$ mate!ials %!ice etc# The mo!e is the %ossibilit" of such contin&encies# the mo!e is the amount of cash ke%t b" the fi!m fo! meetin& them I. SPECULATIVE MOTIVE A fi!m also kee%s cash balance to take advanta&e of une0%ected o%%o!tunities t"%icall" outside the no!mal cou!se of business# such motive is the!efo!e a %u!el" s%eculative fo! e0am%le a fi!m ma" like to take advanta&e of an o%%o!tunit" to
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%u!chase !a$ mate!ial at !educed %!ices in antici%ation of decline %!ices# simila!l"# it ma" like to kee% some c ash balance to make %!ofit b" bu"in& secu!ities at times $hen thei! %!ices fall due to ti&ht mone" conditions etc# ". CASH PLANNING Cash %lannin& is a techni(ue to %lan and cont!ol the use of cash It %!otects the financial condition of the fi!m b" develo%in& a %!o4ected cash statement f!om a fo!ecast of e0%ected cash inflo$s and outflo$s fo! a &iven %e!iod The fo!ecast ma" be used on the %!esent o%e!ations o! antici%ated futu!e o%e!ations Cash %lans a!e ve!" c!ucial in develo%in& the ove!all o%e!atin& %lans of the fi!m K. CASH FORECASTING AND BUDGETING Cash bud&et is the most si&nificant device to %lan fo! and cont!ol cash !ecei%ts and %a"ments A cash bud&et is a summa!" of the fi!m/s e0%ected cash inflo$s ove! a %!o4ected %e!iod It &ives info!mation on the timin& and ma&nitude of e0%ected cash flo$s and cash balances ove! the %!o4ected %e!iod This info!mation hel%s the financial mana&e! to dete!mine the futu!e cash needs of the fi!m The time ho!i2on of a cash bud&et ma" diffe! f!om fi!m to fi!m A fi!m $hose business is affected b" seasonal va!iations ma" %!e%a!e monthl" cash bud&ets >ail" o! $eekl" bud&ets should be %!e%a!ed fo! dete!mine cash !e(ui!ements if cash flo$s e0t!eme fluctuations Cash bud&ets fo! a lon&e! inte!val ma" be %!e%a!ed if cash flo$s a!e !elativel" stable 2. MANAGEMENT OF INVENTORY The %!ecedin& t$o cha%te!/s basic st!ate&ies and conside!ation in mana&in& cu!!ent assets namel"# cash and !eceivables a!e stocks of %!oduct a com%an" is manufactu!in& fo! sale and com%onents that make u% a %!oduct Invento!ies like !eceivables a!e also a si&nificant %o!tion of most fi!ms/ assets and acco!din&l" !e(ui!e substantial investment To kee% these investments f!om becomin& unnecessa!il" la!&e# invento!ies must be mana&ed efficientl" The va!ious fo!ms in $hich invento!ies e0ist in a manufactu!in& com%an" a!e
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WORKING CAPITAL
')
R'6 M')+-.'8,: Ra$ mate!ials a!e those basic in%uts that a!e conve!ted into finished %!oducts th!ou&h the manufactu!in& %!ocess Ra$ mate!ial invento!ies a!e those units# $hich have been %u!chased and sto!ed fo! futu!e %!oductions
<)
1-;).(-4-1*-+,,: The $o!k)in)%!o&!ess is that sta&e of stock# $hich is in bet$een !a$ mate!ials and finished &oods The" a!e semi)finished %!oducts that need mo!e $o!k befo!e the" become finished %!oducts fo! sale The (uantum of WIP de%ends on the time taken in the manufactu!in& %!ocess The &!eate! the time taken in manufactu!in&# the mo!e $ill be the amount of $o!k)in)%!o&!ess
/) F.(.,7+% *11%,7 Finished &oods invento!ies a!e those com%letel" manufactu!ed %!oducts# $hich a!e !ead" fo! sale =tocks of !a$ mate!ial and $o!k)in)%!ocess facilitate %!oduction $hile stock of finished &oods is !e(ui!ed fo! smooth ma!ketin& o%e!ations The level of th!ee kinds of invento!ies fo! a fi!m de%ends on the natu!e of its business A manufactu!in& fi!m $ill have substantiall" hi&h level of all th!ee kinds of invento!ies 2 DA) NEED FOR HOLDING INVENTORY The!e a!e &ene!all" th!ee ma4o! motives fo! holdin& invento!ies The!e t!ansactions motive $hich em%hasis the need to maintain invento!ies to facilitate smooth %!oduction and sale o%e!ations The %!ecautiona!" motive# $hich necessitates holdin& of invento!ies to &ua!d a&ainst the !isk of un%!edictable chan&es in demand and su%%l" fo!ces and othe! facto!s The s%eculative motive $hich includes the decision to inc!ease o! !educe invento!" levels to take advanta&e of %!ice fluctuations A com%an" should maintain ade(uate stock of mate!ial# as it is not %ossible fo! a com%an" to %!ocu!e !a$ mate!ial $heneve! it is needed and also fo! a continuous and smooth and uninte!!u%ted %!oduction %!ocess
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2DB) INVENTORY MANAGEMENT TECHNI$UES In mana&in& invento!ies the fi!m should dete!mine the o%timum level of invento!" Afficientl" cont!olled invento!ies make the fi!m fle0ible Inefficient invento!" cont!ol !esults in unbalanced invento!" and infle0ibilit"# the fi!m ma" be sometimes out of stock and sometimes ma" %ile u% unnecessa!" stocks This inc!eases the level of investment and makes the fi!m un%!ofitable The fi!st (uestion# ho$ much to o!de!# !elated in the %!oblem of dete!minin& economic o!de! (uantit" FAOMG and is ans$e!ed $ith an anal"sis of costs of maintainin& ce!tain level of invento!ies The second (uestion $hen to o!de! a!ises because of unce!taint" and is a %!oblem of dete!minin& the !e)o!de! %oint 3. MANAGEMENT OF RECEIVABLES Accounts !eceivable o! t!ade c!edit is the most %!ominent fo!ce of the mode!n business It is conside!ed as an essential ma!ketable tool# actin& as a b!id&e fo! the movement of &oods th!ou&h %!oduction and dist!ibution sta&es to custome!s finall" It also involved an element of !isk as the cash %a"ment has &et to be !eceived# hence the" has to be ca!efull" anal"2ed Receivables constitute a substantial %o!tion of cu!!ent assets of seve!al fi!ms The" fo!m about 8E9 %a!t of cu!!ent assets in India As substantial amounts a!e tied u% in t!ade debto!s# it needs ca!eful anal"sis and %!o%e! mana&ement# fo! %!o%e! mana&ement of !eceivable a conce!n must ado%t an o%timum c!edit %olic"
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WORKING CAPITAL
SOURCES OF DATA
The stud" !e(ui!ed both %!ima!" and seconda!" dataP A. P-.5'-2 %')' P!ima!" data has been collected b" inte!vie$in& ce!tain e0ecutives $ho $e!e chosen %ossible B. S+/1(%'-2 %')' =econda!" data $as obtained f!om the %ast !eco!ds file and !e%o!ts of the o!&ani2ation also f!om othe! financial statements on the basis of thei! in de%th kno$led&e and e0%e!ience in the com%an" The inte!vie$s in natu!e a!e unde! to &ain as much info!mation as
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WORKING CAPITAL
REVIE
OF LITERATURE
ORKING CAPITAL MANAGEMENT

Wo!kin& ca%ital is that amount of funds# $hich is !e(ui!ed to ca!!" out the da")to)da" o%e!ations of an ente!%!ise It ma" also !e&a!d as that %osition of an ente!%!ise total ca%ital# $hich is em%lo"ed in its sho!t)te!m o%e!ations This o%e!ation consists of %!ima!il" such items such as !a$ mate!ials# semi)finished &oods# finished &oods# sund!" debto!s# sho!t)te!m investments etc Thus $o!kin& ca%ital also !efe!s to all the sho!t)te!m assets kno$n cu!!ent assets used in da")to)da" o%e!ations of an o!&ani2ation
DEFINITION OF
ORKING CAPITAL
+Wo!kin& Ca%ital sometimes called as Net Wo!kin& Ca%ital is !e%!esented b" the e0cess of cu!!ent assets ove! the cu!!ent liabilities and identified the !elativel" li(uid %o!tion to total ente!%!ise ca%ital $hich constitutes a ma!&in of buffe! fo! matu!in& obli&ations $ithin the o!dina!" o%e!atin& c"cle of the business.Wo!kin& Ca%ital is a e0cess of cu!!ent assets ove! cu!!ent liabilities/
CONCEPT OF
ORKIGN CAPITAL
The!e a!e t$o conce%ts of $o!kin& ca%ital such as 1. G-1,, C1(/+4) 2. N+) C1(/+4) GROSS ORKING CAPITAL: DG C)
The &!oss $o!kin& ca%ital sim%l" called as $o!kin& ca%ital# !efe!s to the fi!m/s investment in cu!!ent assets Cu!!ent assets a!e the assets $hich can be conve!ted into cash $ithin an accountin& "ea! Fo! o%e!atin& c"cleG and include cash# sho!t)te!m secu!ities# debto!s# bills !eceivables# invento!ies and %!e%aid e0%enses G-1,, 1-;.(* C'4.)'8 E T1)'8 10 C3--+() A,,+),
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WORKING CAPITAL
NET
ORKING CAPITAL7 DN
C)
The Te!m Net Wo!kin& Ca%ital# can be defined in t$o $a"s +The A0cess of Cu!!ent assets ove! Cu!!ent liabilities+ +That %o!tion of a fi!m/s cu!!ent assets $hich is financed $ith lon& te!m funds N+) 1-;.(* C'4.)'8 E C3--+() A,,+), - C3--+() L.'<.8.).+, A %ositive net $o!kin&
Net $o!kin& ca%ital can be %ositive o! ne&ative
ca%ital $ill a!ise $hen cu!!ent assets e0ceed cu!!ent liabilities A ne&ative $o!kin& ca%ital occu!s $hen cu!!ent liabilities a!e in e0cess of cu!!ent assets The t$o conce%ts of $o!kin& ca%ital &!oss and net a!e not e0clusiveP !athe! the" have e(ual si&nificance f!om the mana&ement vie$%oint The &!oss $o!kin& ca%ital focuses attention on t$o as%ects of cu!!ent assets mana&ement such as O%timum investment in cu!!ent assets and Financin& of cu!!ent assets The conside!ation of the level of investment in cu!!ent assets should avoid t$o dan&e! %oints e0cessive and inade(uate investment in cu!!ent assets The investment in cu!!ent assets should be 4ust ade(uate# not mo!e# no! should less# to the need of the business fi!m e0cessive investment in cu!!ent assets be avoided because it im%ai!s the fi!m/s %!ofitabilit"# as idle investment ea!ns nothin& On the othe! hand# inade(uate amount of $o!kin& ca%ital can th!eaten solvenc" of the fi!m because of its inabilit" to meet its obli&ations It should be !eali2ed that the $o!kin& ca%ital needs of the fi!m ma" be fluctuatin& $ith chan&in& business activit" This ma" cause e0cess o! sho!ta&e of $o!kin& ca%ital f!e(uentl" mana&ement should be %!om%t to initiate an action and co!!ect imbalances Anothe! as%ect of the &!oss $o!kin& ca%ital %oints to the need of a!!an&in& funds to the need of a!!an&in& funds to finance cu!!ent assets Wheneve! a need fo! $o!kin& ca%ital a!ises due to the inc!easin& level of business avidit" o! fo! an" othe! !eason Financin& a!!an&ement should be made (uickl" The
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WORKING CAPITAL
=imila!l"# if suddenl"# some su!%lus funds a!ise the" should not be allo$ed to !emain idle# but should be invested in sho!t te!m secu!ities investment avenues $he!e idle funds ma" be tem%o!a!il" invested Net $o!kin& ca%ital# bein& the diffe!ence bet$een cu!!ent assets and cu!!ent liabilities# is a (ualit" conce%t it Indicate the li(uidit" %osition of the fi!m and =u&&ests e0tent to $hich $o!kin& ca%ital needs ma" be financed b" %e!manent sou!ces of funds Cu!!ent assets should be sufficientl" in e0cess of cu!!ent liabilities to constitute a ma!&in o! buffe! fo! matu!in& obli&ations $ithin the o!dina!" o%e!ation c"cle of a business In o!de! to %!otect thei! inte!ests# sho!t te!m c!edito!s al$a"s like a com%an" to maintain cu!!ent assets at a hi&he! level than cu!!ent liabilities It is conventional !ule to maintain the level of cu!!ent assets t$ice of the level of cu!!ent liabilities 'o$eve!# the (ualit" of the cu!!ent assets should be conside!ed in dete!minin& the level of cu!!ent assets vis)R)vis cu!!ent liabilities We kno$ that fi!m aim at ma0imi2in& the $ealth of the sha!e holde!/s $ealth# a fi!m should ea!n sufficient !etu!ns f!om its o%e!ations ea!nin& a stead" amount of %!ofit !e(ui!es successful sales activities The fi!m has to invest enou&h funds in Cu!!ent assets a!e needed because The!e is al$a"s an o%e!atin& c"cle cu!!ent assets fo! the success of sales activit" sales do not conve!t into cash instantaneousl" involved in conve!sion of sales into cash ORKING CAPITAL GAP: D CG) The Wo!kin& ca%ital shall be met f!om the NWC and f!om cu!!ent liabilities and still the!e shall be some &a% left to meet the total !e(ui!ement 'ence# WCG is the &a% bet$een the total $o!kin& ca%ital !e(ui!ed and total funds b!ou&ht on lon& te!m basis and ma!ket bo!!o$in& liabilities e0cludin& sho!t te!m finance available f!om banks E financial institutions WCG S TCA 1 NCL FA0cl =T,,G Thus# the financial mana&e! should have kno$led&e of the sou!ces of $o!kin& ca%ital funds as $ell as
Page $
WORKING CAPITAL
These conce%ts can be bette! unde!stood f!om the follo$in& dia&!ammatic !e%!esentation
L.'<.8.).+, LT= NWC TTTT CL
A,,+), LTD
CA =T,,
LT= S Lon& te!m =ou!ces LTD S Lon& te!m uses NWCS Net Wo!kin& Ca%ital =T,, S =ho!t te!m bank bo!!o$in&s WCG S CA 1 CL FA0cl =T,,G
CL S Cu!!ent Liabilities CA S Cu!!ent Assets CA 1 CL No! LT=)LTDO
OPERATING CYCLE O%e!atin& c"cle is the time du!ation !e(ui!ed to conve!t sales# afte! the conve!sion of the !esou!ces into invento!ies# into cash manufactu!in& com%an" involves th!ee %hassesP Ac(uisition of !esou!ces such as !a$ mate!ial# labo!# %o$e! fuel etc # *anufactu!e of the %!oduct $hich includes conve!sion of !a$ mate!ial into $o!k)in)%!ocess into finished &oods =ales of the %!oduct eithe! fo! cash o! on c!edit debts fo! collection C!edit sales c!eate book The o%e!atin& c"cle of a
Page %
WORKING CAPITAL
DIAGRAM
CASH Debtors
Raw Materials
Sales
Work-in- rogress
Finished !oods
Operating Cycle of a manufacturing Firm
CASH
Receivable s
"nventor#
Cash
Debtors
Operating Cycle of a Non manufacturing Firm
Operating Cycle of Service and Finance Firm
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WORKING CAPITAL
SPECIMENT OF
ORKING CAPITAL CHANGES STATEMENT

1-;.(* C'4.)'8 E00+/) 1( 61-;.(* /'4.)'8 I(/-+',+ %+/-+',+
S)')+5+() 10 S/7+%38+ 10 C7'(*+, .( P'-)./38'-, C3--+() A,,+),: Cash in hand Cash at bank =und!" debto!s Tem%o!a!" Investments =tocksEInvestments P!e%aid A0%enses Acc!ued Incomes T1)'8 C3--+() A,,+), C3--+() L.'<.8.).+,: =und!" c!edito!s Outstandin& A0%enses ,ank Ove!d!aft =hot)te!m Advances >ividends Pa"able P!o%osed dividendsU P!ovision Fo! Ta0ationU T1)'8 /3--+() 8.'<.8.).+, 1-;.(* /'4.)'8 DC.A F C.L) N+) .(/-+',+!%+/-+',+ .( 61-;.(* /'4.)'8. P-+&.13, 2+'-
C3--+() 2+'-
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WORKING CAPITAL
Fo! calculation of net o%e!atin& c"cle# va!ious conve!sion %e!iods a!e calculated usin& the follo$in& fo!mulas7 8G Ra$ mate!ial conve!sion %e!iod RMPC E A&+-'*+ -'6 5')+-.'8 .(&+()1-2 -----------------------------------------------A&+-'*+ -'6 5')+-.'8 /1(,35+% 4+- %'2
5G Wo!k)in)%!o&!ess conve!sion %e!iod A&+-'*+ 61-;-.(-4-1*-+,, IPCP E ---------------------------------------------------A&+-'*+ /1,) 10 4-1%3/).1( 4+- %'2 9G Finished &ood conve!sion %e!iod A&+-'*+ 0.(.,7+% *11%, FGCP E ---------------------------------------------------------A&+-'*+ /1,) 10 4-1%3/).1( 10 *11%, 4+- %'2 ?G >ebto!s conve!sion %e!iod A&+-'*+ %+<)1-, DCP E -----------------------------------A&+-'*+ /-+%.) ,'8+, 4+- %'2
@G Pa"ables defe!!able %e!iod A&+-'*+ /-+%.)1-, PDP E --------------------------------------A&+-'*+ /-+%.) 43-/7',+, 4+- %'2
Invento!" conve!sion %e!iod G!oss o%e!atin& c"cle Net o%e!atin& c"cle
ICP E RMCP G
IPCP G FGCP
GOC E ICP G DCP NOC E GOC F PDP
NEED FOR
ORKING CAPITAL
>iffe!ent indust!ies have diffe!ent o%timum $o!kin& ca%ital %!ofiles# !eflectin& thei! methods of doin& business and $hat the" a!e sellin&
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WORKING CAPITAL
,usinesses $ith a lot of cash sales and fe$ c!edit sales should have minimal t!ade debto!s =u%e!ma!kets a!e &ood e0am%les of such businessesP ,usinesses that e0ist to t!ade in com%leted %!oducts $ill onl" have finished &oods in stock Com%a!e this $ith manufactu!e!s $ho $ill also have to maintain stocks of !a$ mate!ials and $o!k)in)%!o&!ess =ome finished &oods# notabl" foodstuffs# have to be sold $ithin a limited %e!iod because of thei! %e!ishable natu!e La!&e! com%anies ma" be able to use thei! ba!&ainin& st!en&th as custome!s to obtain mo!e favo!able# e0tended c!edit te!ms f!om su%%lie!s =ome businesses $ill !eceive thei! monies at ce!tain times of the "ea!# althou&h the" ma" incu! e0%enses th!ou&hout the "ea! at a fai!l" consistent level This is often kno$n as +seasonalit"- of cash flo$ Wo!kin& ca%ital needs also fluctuate du!in& the "ea! The amount of funds tied u% in $o!kin& ca%ital $ould not t"%icall" be a constant fi&u!e th!ou&hout the "ea! Onl" in the most unusual of businesses $ould the!e be a constant need fo! $o!kin& ca%ital fundin& Fo! most businesses the!e $ould be $eekl" fluctuations *an" businesses o%e!ate in indust!ies that have seasonal chan&es in demand This means that sales# stocks# debto!s# etc $ould be at hi&he! levels at some %!edictable times of the "ea! than at othe!s In %!inci%le# the $o!kin& ca%ital need can be se%a!ated into t$o %a!ts7 Pe!manent $o!kin& ca%ital Ha!iable $o!kin& ca%ital
PERMANENT AND VARIABLE
ORKING CAPITAL
The!e is al$a"s a minimum level of cu!!ent asse!ts $hich is continuousl" !e(ui!ed b" the fi!m to ca!!" out its business o%e!ations This minimum level of cu!!ent assets is !efe!!ed to as %e!manent o! fi0ed $o!kin& ca%ital The e0t!a $o!kin& ca%ital# needed to su%%o!t the chan&in& %!oduction and sales activities is called fluctuatin&# o! va!iable o! tem%o!a!" $o!kin& ca%ital ,oth kinds of $o!kin& ca%ital %e!manent and tem%o!a!" a!e necessa!" to facilitate
Page !3
WORKING CAPITAL
%!oduction and sale th!ou&h o%e!atin& c"cle# but tem%o!a!" $o!kin& ca%ital is c!eated b" the fi!m to meet its li(uidit" !e(ui!ements that $ill last onl" tem%o!a!il"
D.'*-'5,
%e$porar# or Fl&ct&ating er$anent
%i$e
DF.*-1')
%e$porar# or Fl&ct&ating er$anent
%i$e
DF.*-2') In the t$o fi&u!es diffe!ences bet$een %e!manent and tem%o!a!" $o!kin& ca%ital It is sho$n that %e!manent $o!kin& ca%ital is stable ove! time# $hile tem%o!a!" $o!kin& ca%ital is fluctuatin& sometimes inc!easin& and sometimes dec!easin& FFi&)8bGFo! a &!o$in& fi!m the diffe!ence bet$een %e!manent and tem%o!a!" $o!kin& ca%ital can be de%icted th!ou&h fi&)8b ADE$UACY OF ORKING CAPITAL It should have
The fi!m should maintain a sound $o!kin& ca%ital %osition ade(uate $o!kin& ca%ital to !un its business o%e!ations
,oth e0cessive as $ell as
inade(uate $o!kin& ca%ital %ositions a!e dan&e!ous f!om the fi!m/s %oint of vie$ A0cessive $o!kin& ca%ital means idle funds $hich ea!n no %!ofits fo! the fi!m
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WORKING CAPITAL
Paucit" $o!kin& ca%ital not onl" im%ai!s fi!m/s %!ofitabilit" but also !esults in %!oduction inte!!u%tions and inefficiencies THE DANGERS OF EXCESSIVE ORKING CAPITAL Thus# chances of
It !esults in unnecessa!" accumulation of invento!ies invento!" mishandlin&# $aste# theft and losses inc!ease
It is an indication of defective c!edit %olic" and slack collection %e!iod Conse(uentl"# hi&he! incidence of had debts !esults# $hich adve!sel" affects %!ofits A0cessive $o!kin& ca%ital makes mana&ement com %lacement# $hich de&ene!ates into mana&e!ial inefficienc" Tendencies of accumulatin& invento!ies to make s%eculative %!ofits &!o$ This ma" tend to make dividend %olic" libe!al and difficult to co%e $ithin futu!e $hen the fi!m is unable to make s%eculative %!ofits INADE$UATE ORKING CAPITAL IS ALSO BAD AND HAS THE
FOLLO ING DANGERS It sta&nates &!o$th It becomes difficult fo! the fi!m to unde!take %!ofitable %!o4ects fo! the non)availabilit" of $o!kin& ca%ital funds It becomes difficult to im%lement o%e!atin& %lans and achieve the fi!m/s ta!&et O%e!atin& inefficiencies c!e%t in $hen it becomes difficult even to meet the da" to da" commitments Fi0ed assets a!e not utili2ed fo! the lack of $o!kin& ca%ital funds Thus the fi!m/s %!ofitabilit" $ould dete!io!ate Paucit" of $o!kin& ca%ital funds !ende!s the fi!m unable to avail att!active c!edit o%%o!tunities etc # The fi!m loses its !e%utation $hen it is not in a %osition to honou! its sho!t te!m obli&ations As a !esult the fi!m faces ti&ht c!edit te!ms
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WORKING CAPITAL
ORKING CAPITAL INVESTMENT POLICIES D') C1(,+-&').&+ A44-1'/77 Dnde! this %olic" the fi!m holds !elativel" la!&e %!o%o!tion of total assets in the fo!m of cu!!ent assets This %olic" lo$e!s e0%ected %!ofitabilit"# assumin& that cu!!ent liabilities !emain constant This %olic" also inc!eases the fi!m/s net $o!kin& ca%ital %osition !esultin& in a lo$e! !isk that fi!m $ill encounte! financial %!oblems D<) A**-+,,.&+ A44-1'/7: Dnde! this %olic" a fi!m holds !elativel" small %!o%o!tions of total assets in the fo!m of cu!!ent assets and thus# has !elativel" less net $o!kin& ca%ital Conse(uentl" this %olic" "ield hi&he! e0%ected %!ofit and hi&he! !isk D/) M1%+-')+ A44-1'/7: Dnde! this %olic"# e0%ected %!ofitabilit" and !isk $ill fall bet$een those b" Conse!vative a%%!oach and A&&!essive a%%!oach The !elationshi% bet$een cu!!ent assets and sales unde! the above %olicies is sho$n belo$7
Conservativ e
Moderat e Aggressiv e
DETERMINANTS OF
ORKING CAPITAL
The!e a!e no set !ules to dete!mine $o!kin& ca%ital !e(ui!ements of the fi!ms A la!&e numbe! of facto!s influence $o!kin& ca%ital needs of the fi!ms All facto!s a!e of e(ual im%o!tance Also# the im%o!tance of facto!s chan&es fo! a fi!m ove! time =ome of the !elevant facto!s a!e listed belo$
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WORKING CAPITAL
Natu!e and si2e of business =ales &!o$th ,usiness c"cles P!oduction %olic"
Factors affectin g Workin g Capital
P!ice level chan&es O%e!atin& efficienc" and %e!fo!mance Fi!m/s c!edit %olic" Availabilit" of c!edit Invento!" %olic" Level of ta0es Abno!mal facto!s =easonal fluctuations
DIMENSIONS OF
ORKING CAPITAL MANAGEMENT
The!e a!e man" as%ects of $o!kin& ca%ital mana&ement# $hich make it an im%o!tant function of financial mana&ement Wo!kin& ca%ital mana&ement !e(ui!es much of the financial mana&e!/s time Wo!kin& ca%ital !e%!esents a la!&e %o!tion of the total investment in the assets Wo!kin& ca%ital mana&ement has a &!eate! si&nificance fo! the smalle! fi!ms The need fo! $o!kin& ca%ital is di!ectl" !elated to sales &!o$th SOURCE OF ORKING CAPITAL
The t"%ical sou!ces of $o!kin& ca%ital a!e summa!i2ed as belo$ F3(%, 0-15 14+-').1(, D'%H3,)+% (+) .(/15+). S'8+, 10 (1( /3--+() ',,+), 8G =ales of lon& te!m investment Fsha!es# debentu!es etc #G 5G =ale of tan&ible fi0ed assets Fland# buildin&s etc #G
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WORKING CAPITAL
9G =ale of intan&ible fi0ed assets F&ood$ill# %atents etc #G LONG TERM FINANCING 8G Lon& te!m bo!!o$in&s Finstitutional loans# debentu!es# bonds etc #G 5G Issuances of e(uit" and %!efe!ence sha!es SHORT TERM FINANCING 1 =uch as bank bo!!o$in&s
INVENTORY MANAGEMENT
Invento!ies constitute the most si&nificant %a!t of cu!!ent assets of ma4o!it" of com%anies in India On an ave!a&e# invento!ies a!e a%%!o0imatel" L6 %e!cent of cu!!ent assets in %ublic limited com%anies in India ,ecause of the la!&e si2e of the invento!ies maintained b" fi!ms# a conside!able amount of funds is !e(ui!ed to be committed to them It is# the!efo!e# absolutel" im%e!ative to mana&e invento!ies efficientl" and effectivel" in o!de! to avoid unnecessa!" investment A fi!m ne&lectin& the mana&ement of invento!ies $ill be 4eo%a!d" disin& its lon& !un %!ofitabilit" and ma" fail ultimate It is %ossible fo! a com%an" to !educe its levels of invento!ies to a conside!able de&!ee# e & # 86to56 %e!cent# $ithout an" adve!se effect on %!oduction and sales# b" usin& sim%le invento!" %lannin& and cont!ol techni(ues The !eduction in e0cessive ca!!ies a favo!able im%act on a com%an" %!ofitabilit" NATURE OF INVENTORIES Invento!ies a!e stock of the %!oduct a com%an" is manufactu!in& fo! sales and com%onent that make u% the %!oduct The va!ious fo!ms in $hich invento!ies e0istin& a manufactu!in& com%an" a!e7 !a$ mate!ial# $o!k in %!ocess and finished &oods 1. RA MATERIAL A!e those basic in%ut that a!e conve!ted in to finished %!oduct th!ou&h the manufactu!in& %!ocess Ra$ mate!ial invento!ies a!e those units $hich have been %u!chased and sto!ed fo! futu!e %!oduction 2. ORK IN PROGRESS Invento!ies a!e semi)manufactu!ed %!oduct The" !e%!esent %!oduct that the need mo!e $o!k befo!e the" become finished %!oduct fo! sale
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WORKING CAPITAL
3. FINISHED GOODS Invento!ies a!e those com%letel" manufactu!ed %!oduct $hich a!e !ead" fo! sale =tock of !a$ mate!ial and $o!k in %!ocess facilitate %!oduction# $hile stock of finished &oods is !e(ui!ed fo! smooth ma!ketin& o%e!ation Thus# invento!ies se!ve as a link bet$een the %!oduct and consum%tion of &oods NEED TO HOLD INVENTORIES The!e a!e th!ee &ene!al motives fo! holdin& invento!ies 8 T!ansaction motive em%hasi2ed the need to maintain invento!ies to facilitate smooth %!oduction and sales o%e!ation 5 P!ecautiona!" motive necessitates holdin& of invento!ies to &ua!d a&ainst the !isk of un %!edictable chan&e in demand and su%%l" fo!ces and othe! facto! 9 =%eculative motive influences the decision to inc!ease o! !educe invento!" levels to take advanta&e of %!ices fluctuations A com%an" should maintain ade(uate stock of mate!ial fo! a continuous su%%l" to the facto!" fo! an uninte!!u%ted %!oduction A $o!k)in)%!o&!ess invento!" builds u% because of the %!oduction c"cle =tock of finished &oods has to be held because %!oduction and sales a!e not instantaneous Failu!e to su%%l" %!oduct to custome!# $hen demanded# $ould means loss of the fi!m/s sales to com%etito!s The level of finished &oods invento!ies $ould de%end u%on the co)o!dination bet$een sales and %!oductions as $ell as on %!oduction time MANAGEMENT OF ACCOUNT RECEIVABLE T!ade c!edit a!ises $hen a fi!m sells its %!oducts o! se!vice on c!edit does not !eceive cash immediatel" It is an essential ma!ketin& tool# actin& as a b!id&e fo! the movement of &oods th!ou&h %!oduction and dist!ibution sta&e to custome! A &!ant t!ade %!otects its %!oduction of favo!able te!ms T!ade c!edit c!eates !eceivable o! book debt $hich the fi!m is e0%ected to collect in the nea! futu!e The book debts o! !eceivable a!isin& out of c!edit has th!ee cha!acte!istics/7
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WORKING CAPITAL
Fi!st# it involves an element of !isk $hich should be ca!efull" anal"2ed Cash sales a!e totall" !isk less# but not the c!edit sale as the cash %a"ment is "et to be !eceivedP =econd# it is based on economic value To the bu"e!# the economic value in &oods o! se!vice %asses immediatel" at the time of sales# $hile the selle! e0%ects an e(uivalent value to be !eceived late! on Thi!d# it im%lies futu!it" The custome! f!om $hom !eceivable o! book debts have to be collected in the futu!e a!e called t!ade debto!s o! sim%l" as debto!s and !e%!esent the fi!m/s claims o! assets >ebto!s amount to the blockin& of the fi!m/s funds The inte!nal bet$een the date of sales and date of %a"ment has to be financed out of $o!kin& ca%ital This necessitates the fi!m to &et funds f!om banks o! othe! sou!ces Thus# t!ade debto!s !e%!esent investment As substantial amount a!e tied)u% in t!ade debto!s# it needs ca!efull" anal"sis and %!o%e! mana&ement USES OF ORKING CAPITAL
The t"%ical uses of $o!kin& ca%ital a!e as follo$s7 Ad4usted net loss f!om o%e!ations Pu!chase of non)cu!!ent assets Re%a"ment of lon& te!m debt and sho!t te!m debt Redem%tion of !edeemable %!efe!ence sha!es Pa"ment of cash dividend A $eak li(uidit" %osition %oses a th!eat to solvenc" of the com%an" and makes it unsound A ne&ative $o!kin& ca%ital means a ne&ative li(uidit"# and ma" %!ove to be ha!mful fo! the com%an" A0cessive li(uidit" is also bad Net $o!kin& ca%ital also cove!s the (uestion of 4udicious mi0 of lon& te!m and sho!t)te!m funds fo! financin& cu!!ent assets Fo! eve!" fi!m# the!e is a minimum The!efo!e a %o!tion of the amount of net $o!kin& ca%ital# $hich is %e!manent
$o!kin& ca%ital should be financed b" the %e!manent sou!ces of funds such as o$ne!/s ca%ital# debentu!es# lon&)te!m debt# %!efe!ence ca%ital o! !etained ea!nin&s *ana&ement must# the!efo!e# decide the e0tent to $hich cu!!ent assets should be financed $ith e(uit" ca%ital andEo! bo!!o$ed ca%ital
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WORKING CAPITAL
CURRENT RATIOS The cu!!ent !atio is calculated b" dividin& cu!!ent assets b" cu!!ent liabilities
C&rrent Assets C&rrent Ratio ' C&rrent (iabilities
Whe!e# C3--+() ',,+), include cash and bank balances ma!ketable secu!ities# debto!s and invento!ies and also %!e%aid e0%enses etc C3--+() 8.'<.8.).+, include c!edito!s# bills %a"able# acc!ued e0%enses# sho!t te!m bank loan# income ta0 liabilit" etc
$UICK RATIO Muick !atio establishes a !elationshi% bet$een (uick# o! li(uid # assets and cu!!ent liabilities
C&rrent Assets ) "nventories * (oans * Advances +&ick Ratio ' C&rrent (iabilities
Whe!e# L.93.% ',,+), include cash# debto!s# and bills !eceivable and ma!ketable secu!ities
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WORKING CAPITAL
INVENTORY TURN OVER: Invento!" tu!nove! !atio indicates the efficienc" of the fi!m in %!oducin& and sellin& its %!oduct It is calculated b" dividin& the cost of &oods sold b" the ave!a&e invento!"
Cost o, goods sold "nventor# %&rnover Ratio ' Average "nventor#
Whe!e# 'o() of goo*(S !a$ mate!ial# $!a%%in& and %ackin& mate!ials consumed Pu!chased of finished &oods Q manufactu!in& e0%enses
ORKING CAPITAL TURNOVER RATIO A fi!m ma" also like to !elate net cu!!ent assets Fo! net $o!kin& ca%ital &a%G to sales It ma" thus com%ute to net $o!kin& ca%ital tu!nove! b" dividin& sales b" net $o!kin& ca%ital
Sales 0et C&rrent Assets %&rnover ' 0et Working Capital
GROSS PROFIT RATIO The fi!st %!ofitabilit" !atio in !elation to sales is the &!oss %!ofit ma!&in It is calculated b" dividin& the &!oss %!ofit b" sales
!ross pro,it !ross pro,it Ratio ' .//

Sales
Page "2
WORKING CAPITAL
Whe!e# Gro(( +rof,) S sales 1 FRa$ mate!ial# $!a%%in& and %ackin& mate!ial consumed Q %u!chase of finished &oods Q manufactu!in& e0%ensesG NET PROFIT RATIO Net %!ofit is obtained $hen o%e!atin& e0%enses# inte!est and ta0es a!e subt!acted f!om the &!oss %!ofit The net %!ofit ma!&in !atio is measu!ed b" dividin& %!ofit afte! ta0 b" sales
0et pro,it 0et pro,it Ratio ' Sales - .//
Whe!e#
N+) 4-10.) S P,I>T
Page "3
WORKING CAPITAL
DATA ANALYSIS AND INTERPRETATION

TOOLS FOR ANALYSIS OF ORKING CAPITAL
The (uantum of $o!kin& ca%ital as $ell as its financin& %atte!n is sub4ect to constant monito!in& and !evie$s b" the financial mana&e! The!e a!e diffe!ent anal"tical tools $hich can hel% a financial mana&e! in monito!in& in vie$in& and cont!ollin& the $o!kin& ca%ital The %o%ula!l" used tools a!e7 8 =chedule of chan&es in $o!kin& ca%ital 5 Wo!kin& ca%ital !atios 1. SCHEDULE OF CHANGES IN ORKING CAPITAL
Gene!all" $o!kin& ca%ital !efe!s to the e0cess of cu!!ent assets ove! cu!!ent liabilities *ana&ement of $o!kin& ca%ital the!efo!e is conce!ned $ith the %!oblems that a!ise in attem%tin& to mana&e! the cu!!ent assets# the cu!!ent liabilities and the inte! !elationshi% that e0ists bet$een them It !efe!s to all as%ects of administ!ation of both cu!!ent assets and cu!!ent liabilities
2.
ORKING CAPITAL RATIOIS Anothe! anal"tical tool that can be used fo! anal"ses of $o!kin& ca%ital the
accountin& !atio/s %a!ticula!l" the $o!kin& ca%ital !atio/s =ome of the im%o!tant $o!kin& ca%ital !atio/s a!e7 Cu!!ent Ratio Muick Ratio Cash to cu!!ent assets =ales to cash Ave!a&e collection %e!iod Invento!" tu!nove! !atio Wo!kin& ca%ital to sales !atio etc
Page "
WORKING CAPITAL
CURRENT RATIO Cu!!ent Assets Cu!!ent !atio S )))))))))))))))))))))))))))))) Cu!!ent Liabilities
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
C3--+() A,,+), 88?6@6:< 89;55?95 8:8<9;9@ 56L?6?5@ 8?@:;<8
C3--+() L.'<.8.).+, 86<;8;?; 8566@L:8 8?8L@<95 <8?;6@8 5:58@?
R').1 8 6@ 8 8@ 8 5: 5 :: @ 8<
INFERENCE Cu!!ent !atio measu!es the fi!m/s sho!t)te!m solvenc" The standa!d no!m fo! cu!!ent !atio is F578G It is evident that in the "ea! 566;)86and5686)88 Cu!!ent Ratio is satisfacto!" In !emainin& "ea!s cu!!ent !atio is less than 5 is not satisfacto!" The!e fo!e it can be calculated that the li(uidit" %e!fo!mance of the com%an" is %oo!
Page "!
WORKING CAPITAL
$UICK RATIO $3./; ',,+), $3./; -').1 E -----------------------------------C3--+() L.'<.8.).+, S34+- $3./; A,,+), @:68L?: :@?5585 ;668558 ;8:;<@8 @:;5;@ C3--+() L.'<.8.).+, 86<;8;?; 8566@L:8 8?8L@<95 <8?;6@8 5:58@?
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
R').1 6 @9 6 <8 6 L9 8 5: 5 6:
INFERENCE This is the mo!e %enet!atin& test of li(uidit" than the cu!!ent !atio Gene!all" a (uick !atio is 878 it conside!ed to !e%!esent a satisfacto!" cu!!ent financial condition The (uick !atio has neve! e0ceeded the standa!d !atio Am%i!icall" the (uick !atio in the "ea! 566: )6; to 566; ) 86 satisfacto!" In !emainin& "ea!s (uick !atio is less than 8 is not satisfacto!" The!efo!e it can be calculated that the li(uidit" %e!fo!mance of the com%an" is %oo!
Page ""
WORKING CAPITAL
CASH RATIO C',7 '(% B'(; B'8'(/+ C',7 -').1 E-------------------------------------------C3--+() L.'<.8.).+,
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
C',7 '(% B'(; B'8'(/+ @:68L?: :@?@@85 ;668558 ;8:;<@8 @:;5;@
C3--+() L.'<.8.).+, 86<;8;?; 8566@L:8 8?8L@<95 <8?;6@8 88<L:8<
R').1 6 @9 6 <8 6 L9 8 5: 6 @6
INFERENCE The desi!able no!m fo! cash !atio is 875 The cash !atio is ve!" lo$ in 5688 ) 85 "ea! The!e afte! it is inc!eased sli&htl" on the "ea!s 566:)6; to 566;)86 !es%ectivel" and declined in 566:)6; and 5686)88 An"$a" finall" the com%an" failed in kee%in& sufficient cash and bank balance and ma!ketable secu!ities CASH TO CURRENT ASSETS RATIO
Page "#
WORKING CAPITAL
C',7 '(% B'(; B'8'(/+ C',7 -').1 E-------------------------------------------C3--+() L.'<.8.).+,
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
C',7 '(% B'(; B'8'(/+ @:68L?: :@?@@85 ;668558 ;8:;<@8 @:;5;@
C3--+() L.'<.8.).+, 86<;8;?; 8566@L:8 8?8L@<95 <8?;6@8 88<L:8<
R').1 6 @9 6 <8 6 L9 8 5: 6 @6
INFERENCE The desi!able no!m fo! cash !atio is 875 The cash !atio is ve!" lo$ in 566;) 86 "ea! The!e afte! it is inc!eased sli&htl" on the "ea!s 566L)6< to 566<)6: !es%ectivel" and declined in 566:)6; and 5686)88 An"$a" finall" the com%an" failed in kee%in& sufficient cash and bank balance and ma!ketable secu!ities
Page "$
WORKING CAPITAL
NET
ORKING CAPITAL RATIO
N+) 1-;.(* C'4.)'8 N+) 61-;.(* /'4.)'8 E ----------------------------N+) A,,+), Y+'566:)6; 566;)86 5686)88 5688)85 5685)89 N+) 1-;.(* C'4.)'8 L8989: 8;8L<@5 ?66:569 89?;89<? 88<L:8< N+) ',,+), ;?;969@5 ::9<@:? ::?@@8; 8;;58L?; 585<@L;6 R').1 9 ?@ 6 58 6 ?@ 6 L< 6 6@
INFERENCE F!om the above table I infe! that the net $o!kin& ca%ital is dec!easin& eve!" "ea! $hich sho$s the ideal funds a!e used fo! most %!oductive %u!%ose and com%an" continues doin& it
ORKING CAPITAL TURNOVER RATIO sales
Page "%
WORKING CAPITAL
Wo!kin& ca%ital tu!nove! !atioS ))))))))))))))))))))))))))))) Wo!kin& ca%ital Y+'566:)6; 566;)86 5686)88 5688)85 5685)89 S'8+, L@<;;:6 89<<L@?6 :685:@6 <<98?<5 <?;L586 N+) 1-;.(* C'4.)'8 L8989: 8;8L<@5 ?66:569 89?;89<? 88<L:8< R').1 86 <9 < 8: 8 ;; 6 @< L 9L
INFERENCE This !atio measu!es the !elationshi% bet$een sales and net $o!kin& ca%ital In the "ea!s 566:)6;# 5688)85 and 5685)89 !eco!ded as the hi&hest $o!kin& ca%ital tu!nove! !atio !es%ectivel" In the "ea! 5686)88 and 5688)85 !eco!ded as the lo$est $o!kin& ca%ital tu!nove! !atio The hi&he! indicates mo!e favo!able it is fo! the com%an" In =!ee RamTech is hi&hl" fluctuatin& in the !atios
INVENTORY TURNOVER RATIO N+) S'8+, I(&+()1-2 )3-(1&+- -').1 E ----------------------VCR INSTITUTE OF MANAGEMENT STUDIES
Page #&
WORKING CAPITAL
A&+-'*+ I(&+()1-2
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
N+) S'8+, L@<;;:6 89<<L@?6 :685:@6 <<98?<5 <?;L586
A&+-'*+ I(&+()1-2 8;@@?L9@ 5<:8@<6 58?89L@ 869:<6; :@@5?8
R').1, 6 99 ? ;5 9 <? < ?? : <L
INFERENCE The invento!" tu!nove! !atio indicates the efficienc" of the fi!m in %!oducin& and sellin& its %!oducts A lo$ invento!" tu!nove! im%lies e0cessive invento!" levels than !e(ui!ed fo! %!oduction The com%an" invento!" tu!nove! !atio is dec!easin& in 566:)6; and 5685)89 is inc!eased
GROSS PROFIT RATIO

GrossPr ofit Ratio = GrossPr ofit 100 Net Sales
Y+'-
G-1,, P-10.)
N+) S'8+,
R').1,
Page #1
WORKING CAPITAL
566:)6; 566;)86 5686)88 5688)85 5685)89
?5@<5?< L:;L:;6 ?:;5:<6 ?5<;?66 ?;5:5:6
L@<;;:6 89<<L@?6 :685:@6 <<98?<5 <?;L586
6 L? 6 @6 6 L8 6 @@ 6 L@
INFERENCE It is infe!!ed f!om the above Table that the G!oss %!ofit is in fluctuatin& t!end =o the com%an" must be able to detect causes of fluctuatin& %!ofits and initiate actions to im%!ove the situation
Page #2
WORKING CAPITAL
NET PROFIT RATIO Net %!ofit !atio sho$s the !elationshi% bet$een net %!ofit of the conce!n and its net sales N+) P-10.) R').1E DN+) P-10.) !N+) S'8+,)J1CC
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
N+) P-10.) ?989@58 55?L69; ??9<:6 5<?@65 55?L69;
N+) S'8+, L@<;;:6 89<<L@?6 :685:@6 <<98?<5 <?;L586
R').1, 6 L@ 6 8L 6 @6 6 96 6 5;
INFERENCE F!om the above table that the net %!ofit is satisfacto!" in the "ea!s 566:)6; and 566;)86 is dec!easin& And 5686)88 it is inc!eased and continuousl" dec!eased 5688) 85 and 5685)89
Page #3
WORKING CAPITAL
OPERATING RATIO C1,) 10 *11%, ,18% GO4+-').(* EK4+(,+, O4+-').(* R').1 E ----------------------------------------------------------N+) ,'8+,
Y+'566:)6; 566;)86 5686)88 5688)85 5685)89
O4+-').(* C1,)GC1* 5@L865< :9@?@L5 ?5;L5?5 ?@8:@LL 9@68?@?
N+) S'8+, L@<;;:6 89<<L@?6 :685:@6 <<98?<5 <?;L586
R').1, 6 9: 6 L6 6 @9 6 @: 6 ?L
INFERENCE The lo$e! !atio is bette! than hi&he! the !atio# the less favo!able it is because it $ould have a smalle! ma!&in of o%e!atin& %!ofit fo! the %a"ment of dividends and the c!eation of !ese!ves F!om the above Table that the O%e!atin& !atio is in fluctuatin& t!end
Page #
WORKING CAPITAL
OPERATING PROFIT RATIO O4+-').(* P-10.) E DO4+-').(* P-10.)! N+) S'8+,)
Y+'-, 566:)6; 566;)86 5686)88 5688)85 5685)89
O4+-').(* P-10.) ?68:;@9 @?58;<: 9<8LL6: 9585;6L 9;;?<@L
N+) S'8+, L@<;;:6 89<<L@?6 :685:@6 <<98?<5 <?;L586
R').1 6 L8 6 9; 6 ?L 6 ?8 6 @9
INFERENCE F!om the above Table that the O%e!atin& %!ofit is in fluctuatin& t!end =o the com%an" must be able to detect causes of fluctuatin& %!ofits and initiate actions to im%!ove the situation
Page #!
WORKING CAPITAL
SCHEDULE OF CHANGES IN
ORKING CAPITAL FOR THE
YEAR 2CCA - CB
E00+/) 10 61-;.(* /'4.)'8 PARTICULARS 2CCA 2CCB I(/-+',+ D+/-+',+
CURRENT ASSETS: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ee 86;89?6 DA) 88?6@88: 86;898: 88?6@6:< UUUUUU 5:;@8: 66655 5:;@?; @@85896 ?:68L?: @:68L?: ?@85858 5:;@8: UUUUUU UUUUUU 5:;@5<
TOTAL CURRENT ASSETS CURRENT LIABILITIES: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilities
?9@<585 ?@55855 8:;?L8@ 86<<9;?;
?@<@585 ?955855 8:;?L8@ 86<;8;?;
UUUUUU 566666 UUUUUU 566666
58:666 UUUUUU UUUUUU 58:666
TOTAL CURRENT LIABILITIES DB) NET ORKING CAPITAL NET DECREASE IN CAPITAL TOTAL DA-B) ORKING
L988L;
L8989:
?:;@8:
@6<@?;
UUUUUU ?311?B
8:698 ?311?B
8:698 >C@>=B
UUUUUU >C@>=B
INFERENCE The net $o!kin& ca%ital !e(ui!ement of the com%an" du!in& the "ea! 566; has >ec!eased than in the "ea! 566:# and the net $o!kin& ca%ital of the com%an" $as !eco!ded Rs L988L; and it $as been >ec!eased to Rs L8989: in the "ea! 566;
YEAR 2CCB - 1C
Page #"
WORKING CAPITAL
E00+/) 10 61-;.(* /'4.)'8 PARTICULARS 2CCB 2C1C I(/-+',+ D+/-+',+
CURRENT ASSETS: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to 86;898: DA) 88?6@6:< ;?:66; 89;55?99 UUUUUU 5<?6@L? 8?996; 55958; @:68L?: ?@85858 :@?@@85 ??95588 5<?6@L? UUUUUU UUUUUU <;;86
em%lo"ees TOTALCURRENTASSETS CURRENT LIABILITIES: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilities TOTAL CURRENTL IABILITIES DB) NET ORKING CAPITAL DA-B) NET INCREASE IN CAPITAL TOTAL ORKING
?@<@585 ?955855 8:;?L8@ 86<;8;?;
@?58;:? 9L@?L@@ 5;5;6?5 8566@L:8
UUUUUU LL<?L< UUUUUUU LL<?L<
:?L<<5 UUUUUU 869??5< 8::88;;
L8989:
8;8L<@5
9?6:698
586??8:
8969L8? 1B1?@>2
UUUUUUU 1B1?@>2
UUUUUU 3=CAC31
8969L8? 3=CAC31
INFERENCE The net $o!kin& ca%ital !e(ui!ement of the com%an" du!in& the "ea! 566; has inc!eased than in the "ea! 5686# and the net $o!kin& ca%ital of the com%an" $as !eco!ded Rs L8989: and it $as been inc!eased to Rs 8;8L<@5 in the "ea! 5686
YEAR 2C1C-11
PARTICULARS 2C1C 2C11 E00+/) 10 1-;.(* C'4.)'8
Page ##
WORKING CAPITAL I(/-+',+ CURRENT ASSETS: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees TOTALCURRENTASSETS DA) CURRENT LIABILITIES: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilities TOTALCURRENT LIABILITIES DB) NET DA-B) NET INCREASE IN ORKING CAPITAL TOTAL =CCA2C3 =CCA2C3 ==2BB33 ==2BB33 56;8?@5 UUUUUU UUUUUUU 56;8??; ORKING CAPITAL 8;8L<@5 ?66:569 ??5;;99 599:?:? @?58;:? 9L@?L@@ 5;5;6?5 8566@L:8 @5?9@@? ?<5?58@ ?8;<;L9 8?8L@<95 8<:?96 UUUUUUU UUUUUUU 8<:?96 UUUUUU 86L;@L6 85L:;5? 599:?:? ;?:66; 89;55?95 8;5L8;9 8:8<9;9@ ;<:8:? ?5@8@69 UUUUUU 6666666 :@?5585 ??95588 ;668558 <5?L@58 ?@;66; 5:8?986 UUUUUU UUUUUU D+/-+',+
INFERENCE The net $o!kin& ca%ital !e(ui!ement of the com%an" du!in& the "ea! 5686 has inc!eased than in the "ea! 5688# and the net $o!kin& ca%ital of the com%an" $as !eco!ded Rs 8;8L<@5 and it $as been inc!eased to Rs ?66:569 in the "ea! 5686
YEAR 2C11 - 12
E00+/) 10 61-;.(* /'4.)'8 PARTICULARS 2C11 2C12 I(/-+',+ D+/-+',+
Page #$
WORKING CAPITAL C3--+() A,,+),: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees T1)'8 C3--+() A,,+), C3--+() L.'<.8.).+,: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilities T1)'8 C3--+() L.'<.8.).+, DB) @5?9@@? ?<5?58@ ?8;<;L9 8?8L@<95 98665?5 59:968< 8LL@<;5 <8?;6@8 58?9985 59?88;: 5@958<8 <68LL:8 UUUUUU UUUUUU UUUUUU 666666 DA) 8;5L8;9 8:8<9;9@ 9:;L9@9 56L?6?5@ 8;<68L6 5?LL?;6 UUUUUU 666666 ;668558 <5?L@58 ;8:;<@8 <@@?958 8::@96 96<:66 UUUUUU UUUUUU
N+) N+)
1-;.(* C'4.)'8 DA-B) I(/-+',+ .( 1-;.(*
?66:569
89?;89<?
;?:98<8
UUUUUU
C'4.)'8
;?:98<8 13=B13@=
UUUUUU 13=B13@=
UUUUUU B=A31@1
;?:98<8 B=A31@1
TOTAL
INFERENCE The net $o!kin& ca%ital !e(ui!ement of the com%an" du!in& the "ea! 5685 has inc!eased than in the "ea! 5688# and the net $o!kin& ca%ital of the com%an" $as !eco!ded Rs ?66:569 and it $as been inc!eased to Rs 89?;89<? in the "ea! 5685
YEAR 2C12 - 13
E00+/) 10 PARTICULARS 2C12 2C13 I(/-+',+ C3--+() A,,+),: D+/-+',+ 1-;.(* C'4.)'8
Page #%
WORKING CAPITAL Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees T1)'8 C3--+() A,,+), C3--+() L.'<.8.).+,: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilities T1)'8 C3--+() L.'<.8.).+, DB) N+) 1-;.(* C'4.)'8 DA-B) 98665?5 59:968< 8LL@<;5 <8?;6@8 89?;89<? UUUUUU 13=B13@= 85?;:6 ;:<?@ @:?5; 5:58@? 88<L:8< 8598?@@< 13=B13@= 5;<@5L5 55:?5<5 8L6<9L9 L:LL:;< L:LL:;< 8598?@@< 1B1A1=>= UUUUUU UUUUUU UUUUUU 666666 8;8:8?@? UUUUUU 1B1A1=>= DA) 56L?6?5@ 8?@:;<8 666666 8;8:8?@? ;8:;<@8 <@@?958 9:;L9@9 @:;5;@ @59L:L 9?@;;6 UUUUUU UUUUUU UUUUUU :L66?@L <696L9@ 9@@69L9
N+) D+/-+',+ .( TOTAL
1-;.(* C'4.)'8
INFERENCE The net $o!kin& ca%ital !e(ui!ement of the com%an" du!in& the "ea! 5689 has >ec!eased than in the "ea! 5685# and the net $o!kin& ca%ital of the com%an" $as !eco!ded Rs 89?;89<? and it $as been >ec!eased to Rs 88<L:8< in the "ea! 5689
FINDINGS
The =!eeRamtech # has %e!fo!med $ell ove! the %ast five "ea!s is evident f!om the G!oss %!ofit and Net %!ofit Ratios The Com%an" is suffe!in& f!om lack of ade(uate $o!kin& ca%ital The Com%an" is usin& Cu!!ent Assets and Fi0ed Assets $ell The Com%an" has maintained !elationshi% bet$een Wo!kin& Ca%ital and =ales Page $&
WORKING CAPITAL
Page $1
WORKING CAPITAL
SUGGESTIONS
The Com%an" has to take ste%s to maintain o%timum cu!!ent assets The com%an" should focus on investment that a!e ma!ketable secu!ities so that its cu!!ent !atio ma" !each o%timal !ation 578 Wo!kin& Ca%ital is dec!easin& Iea! b" Iea! so ade(uate Wo!kin& ca%ital has to be maintained The Tu!nove! Ratio a!e Fluctuatin& so the Com%an" must detect the cause fo! that and solve it
Page $2
WORKING CAPITAL
CONCLUSION
Finall" I conclude sa"in& that the li(uidit" %osition is satisfacto!"# %e!fo!mance of the com%an" is satisfacto!" but still needs to cut do$n the e0%enses to ea!n mo!e net %!ofits and see that tu!nove! !atios a!e inc!eased so that it can en4o" !educe in non o%e!atin& cost# due to la!&e scale %!oduction and !esults in inc!ease in %!ofits Wo!kin& ca%ital is in fluctuatin& t!end so the com%an" must maintain ade(uate $o!kin& ca%ital
Page $3
WORKING CAPITAL
BIBLIOGRAPHY
Annual Re%o!ts of =RAA RA* TAC' * I Khan and P K Bain Finance *ana&ement 9!d Adition Tata *c G!a$ 'ill %ublishin& com%an" Ltd # Ne$ >elhi I * Pande" Financial *ana&ement ;th edition Hikas Publishin& 'ouse Pvt Ltd # Ne$ >elhi P!asana Chand!a 5665 Financial *ana&ement @th Publishin& Com%an" Ltd # Ne$ >elhi
edition
# Tata *c G!a$ 'ill
Page $
WORKING CAPITAL
ANNEXURE
SREE RAM TECH TRADING AND PROFITLLOSS A!C FOR THE YEAR ENDED 31,)-C3-2CCB
P'-)./38'-, To O%enin& stock To Pu!chase of milk %!oducts To T!ans%o!t cha!&es To Packin& mate!ial To P!ocessin& and conve!sion To =ha!es consumed To G!oss %!ofit
'513() 86L86L< 89:5;;: :@<?;8 ?<5;56 <L;:56 L5:5;< ?5@<5?< ;?5;:?6
P'-)./38'-, ," =ale of milk ," =ale of milk %!oducts ," Closin& stock
A513() 9?9L<66 98?95:6 5:?;:L6
;?5;:?6 ," G!oss %!ofit ," Othe! incomes ?5@<5?< 8;:;@<9
To =ala!ies 3 $a&es To >e%!eciation TO Inte!est on loan To Insu!ance cha!&es To T!avellin& and conve"ance To Adve!tisement To *ilk %a"ments To =ellin& and dist!ibution To Net %!ofit
55L;@6 8;5958 5@:;5; 59L5:8 8:9L;; 8?:95; ??:?;L 59:5;? ?989@58
L5?L:56
L5?L:56
Page $!
WORKING CAPITAL
SREE RAM TECH. BALANCE SHEET AS AT 31,) MARCH 2CCB

P'-)./38'-, ,13-/+, 10 F3(%,: 1.,7'-+ 718%+- 03(%,: e(uit" sha!e ca%ital sha!e advance A%%: %!ofit 3 loss AEc 2.L1'( 03(%,: secu!ed loans unsecu!ed loans TOTAL: 666666 8:?@@5 B=3C3>2 5:5<56 8;?5?5 1C=A2=31 989:L?5 8<;?L9< ?989@58 ;5?@:66 @:;5?58 ?8896?: 666666 8666@?L; 31.C3.2CCB 31.C3.2CCA
'448./').1( 10 03(%,: 3.0.K+% ',,+), &!oss block A%%: additions du!in& the "ea! L+,,: accumulated de% N+) B81/; =./3--+() ',,+),: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees
8L?9885? 88<:9;@; 8;9;<:L; ::8<58? @:68L?: ?@85858 86;898:
?@@;5:6 5@?@8<8 865?;6 <668;L8 @@85896 ?:68L?: 86;89?6
?@<@585 L+,,: /3--+() 8.'<.8.).+,: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! cu!!ent liabilities N+) /3--+() ',,+), >.5.,/+88'(+13, +K4+(%.)3-+: %!ofit 3 loss AEc TOTAL 666666 B=B3C3>2 ?955855 8:;?L8@ L8989:
?9@<585 ?@55855 8:;?L8@ L988L;
5:?;968 1C=A2=31
Page $"
WORKING CAPITAL
SREE RAM TECH. TRADING AND PROFITLLOSS A!C FOR THE YEAR ENDED 31,)-C3-2C1C
P'-)./38'-, To O%enin& stock To Pu!chase of milk %!oducts To T!ans%o!t cha!&es To Packin& mate!ial To P!ocessin& and conve!sion To =ha!es consumed To G!oss %!ofit A513() 5:?;:L6 5<5;586 855;588 <5:@66 86;:5@L ;@<:;9 L:;L:;6 8L?:;:56 8L?:;:56 P'-)./38'-, ," =ale of milk of milk ," =ale of milk %!oducts ," Closin& stock A513() :5;:5;6 @?<:5@6 5<895:6
To =ala!ies 3 $a&es To >e%!eciation TO Inte!est on loan To Othe! e0%enses To Insu!ance cha!&es To T!avellin& and conve"ance To Adve!tisement To *ilk %a"ments To =ellin& and dist!ibution To Net %!ofit
8@;@:56 L5;L58 <:;;:< @;:;56 ;?5:<@ <;89@< @5;:5:@ 8@;:5:@ :<@;;5 55?L69;
," G!oss %!ofit ," Othe! incomes
L:;L:;6 8L:666:
:@<L:;:
:@<L:;:
Page $#
WORKING CAPITAL
SREE RAM TECH. BALANCE SHEET AS AT 31,) MARCH 2C1C

P'-)./38'-, ,13-/+, 10 F3(%,: 1.,7'-+ 718%+- 03(%,: e(uit" sha!e ca%ital sha!e advance Add7 %!ofit 3 loss AEc 2.L1'( 03(%,: secu!ed loans unsecu!ed loans TOTAL '448./').1( 10 03(%,: 3.0.K+% ',,+), &!oss block Add7 additions du!in& the "ea! Less7 accumulated de% Net ,lock =./3--+() ',,+),: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees L+,,: /3--+() 8.'<.8.).+,: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilities N+) /3--+() ',,+), >.5.,/+88'(+13, +K4+(%.)3-+: %!ofit 3 loss AEc TOTAL 66666 AA3@>A= 66666 B=B3C3>2 @?58;:? 9L@?L@@ 5;5;6?5 8;8L<@8 ?@<@585 ?955855 8:;?L8@ L8989: :@?5585 ??95588 ;?:66; @:68L?: ?@85858 86;898: L?L66:< 5?<56:: 56889?5 L;56:99 8L?9885? 88<:9;@; 8;9;<:L; ::8<58? 66666 ;8<:? AA3@>A= 66666 8:?@@5 B=3C3>2 9L56966 5:<;?L8 55?L69; :<?@:66 989:L?5 8<;?L9< ?989@58 ;5?@:66 31.C3.2C1C 31.C3.2CCB
Page $$
WORKING CAPITAL
SREE RAM TECH. TRADING AND PROFITLLOSS A!C FOR THE YEAR ENDED 31-12-2C11
P'-)./38'-, To O%enin& stock To Pu!chase of milk %!oducts To T!ans%o!t cha!&es To Packin& mate!ial To P!ocessin& and conve!sion To =ha!es consumed To G!oss %!ofit A513() P'-)./38'-, A513() ?:;5?@6 9856?66 8@L;?@6
5<895:6 ," =ale of milk of milk <5;5;6 ," =ale of milk %!oducts 5@6:66 ," Closin& stock ?;@666 8<@8:? 95@:<L ?:;5:<6 ;@:5966
;@:5966
To =ala!ies 3 $a&es To >e%!eciation TO Inte!est on loan To Insu!ance cha!&es To T!avellin& and conve"ance To Adve!tisement To *ilk %a"ments To =ellin& and dist!ibution To Othe! e0%enses To Net %!ofit
8859;?@ 5@5@:: ," G!oss %!ofit <;;:L< ," Othe! incomes @;@5;: <5@<;6 ?@5666 8L:<5L6 :<:;<6 5;<5;5 ??9<:6
?:;5:<6 59L9;56
<5@L<;6 <5@L<;6
Page $%
WORKING CAPITAL
SREE RAM TECH BALANCE SHEET AS AT 31,) MARCH 2C11

P'-)./38'-, ,13-/+, 10 F3(%,: 1.,7'-+ 718%+- 03(%,: e(uit" sha!e ca%ital sha!e advance A%%: %!ofit 3 loss AEc 2.L1'( 03(%,: secu!ed loans unsecu!ed loans TOTAL: 66666 ;;<8; AA=>>1B 66666 ;8<:? AA3@>A= 9@5;856 ?<<5;66 ??9<:6 :<?@:66 9L56966 5:<;?L8 55?L69; :<?@:66 31.C3.2C11 31.C3.2C1C
'448./').1( 10 03(%,: 3.0.K+% ',,+), &!oss block A%%: additions du!in& the "ea! L+,,: accumulated de% N+) B81/; =./3--+() ',,+),: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees
8:@L@<:6 <9;?@L? 5885965: ?:9<98L ;668558 <5?L@58 8;5L8;9
L?L66:< 5?<56:: 56889?5 L;56:99 :@?5585 ??95588 ;?:66;
@5?9@@? L+,,: /3--+() 8.'<.8.).+,: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! cu!!ent liabilities N+) /3--+() ',,+), >.5.,/+88'(+13, +K4+(%.)3-+: %!ofit 3 loss AEc TOTAL 66666 AA=>>1B ?<5?58@ ?8;<;L9 ?66:569
@?58;:? 9L@?L@@ 5;5;6?5 8;8L<@8
66666 AA3@>A=
Page %&
WORKING CAPITAL
SREE RAM TECH TRADING AND PROFITLLOSS A!C FOR THE YEAR ENDED 31-12-2C12
P'-)./38'-, To O%enin& stock To Pu!chase of milk %!oducts To T!ans%o!t cha!&es To Packin& mate!ial To P!ocessin& and conve!sion To =ha!es consumed To G!oss %!ofit A513() P'-)./38'-, A513() ?5<:;66 9?@5@<5 @6<;L:
8@L;?@6 ," =ale of milk of milk :;<?:6 ," =ale of milk %!oducts 9?@586 ," Closin& stock 9;;:;@ 95@L65 ?55?69 ?5<;?66
:59;??6
:59;??6
To =ala!ies 3 $a&es To >e%!eciation TO Inte!est on loan To Communication To T!avellin& and conve"ance To Adve!tisement To *ilk %a"ments To =ellin& and dist!ibution To Othe! e0%enses To Net %!ofit
;?:;;L @;::L@ <@;596 5@;L:L <:;566 ?;:;L< 8L<:@L6 @;6:<5 ?<@L55 5<?@65
?5<;?66 5@;@866
L:<?@66
L:<?@66
SREE RAM TECH.
Page %1
WORKING CAPITAL
BALANCE SHEET AS AT 31,) MARCH 2C12

P'-)./38'-, ,13-/+, 10 F3(%,: 1.,7'-+ 718%+- 03(%,: e(uit" sha!e ca%ital sha!e advance Add7 %!ofit 3 loss AEc 2.L1'( 03(%,: secu!ed loans unsecu!ed loans TOTAL: '448./').1( 10 03(%,: 3.0.K+% ',,+), &!oss block A%%7 additions du!in& the "ea! L+,,7 accumulated de% N+) B81/; =./3--+() ',,+),: Cash and bank balance =und!" debto!s =ho!t te!m loans 3 advances to em%lo"ees L+,,: /3--+() 8.'<.8.).+,: Loans 3 bo!!o$in&s Am%lo"ees stat liabilities Othe! non stat liabilit" N+) /3--+() ',,+), >.5.,/+88'(+13, +K4+(%.)3-+: %!ofit 3 loss AEc TOTAL 66666 1BB21?=B 66666 AA=>>1B 98665?5 59:968< 8LL@<;5 89?;89<? @5?9@@? ?<5?58@ ?8;<;L9 ?66:569 ;8:;<@8 <@@?958 9:;L9@9 ;668558 <5?L@58 8;5L8;9 5@@8L@L8 96@9:;< 558?68:9 L?965<@ 8:@L@<:6 <9;?@L? 5885965: ?:9<98L 9L56966 @85@@66 5<?@65 ;656965 ;<<8@<5 885;<<@ 1BB21?=B 9@5;856 ?<<5;66 ??9<:6 :<?@:66 66666 ;;<8; AA=>>1B 31.C3.2C12 31.C3.2C11
Page %2
WORKING CAPITAL
SREE RAM TECH LTD. TRADING AND PROFIT L LOSS A!C FOR THE YEAR ENDED 31,)-C3-2C13
P'-)./38'-, To O%enin& stock To Pu!chase of milk %!oducts To T!ans%o!t cha!&es To Packin& mate!ial To P!ocessin& and conve!sion To =ha!es consumed To Dtilities To G!oss %!ofit A513() P'-)./38'-, A513() ?@;L996 5:;;::6 8565@8?
@6<;L: ," =ale of milk of milk ;;;?<6 ," =ale of milk %!oducts 9;:<?6 ," Closin& stock 9@5656 ?;:6L6 <55886 5;56<L ?;5:5:6 :L;:<5?
:L;:<5?
To =ala!ies 3 $a&es To >e%!eciation To T!avellin& and conve"ance To =ellin& 3 dist!ibution To *ilk %a"ments To Adve!tisement To Othe! e0%enses To Net %!ofit
88<5??6 95@<?5 ??5@:6 ??5:56 8L:@:;5 5<59;6 ?;6<6? 55?L69;
?;5:5:6 5@968<6
<?@:?@6
<?@:?@6
SREE RAM TECH.
Page %3
WORKING CAPITAL
BALANCE SHEET AS AT 31,) MARCH 2C13
Page %

05 Project Sasikalargfgdfgncfghfhghgfh

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WORKING CAPITAL

VCR INSTITUTE OF MANAGEMENT STUDIES

MEANING OF FINANCIAL MANAGEMENT:

VCR INSTITUTE OF MANAGEMENT STUDIES

EVALUATION OF FINANCIAL MANAGEMENT:

1. THE TRADITIONAL PHASE:

2. THE TRANSITIONAL PHASE:

3. THE MODERN PHASE:

FINANCIAL MANAGEMENT: SCIENCE OR AN ART?

VCR INSTITUTE OF MANAGEMENT STUDIES

fo!mulation of %olicies and decision makin&

VCR INSTITUTE OF MANAGEMENT STUDIES

SCOPE OF FINANCIAL MANAGEMENT

VCR INSTITUTE OF MANAGEMENT STUDIES

THE TRADITIONAL APPROACH

THE MODERN APPROACH

EXECUTIVE FINANCE FUNCTION

VCR INSTITUTE OF MANAGEMENT STUDIES

ORKING CAPITAL MANAGEMENT:-

VCR INSTITUTE OF MANAGEMENT STUDIES

GOALS!OB"ECTIVES OF FINANCIAL MANAGEMENT:

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

GOALS OF FINANCIAL MANAGEMENT

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

SKID MOUNTED PROCESS

Conve"o! and %!oduct flo$ automation s"stem Page 1"

VCR INSTITUTE OF MANAGEMENT STUDIES

Com%lete !ef!i&e!ated chain s"stems fo! dai!" and food indust!"

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

KHOVA MAKING MACHINE

BUTTER CHURNING MACHINE

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

SS MILK DUMP TANK

VCR INSTITUTE OF MANAGEMENT STUDIES

CAN TRIPPING BAR

VCR INSTITUTE OF MANAGEMENT STUDIES

HORI#ONTAL STORAGE TANK

VERTICAL STORAGE TANK.

VCR INSTITUTE OF MANAGEMENT STUDIES

SS FLOAT BALANCE TANK

DER MIXING HOOPER

NEED FOR THE STUDY

VCR INSTITUTE OF MANAGEMENT STUDIES

NEED AND IMPORTANCE OF THE STUDY

SCOPE OF THE STUDY

VCR INSTITUTE OF MANAGEMENT STUDIES

OB"ECTIVES OF THE STUDY

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

LIMITATIONS OF THE STUDY

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

VCR INSTITUTE OF MANAGEMENT STUDIES

COMPOSITION OF 1.C3--+() A,,+), a Invento!ies

T!ade debto!s Loans and advances Othe! debto! balances