Arss WCM

Projectsformbu.blagspot.
com
CHAPTER-2
Research Methodology
1)Introduction 2)Types of research methodology 3)Objective of the study )!cope and limitation of the study
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Projectsformbu.blagspot.com
2"1)
Introduction
Research methodology is a #ay to systematically solve the research problem" It may be understood as a science of studying no# research is done systematically" In that various steps$ those are generally adopted by a researcher in studying his problem along #ith the logic behind them" It is important for research to %no# not only the research method but also %no# methodology" The procedures by #hich researcher go about their #or% of describing$ e&plaining and predicting phenomenon are called methodology" Methods comprise the procedures used for generating$ collecting and evaluating data" 'll this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem" (ata collection is important step in any project and success of any project #ill be largely depend upon no# much accurate you #ill be able to collect and ho# much time$ money and effort #ill be re)uired to collect that necessary data$ this is also important step" (ata collection plays an important role in research #or%" *ithout proper data available for analysis you cannot do the research #or% accurately" 2"2) Types of data collection There are t#o types of data collection methods available" I" 2" +rimary data collection !econdary data collection
I) +rimary data The primary data is that data #hich is collected fresh or first hand$ and for first time #hich is original in nature" +rimary data can collect through personal intervie#$ )uestionnaire etc" to support the secondary data"
2) !econdary data collection method The secondary data are those #hich have already collected and stored"
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!econdary data easily get those secondary data from records$ journals$ annual reports of the company etc" It #ill save the time$ money and efforts to collect the data" !econdary data also made available through trade maga,ines$ balance sheets$ boo%s etc" TIlls project is based on primary data collected through personal intervie# of head of account department and other concerned staff member of finance department" -ut primary data collection had limitations such as matter confidential information thus project is based on secondary information collected through five years annual report of the company$ supported by various boo%s and internet sides" The data collection #as aimed at study of #or%ing capital management of the company" +roject is based on
I" 'nnual report of 'R!! 2.. /2..0 2" 'nnual report of 'R!! 2..0/2..1 3'nnual report of 'R!! 2..1/2..2 'nnual report of 'R!! 2..2/2..3 0'nnual report of 'R!! 2..3/2..4 1'nnual report of 'R!! 2..4/2. lO
2"3) O-"567TI86!
OFTHE !115(9
!tudy of the #or%ing capital management is important because unless the #or%ing capital is managed effectively$ monitored efficiently planed properly and revie#ed periodically at regular intervals to remove bottlenec%s ifany the company can not earn profits and increase its turnover" *ith this primary objective of the study" the follo#ing further objectives are framed for a depth analysis" l. 2" 3" To study the #or%ing capital management of 'R!! infrastructure projects private :td" To study the optimum level of current assets and current liabilities of the company" To study the li)uidity position through various #or%ing capital related ratios"
" To study the #or%ing capital components such as receivables accounts$ cash management" Inventory position 0" To study the #ay and means of#or%ing capital finance of the 'R!! infrastructure projects +;1" :td" 1" To estimate the #or%ing capital re)uirement of'R!! infrastructure projects +;1":td 2" To study the operating and cash cycle of the company"
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2" ) !7O+6 & :<;=T'1l.>! O?TR6 !T=(9

!cope of the study The scope of the study is identified after and during the study is conducted" The study of #or%ing capital is based on tools li%e trend 'nalysis$ Ratio 'nalysis$ #or%ing capital leverage$ operating cycle etc" ?urther the study is based on last 1 years 'nnual Reports of 'R!! infrastructure projects pvt :td"'nd even factors li%e competitor s analysis$ industry analysis #ere not considered #hile preparing this proj ect"
:imitations
of the study
?ollo#ing limitations #ere encountered #hile preparing this project@
1) :imited data@/
This project has completed #ith annual reportsA it just constitutes one part of data collection i"e" secondary" There #ere limitations for primary data collection because of confidentiality"
2) :imited period@/
This project is based on five year annual reports" 7onclusions and recommendations are based on such limited data" The trend oflast five year mayor may not reflect the real #or%ing capital position of the company
3) :imited area @/
'lso it #as difficult to collect the data regarding the competitors and their financial information" Industry figures #ere also difficult to get"
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CHAPTER-IV
Working capital level and analysis
l)Working capital level 2)Working capital trend analysis 3)Current assets analysis )Current lia!ility analysis ")C!anges o# $orking capital %)&perating cycle ')Working capital leverage
Working capital level

The consideration of the level investment in current assets should avoid rw., e&cessive and inade)uate investment in current assets" Investment in current assets should be just ade)uate$ not more or less$ to the need of the business firms" 6&cessive investment in current assets should be avoided because it impairs the firmBs profitability$ as idle investment
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earns nothing" On the other hand inade)uate amount of #or%ing capital can be threatened solvency of the firms because of its inability to meet its current obligation" It should be reali,ed that the #or%ing capital need of the firms may be fluctuating #ith changing business activity" This may cause e&cess or shortage of #or%ing capital fre)uently" The management should be prompt to initiate an action and correct imbalance" 2..2/.3 2..4/1.
+articulars ') 7urrent 'ssets Inventories !undry (ebtors 7ash and -an% -alances :oans and 'dvances Total of ' DEross
2.. C0
2..0/.1
2..1/.2
2..3/.4
03$ 24$012 1$110$3.. 14$1.."11 3$020$211 122$22.$1 2
1. "2.1$330 21241313 0."1 3"332 31$214$021 3.2311111
23$243$330 1 0$131$3.1 111$ 20$242 2.0$43 $0.2 0 .$3 0$ 34
122$1.3$11. 103$02 $32. 323$444"210 0.1$412$102 2$101$1 3$402
1$332$2. $4 . 23"033$ 10 212$21 "4 3 002$ 1.$223 3$030$313$121
3$2.1$.33$123 2311224. I 1".40$.4.031 1$ .1 3.431 1$433A232$0.1
wei
-) 7urrent :iabilities 7urrent liabilities
Pro(ision
Totalof>et *"7" D'/-)
2$132$212 2$030$41 0.$113$231 22$1.1$411
121$1 3$02. 4$323$322 131$ 22$3 2 12134 31
1.0$213$331 30$211$043 1 1$.20$ 23 344$32.$. II
303$430$.31 42$130$..4 401$.2.$.40 1$2.0$023$302
1$1 2$423$111 122$240$02. 1$32.$22 $131 2$210$134$ .
1$ 2$ 0 $102 203$33.$. 3 1$2.0$33 $14 0$23$24 $33.2
Table
!i,e of #or%ing capital
*or%ing 7apital Trend 'nalysis@

In #or%ing capital analysis the direction at changes over a period of time is of crucial importance" *or%ing capital is one of the important fields of management" It is therefore very essential for an analyst to ma%e a study about the trend and direction of #or%ing capital over a period of time" !uch analysis enables as to study the up#ard and do#n#ard trend in current assets and current liabilities and its effect on the #or%ing capital position" F'nalysis of #or%ing capitalF trends provide as base to judge #hether the practice and privilege policy of the management #ith regard to #or%ing capital is good enough or an important is to be made in managing the #or%ing capital funds"
*ORGI>E
7'+IT': !IH6 O? 'R!!
<uman OeviIlopment?oundatlC
9eaC
>et #"c
2.. I2..0 221.14.1
2..0I2..1 12134 31
2..1/2..2 34432..11
2..2I2..3 12.0023302
2..3/2..4 2210134 .
2..4I2.1. 02324 33.2
*"7 indices 1..
223"23
013"01
1013"11
2433" 4
1301"4
Table """"""""" #or%ing capital si,e
C
3... 2... 1... 0... D).. 3... 2... 1... .
*or%ing 7apital Indices base year 2.. /2..0 ta%en as 1..
. ' "'
@J
?i
2)) -2))"
2..0/2..1
2..1/2..2
2..2I2..3
2..1/2..4
2..4/2.1.
\\'Ofkhg cap;ta1 hdicesyea.lStpoo91ool Regressio for Vo*&rking capital i ! dices
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Observations@
The net #or%ing capital of 'R!! Infrastructure +rojects :imited is continuously increasing from 2.D) ".0 as the indices sho#s in the figure" The #or%ing capital indices of 2..4/1. compared to 2.. /.0 is as 13 times because the current assets are increasing continuously #here as the current liabilities are not as increased as current assets" There is sudden increase in current assets of 2..2/.3 compared to its previous year i"e" 2"43 times" In 2..2/.3 the company has ta%en four projects in road$ five projects in rail#ay$ one project in irrigation of rupees #orth 22131 lacs$ 24113 lacs$ and 1131 lacs continously" *hile in 2..3/.4$ the company bas ta%en only three projects of rupees #orth 13.43 lacs" The no of projects ta%en in ?9 2..4/1. are so the value of current
assets increased" <o#ever the current liabilities of the company increased only 33"01 crores" In current liability of the company t#o things are included i"e" sundry creditors and the provisions Dta&es$ fringe benefit ta&$ dividend$ ta& on proposed dividened)" The company is bidding for good projects because it has sufficient amount of reserves and surplus as #ell as inventories that means it is using its long term securities as #ell as short term securities for ifBs bidding and e&ecution of the projects"
Current asseets+
Total assets are basically classified in t#o parts as fi&ed assets and current assets" ?i&ed assets are in the nature of long term or life time for the organi,ation" 7urrent assets convert in the cash in the period of one year" It means that current assets are li)uid assets or assets #hich can convert in to cash #ithin a year"
2..0/.1 21
2..1/.2
2..2/.3
2..3/.4
2..4/1.
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7urrent 'ssets
<lI1lan (e8elopment ?ouildation

1.. indices Table @7urrent assets si,e and 7urrent assets indices
2 1"34
2 "41
114 "41
2312"01 0 41"23
6000 5000 4000
B1F!
0;
D5
s "
3000 2000 1000
2)) -2))"
2))"-2))%
2))%-2))'
2))'-2)),
2)),-2))-
2))--2).)
#ears
7OIII+osition of current assets in 'R!! 'nalysis of current assets components enable one to e&amine in #hich components the #or%ing capital fund has loc%ed" ' large tie up of funds in inventories affects the profitability of the business or the major portion of current assets is made up cash alone$ the profitability
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#ill be
because cash is non earning assets"
+articulars
2.. /2..0 0"4.K ."42 10".1 33"12 1..
2..0/2..1 33"30 23"32 11" 0 21"33 1..
2..1/2..2 13"00 21"33 21"02 33".4 1..
2..2/2..3 23"30 3."31 12"3 23"01 1..
2..3/2..4 02"0. 11"40 2.".. 10"0 1..
2..4/2.1. 02"41 11"20 10"12 2."12 1..
in (entories
!undry debtors 7ash and ban% balance :oans and
ad(ances
total
12..."..K
3..."..K inventories Sundry debtors ~Cas and ban! balan"e
C
#total ."..K
loa ns and adva n"es
Observation@
The current assets increases as the sales increase" The e&cess of current assets is al#ays positive for the company but it is not al#ays good" It may adversely affect the profitability of the firm" There are certain investments for #hich company pay interest" ?rom the table of composition of current assets$ there is good amount of inventory available e&cept one year D2..1/.2)" 6&cess amount of inventory is good for the company because the company is
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diversifying its business into different sectors and there is no certainty about the projects Dtime of the projects) in certain sectors" The loans and advances of the firm are in ,ig,ag #ay" The loans and advances should be minimum as the high loans create a greater amount of interest" The company #as doing #ell from 2..1/.2 to 2..3/.4 as the company had ta%en four projects in road$ five in rail#ay$ and one in irrigation" -ut in 2..4/1. it has increased because of the 'R!! too% good projects" The company is doing better in sundry debtors in previous t#o years" The company had ta%en its amount from its debtors" 7ash and ban% balances is good for all the years"
7urrent
liabilities
7urrent liabilities mean the liabilities #hich the company have to pay in current financial year" It includes sundry creditors means supplier #hose payment is due but not paid yet$ thus creditors called as current liabilities"7urrent liabilities also include short term loan and provision as ta& provision" 7urrent liabilities also includes ban% overdraft" ?or some current assets li%e ban% overdrafts and short term loan$ company has to pay interest thus the management of current liabilities has importance
current lia!ility si,e

particulars 7urrent liabilities 2.. /2..0 2$132$212 2$030"41 0.$113$231 of 1.. 2..0/2..1 121$1 3$02. 4$323$322 131$ 22$3 2 2..1/2..2 1.0$213"331 30$211$043 . ./)2"/ 2, 2..2/2..3 303$430$.31 42$130$..4 401$.2.$.40 1340"2 2..3/2..4 1$1 2"423"111 122"24002. 1$32.$22 $131 2131"01 2..4/2.1. 1" 2$ 0 $102
Pro(ision
TotalofIndices 7":
203$33.". 3 1$2.0$33 $14 3 .."14
212".1 231"1
Table """""""" current liability si,e and its indices
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Current liability indi"es

... 30.. 3... 20..
.~ ~
/B
2... 10.. 1... 0.. . 2.. I2..0 2..0/2..1 2..1I2..2 2..2I2..3 2..3/2..4 2..4I2.1.
$ C.% d"es $ E%po e tial Re! gressio 5or7":F
#ears
?igure
7urrent liability indices
Observation In current liabilities of the company only the sundry creditors and the provision Dprovision for ta&ation$ fringe benefit ta&$ dividend and proposed dividend) are included" 7urrent liabilities sho# continues gro#th each year e&cept in 2..1/.2 and 2..4/1. because company creates the credit in the mar%et by good transaction" To get ma&imum credit from supplier #hich is profitable to the company it reduces the need of #or%ing capital of firm" 's a current liability increased in the year 2..2/.3 by 02 "34K it also increased the #or%ing capital si,e in the same year" -ut company enjoyed over creditors #hich may include indirect cost of credit terms in future"
C&'()*S +( ,-./+() C'0I1'%
7urrent liabilities sho# continues gro#th each year because company creates the credit in the mar%et by good transaction" To get ma&imum credit from supplier #hich is profitable to the company it reduces the need of #or%ing capital of firm" 's a current liability increase in the year 2..1/.2 by 30K it reduce the #or%ing capital si,e in the same year" -ut company enjoyed over creditors #hich may include indirect cost of credit terms" "0)7hanges in #or%ing capital
There are so many reasons to changes in #or%ing capital as follo# : 7hanges in sales and operating e&panses@/ The changes in sales and operating e&panses may be due to three reasons : There may be long run trend of change e"g" The price of ro# material say oil may constantly raise necessity the holding of large inventory" 7yclical changes in economy dealing to ups and do#ns in business activity #ill influence the level of #or%ing capital both permanent and temporary"
2"
3"7hanges in seasonality in sales activities " +olicy changes@/ The second major case of changes in the level of #or%ing capital is because of policy changes initiated by management" The term current assets policy may be defined as the relationship bet#een current assets and sales volume"
0" Technology changes@/ The third major point ifchanges in #or%ing capital are changes in technology because changes in technology to install that technology in our business more #or%ing capital is re)uired ' change in operating e&panses rise or full #ill have similar effects on the levels of #or%ing follo#ing #or%ing capital statement is prepared on the base of balance sheet of last t#o year"
0TATE1E2T &3 CHA24E0 I2 W&R5I24 CAPITA6 chanses in #or%inC(ital 2..3/2..4 2..4/2.1. particulars increase ')7urrent assets
decrease
in(entories
!undry debtors 7ash and ban% balances :oans and
13322. 4 . 23033 10 21221 4 3 002 1.223 3030313121
32.1.33123 2311224. I 1.40.4.031 1 .1 3.431 14332320.1
1313333133 302034 31 322320043 3 4.2.103 3 .2413320
ad(ances
Total current assets -)7urrent liabilities 7urrent liabilities
11 2423111 12224002. 132.22 131
2 0 102
244020031 31.3 23 33011...3
pro(ision
Total current liabilities >et#or%ing capital
20333.. 3 12.033 14
2210134
02324 33.1
3.123.3311
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&7scryat8on
There is a positive #or%ing capital #hich sho#s Lhe further gro#th as the company is e&panding irFs business into other sectors of the construction" The #or%ing capital increased due to the follo#ing reasons@ I) There is 0.K increase in the inventories from previous year because Lhe company is ta%ing ne# projects in ne# sectors #ith good #orth" 2) The current Iiabi lities of the firm is very less" 3) The increased total current liabilities is very less compared to the total current assets"
&perating cycle
The need of #or%ing capital arrived because of time gap bet#een production of goods and their actual reali,ation after sale" This time gap is called Operating 7ycle or *or%ing 7apital 7ycle" The operating cycle of a company consist of time period bet#een procurement of inventory and he collection of cash from receivables" The operating cycle is the length of time bet#een the companyBs outlay on ra# materials$ #ages and other e&panses and intlo# of cash from sales of goods" Operating cycle is an important concept in management of cash and management of cash #or%ing capital" The operating cycle reveals the time that elapses bet#een outlays of cash and inflo# of cash" Muic%er the operating cycle less amount of investment in #or%ing capital is needed and it improves profitability" The duration of the operating cycle depends on nature of industries and efficiency in #or%ing capital management" In manufacturing concern $the #or%ing capital cycleNoperating cycle starts #ith the purchase of ra# material and ends #ith the realisation of cash from the sale of finished products"This cycle involves purchase of ra# material and stores$its conversion through into stoc%s of finished goods through #or%/in/ progress #ith progressive increment of labour and service costs$conversion of finished stoc% into sales$debtors and receivables and ultimately realisation of cash and this cycle continues again from cash to purchase
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(6-TOR! DR676I8'-:6!)
7'!<
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444451
*ORG/I>/+RO76!!
R'* M'T6RI':!
L#or%ing capital cycleNoperating cycleO
The speed #ith #hich the #or%ing capital completes one cycle determines the re)uirements of #or%ing capital/longer the period of the cycle larger is the r)uirement of #or%ing capital
7alculation of opuating cycle of 'R!!
IT6M! I"Ra# material 2"*or%/in /progress 3"finished goods Total 2"(ebtors conversion period 3 "Eross #or%i ng capital cycle "+ayment deferal period >6T *ORGI>E 7'+IT': 797:6 2..0/2..1 2..1I2..2 2..2/2..3 2..3I2..4 2..4/2.1.
Observation@ The inventory conversion period of the company is almost same in financial years from 2..0 to 2..4 but in the financial year 2..4/1. there is sudden increase Ddouble times) from its previous year" Ra# Material consumption in
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2..4/1. decreased from previous years #hile ra# material inventory increased" The ma&imum projects of the company D#ith joint venture7ompany) finished in the May 2.1. as >lR'5/'R!! joint venture total value of the projects 21233 lacs" The company is engaged in bidding of big projects so the company %eeps a better ra# material inventory in ?9 2..4/1." 'lso the company has a vision of ta%ing tenders of good projects in ne&t financial year" 'R!! infrastructure +rojects :imited is a construction company and itBBs coustomers are the Eovernment of different states$ Ministry of Rail#ay$ Ministry of Infrastructure and the Eovernment agencies li%e !'I:$ >T+7 etc" so there is no any debtors available among itBBs coustomers because the Eovernment or their agencies pays the money instantaneouslybeforeN during or after the project" The companyBs debtors are joint venture companies" !ometimes the 'R!! and ifBs joint venture companies do the project but the company incurres the #hole cost" 'nd there is delayed in payment by ifBs joint venture companies" That comes under the debtors collection period" 7ommon sense tells that longer a company has money out$ the more ris% it is ta%ing"-ut there is one positive aspect that #ill boost the confidence among the companies"The company is not purchasing on credit from ifBs supplier" !o in credit deferral period the credit purchases ta%en as a #hole sundry creditors" These sundry creditors are for the ban% loans$ 'dvances etc" In all the years +ro6 2..0 to 2..4 the creditors deferral period is 31. days #hich is good for the company" The company is enjoying the money ofitFs creditors"
*ORGI>E 7'+IT': :686R'E6
One of the important objectives of #or%ing capital management is by maintaining the optimum level of investment in current assets and by reducing the level of investment in current assets and by reducing the level of current liabilities the company can minimi,e the investment in the #or%ing capital thereby improvement in return on capital employed is achieved" The term #or%ing capital leverage refers to the impact of level of #or%ing capital on company s profitability" The #or%ing capital management should improve the productivity of investment in current assets and ultimately it #ill increase the return on capital employed" <igher level of investment in current assets than is actually re)uired means increase in the cost of Interest charges on short term loans and #or%ing capital finance raised from ban%s etc" and #ill result in lo#er return on capital employed and vice versa" *or%ing capital leverage measures the responsiveness of RO76 DReturn on 7apita:6mployed) for changes in current assets" It is measures by applying the follo#ing formula$
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B8or%ing capitallcverageP
B1" 7hanges in RO76 K 7hanges in current assets
6-IT Return on capital cmployctlP//// Total assets
The #or%ing capital leverage reflects the sensitivity of return on capital employed to changes in level of current assets" *or%ing capital leverage #ould be less in the case of capital intensive capital employed is same #or%ing capital leverage e&presses the relation of efficiency of #or%ing capital management #ith the profitability of the company"
7':7=:'TIO> 96'R 6-IT Total assets RO76K K7hange in RO76 7urrent assets Kchange in current assets
O? *ORGI>E 12.13.31 11.2 4 23 1."03
7'+IT'::686R'E6 2..1/2..2 134421233 1121 2.22 2."41 1"13 0 .3 0 34 20"12 ."12 2..2/2..3 323 .31.. 1433.410.1 14".3 /3"41 21011 3402 243"20 /.".3 2..3c2..4 2.043110 32313 2101 13"41 /."34 3030313121 11"22 /.".1 2..4/2.1. 121.301131 23111333.4 10"34 /13"11 14332320.1 4 "34 /."2.
2.. /2..0
2..0/2..1 230.11 244334023 1 "24 30".2 3.2311111 /203".4 /.".0
>"' 12222.1 2 >"'
*or%ing capital >"' leverage
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*or%ing 7apital Ratio 'nalysis
Introduction Role of ratio analysis :imitations of ratio analysis 7lassifications of ratio 6fficiency ratio :i)uidity ratio
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*ORGI>E 7'+IT': R'TIO '>':9!I!
0"1) 9ntroduction Ratio analysis is the po#erful tool of financial statements analysis" ' ratio is define as the indicated )uotient of t#o mathematical e&pressions and as the relationship bet#een t#o or more things " The absolute figures reported in tbe financial statement do not provide meaningful understanding of the performance and financial position of the finn" Ratio helps to summaries large )uantities of financial data and to ma%e )ualitative judgment of the firms financial performance 0"2) Role of ratio analysis Ratio analysis helps to appraise the firms in the term of there profitability and efficiency of performance$ either individually or in relation to other firms in same industry" Ratio analysis is one of the best possible techni)ues available to management to impart the basic functions li%e planning and control" ' is closely related to the immediately past$ ratio calculated on the basis historical financial data may be of good assistance to predict the future" 6"g" On the basis of inventory turnover ratio or debtor s turnover ratio in the past$ the level of inventory and debtors can be easily ascertained for any given amount of sales" !imilarly$ the ratio analysis may be able to locate the point out the various arias #hich need the management attention in order to improve the situation" 6"g" 7urrent ratio #hich sho#s a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the li)uidity position" 's the ratio analysis is concerned #ith all the aspect of the finnBs financial analysis li)uidity$ solvency$ activity$ profitability and overall performance$ it enables the interested persons to %no# the financial and operational characteristics of an organi,ation and ta%e suitable decisions" 0"3):imitations of ratio analysis
I" The basic limitation of ratio analysis is that it may be difficult to find a basis for ma%ing the comparison 321 Projectsformba.blogspot. CJ)m
2" >ormally$ the ratios are calculated on the basis of historical financial statements" 'n organi,ation for the purpose of decision ma%ing may need the hint regarding the future happiness rather than those in the past" The e&ternal analyst has to depend upon the past #hich may not necessary to reflect financial position and performance in future" 3" The techni)ue of ratio analysis may prove inade)uate in some situations if there is differs in opinion regarding the interpretation of certain ratio" " 's the ratio calculates on the basis offinancial statements$ the basic limitation #hich is applicable to the financial statement is e)ually applicable In case of techni)ue of ratio analysis also i"e" only facts #hich can be e&pressed in financial terms are considered by the ratio analysis" 0" The techni)ue of ratio analysis has certain limitations of use in the sense that it only highlights the strong or problem arias$ it dose not provide any solution to rectify the problem arias" 1" ?or the intra firm comparison$ the comparison may be false because different firms use different accounting policies as some finns use :I?O D:ast in ?irst out) method #hile some use ?I?O D?irst in?irst out)"
7lassification of ratio A/ -asically on the basis of #or%ing capital management it can be characteri,ed into follo#ing ratios
I) 'ctivity Ratio@ 'ctivity ratio is an indicator of ho# rapidly a firm converts various accounts into cash or sales" The sooner management can convert assets into sales or cash$ the more actively the finn run" This ratio is also called 'sset Management Ratio" 's the assets basically categori,ed as fi&ed assets and current assets and again further the current assets classified according to individual components of current assets vi," Inventories$ !undry (ebtor$ and receivables etc" The important 'ctivity ratios are as follo#s
8i9 *or%ing 7apital Turnover Ratio
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8ii9 Inventory Turnover Ratio Diii) Receivable Turnover Ratio Div)7urrent 'sset Turnover Ratio
1) *or%ing 7apital Turnover Ratio@

' company uses #or%ing capital to fund operations and to purchase inventory" These operation and inventory are then converted into sales revenue for the company" The #or%ing capital turnover ratio is used to analy,e the relationship bet#een the cash used to fund operation and sales generated from these operations" In a general sense$ the higher the #or%ing capital turnover$ the better because it means that the company is generating a lot of sales compared to the cash it uses to fund the sales"
!ales *or%ing 7apital Turnover RatioP //////// >et *or%ing 7apital
+articulars sales >et*"7 *"7 TOR
2.. /2..0 240222 00 221.1411 3"33
2..0/2..1 1.2 12.01 12134 31 3" 2
2..1I2..2 13333211.1 34432..11
2..2I2..3 31312.4 14 12.0023302
2..3I2..4 12 3202200 2210134 3
2..4I2.1. 1..100. 233 02324 33.1
3"30
2"1.
2"21
1.:1
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w.e TOR
"0 $///$///F$/////$////$/////A$////$////$///$/$
3"01/R/
~4_-~~-+--~-~~-4---+--+-4
7i5;5
Q
."0/1/R/
./B//1//
#ears 2.. /2..0 2..1/2..2 2..3/2..4 &''(!&'') &''*!&''+ &''9,&'1'
Bv 0"wer tegresso
for
<ear
Observations The #or%ing capital turnover ratio of 'R!! declined from 2.. /.0 to 2..4/1.$ ho#ever it increased in 2..3/.4" The reciprocal of the ratio is ."21$."24$."3.$."33$ ."31$ and ."02 continuously$ It means that for one rupee of sales$ the company needs Rs ."21$."24$."3.$.S33$."31$ and ."02" In previous years the company incurred less money for sales #hile in these years specially in 2..4/lO it is unable to ta%e projects in that amount" The company is increasing its sales by increasing in the net #or%ing capital"
Inventory turnover $oatio

Inventory TOR
cost of goods sold 'verage inventory
+articulars 7ost of goods sold 'verage inventory
2..0/2..1 1232 31
2..1/2..2 1114104 4 33202030
2..2/2..3 2.012213 3 22..442"0
2..3/2..4 22314302 3 1202 . .1 .
2..4/2.1. 11 .33323
31312421
224134103
CJ) m
Inventory 1urnover =atio

1 12 1.
,,
/
> '?. N ;" '" T@ / ? "~ .V ~

3 1
I"#...... ..., """S

2..3I2..4
SInventory
TOR
2 . 2..0/2..1
2..1I2..2
2..2I2..3 #ears
2..g"2.1.
?igure
lnventory Turnover Ratio
&!ser(ation+ Inventory turnover ratio basically tells about the efficiency of the firm in ta%ing the project and to accomplish that" The inventory turnover sho#s ho# rapidly the inventory is turning into receivables through sales" ' high inventory turnover ratio is good because the no of days convelting the inventories into the
361 Projectsformba.blogspot. CJ) m
sales #i II become less" 's in 2..1/.2 the inventory turnover ratio is 12"11 times so the inventory holding days is only 24 days #hile from 2..2/.3 to 2..4/1. the inventory turnover ratio decreasing means the no of days in inventory converting is increasing" This can bad for the organi,ation as this creates unnecessary tie/up of funds"reduced profit$ and increasedcosts"
3) :e!tors Turno(er Ratio+

' firm sells goods andU or services for cash and credit" *hen the fum e&tends credits to its coustomers$ debtors D'ccounts Receivables) are created in the firmBs accounts" The li)uidity position of the firm depends on the )uality of debtors to great e&tent" Eross !ales (ebtors Turnover Ratio 5 ########### 'verage (ebtors
?or an Infrastructure 7ompany li%e 'R!! the gross sales considers as the contract revenue" The scrap values are not included in Eross !ales because it further comes into sales #ith other income" 'verage (ebtors calculated by opening plus closing balance divide by 2"lncreasing volume ofreceivables #ithout a matching increase in sales is reflected by a lo# receivable turnover ratio" It is indication of slo#ing do#n of the collection system or an e&tend line of credit being allo#ed by the customer organi,ation" The latter may be due to the fact that the firm is losing out to competition" ' credit manager engage in the tas% of grantingcredit or monitoring receivable should ta%e the hint from a falling receivable turnover ratio use his mar%et intelligence to find out the reason behind such failing trend" (ebtor turnover indicates the number of times debtors turnover each year" Eenerally the higher the value of debtorBs turnover$ the more is the management of credit"
+articulars Eross sales 'verage debtors 2.. /2..0 240222 00 1132114 131"2 2..0/2..1 1.2 12.01 31 2303 11"02 2..1/2..2 13333211.1 211423120 1"12 2..2/2..3 31312.4 14 344300333 2"30 2..3/2..4 12 3202200 0 1.03413 11"0 2..4/2.1. 1..100. 233 1.2323133 11"02
("T"R
321
CJ)m
I'.".@.A
Table
103
(ebtor turnover ratio and avarage collection period
Bebtors 1urnover =atio

13 11 1 12
)+; 1'
Vo/@
8
1
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o
2))"-2))% 2))%-2))' 2))'-2)), 2)),-2))2))--2).)
<ear
&!ser(ation+
(ebtors Turnover ratio indicates the no of times debtors turnover each year" <igher the value of debtors turnover$ the more efficient is the management of credit because the collection period of the debtors #ill lo#" Ma&imum debtors turnover ratio in all five years is 11"02 in 2..4/1." It increases from 2..1/.2 also there is sudden jump in collecting the amount of debtors in 2..3/.4 and in 2..4/1." The increased (ebtors Turnover Ratio sho#s the better management in debtors collection Dfrom itFs joint venture companies)"
Current Asset Turno(er Ratio+

7urrent assets turnover ratio is calculate to %no# the firms efficiency of utili,ing the current assets "current assets includes the assets li%e inventories$ sundry debtors$ bills receivable$ cash in hand or ban%$ mar%etable securities$
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prepaid e&penses and short term loans and advances"This ratio includes the efficiency #ith #hich current assets turn into sales" ' higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the loc% up of funds in current assets" 'n analysis of this ratio over a period of time reflects #or%ing capital management of a +ir6.
!ales 7urrent 'sset Turnover Ratio 7urrent 'ssets
+articulars !ales
C.' C.'1-=
2.. /2..0 240222 00 12222.1 2 2"32
2..0I2..1 1.2 12.10 3.2311112 1"41
2..1I2..2 13333211.1 0 .3 0 34 2" 2
2..2I2..3 31312.4 14 21011 3402 1" 0
2..3I2..4 12 3202200 3030313121 1"2
2..4I2.1. 1..100. 233 14332320.1 1"
Table
7=rrent assets Turnover Ratio
Current 'ssets 1urnover =atio

2"0 2
'"
1"0
""C"
."0
"7"'TOR
o
2.. I2..0 2..0/2..1 2..2I2..3 2..4/2.1. 2..1I2..2 2..3/2..4
#ears
?igure
7urrent assets turnover Ratio
Observation@ This ratio is very significant as it sho#s ho# fast the current assets turns into 391 Projectsformba.blogspot. CJ)m
sales" The current asset turnover ratio is in hapha,ard #ay but comparing to 2..1/.2 the ratio is lo# in recent years" In previous years the ratio #as good" The current asset changes in sales in 100days$ 13 days$ and 1 1 days continuously in 2.. /.0$ 2..0/.1$ and 2..1/.2" wune in 2..2/.3$ 2..3/.4$ 2..4/1. the days are 2 3 days$ 2.2 days$ and 20. days continuously" The increasing no of days of current asset turnover ratio because company can maintain high level of inventory for upcoming its projects"
Current Ratio+
The current ratio is a crude and )uic% measure of the firmBs li)uidity" The current is calculated by dividing current assets by current liabilities@
7urrent 'ssets 7urrent Ratio
P ////////////
7urrent :iabilities
7urrent assets include cash and those assets #hich can be converted in to cash #ithin a year"such mar%etable securities$ debtors and inventories" 'll obligations #ithin a year are include in current liabilities" 7urrent liabilities include creditors$ bills payable accrued e&penses$ short term ban% loan income ta& liabilities and long term debt maturing in the current year" 7urrent ratio indicates the availability of current assets in rupees for every rupee of current :iability" This ratio is important as the value of the current assets may decrease or increase but the value of the current liabilities is al#ays constant" That has to be paid"
+articulars 7urrent assets 7urrent .
2.. /2..0 12222.1 2 2132212
2..0/2..1 3.2311112 1211 302.
2..1/2..2 0 .3 0 34 1.0213331
COlli
2..2/2..3 21011 3402 303430.31
2..3/2..4 3030313121 11 2423111
2..4/2.1. 14332320.1 1 2 0 102
liabilities 7urrent ratio 2"44 2"03 0"11 2"01 3"12 "33
Current =atio
1
-.rre t Rata
o
2.. /2..0 2..0/2..1 2..1/2..2 2..2/2..3 2..3/2..4 2..4/2.1.
<ea IS
Observation@ 's a conven tional rule$ a current ratio of 2 to 1 or more is considered satisfactory" In all the years the current ratio of 'R!! is more than 2" It means the company has its short term securities Dcash & ban% balances$ Inventories$
1
COlli
Inventories$ loans and advances) to fulfill itBs short term liabilities Dsundry creditors$ provision for ta&ation)" 'lso the current ratio sho#s the margin of safety for itBs creditors" <igher the ratio greater #ill be the margin of safety"
<uick Ratio+
Muic% ratios establish the relationship bet#een )uic% or li)uid assets and liabilities" 'n asset is li)uid if it can be converting in to cash immediately or reasonably soon #ithout a loss of value" 7ash is the most li)uid asset other assets #hich are consider to be relatively li)uid and include in )uic% assets are debtors$ bills receivable and mar%etable securities" Inventories are considered as less li)uid" Inventory normally re)uired some time for reali,ing into cash" Their value also is tendency to tluctuate" dividing )uic% assetsby current liabilities@/
Current 'ssets / Inventories
The )uic% ratio is found out by
Muic% Ratio 5 ############# 7urrent :iabilities
+articulars 7"' Inventories Muic%7"' 7": Muic% ratio
2.. /2..0 12222.1 2 03 24012 133 113. 2132212 1"11
2..0/2..1 3.2311112 1. 2.1330 2.311.321 1211 302. 1"12 Table
2..1/2..2 0 .3 0 34 23243330 120 11. 1.0213331 " 2
2..2/2..3 21011 3402 1221.311. 103 0 .242 303430.31 1"24
2..3/2..4 3030313121 13322. 4 . 12.3103131 11 2423111 1" 3
2..4/2.1. 14332320.1 32.1.33121 323214 323 1 2 0 102 2"22
Muic% Ratio
421
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Dui"! =atio
"0
3"0
. ~
.
" "
c 2 '7
3 2"0 /.ick Ratio
'"
.
1"0
."0
o
2.. I2..0 2..0/2..1 2..1I2..2 2..2I2..3 2..3I2..4 2..4I2.1.
#ears
?igure
7urrent Ratio
&!ser(ation+ The )uic% ratio of 1 to 1 is considered as satisfactory financial condition" The company has not a very high ratio throughout e&cept one year 2..1/.2" In 2..1/.2 the company had high value of cash & ban% balances$ sundry debtors etc" #hereas the sundry creditors and provision #ere compairatively lo#" <igh )uic% ratio #ill benefit to the company in its bidding activities i"e It sho#s the financial strength of the company"
Working Capital 1anage=ent
Co=ponents
Recei(a!les Management In(entory 1anage=ent Cas7 Management
441
COlli
Recei(a!le 1anage=ent+
Introduction+-
451
COlli
Receivables or debtors are the one of the most important parts of the current assets #hich is created if the company sells the finished goods to the customer but not receive the cash for the same immediately" Trade credit arises #hen firm sells its products and services on credit and dose not receive cash immediately" It is essential mar%eting tool" acting as bridge for the movement of goods through production and distribution stages to customers" Trade credit creates receivables or boo% debts #hich the firm is e&pected to collect in the near future" The receivables include three characteristics@ I) It involve element of ris% #hich should be analyse carefully" 2) It is based on economic value" To the buyer$ the economic value in goods or services passes immedi ately at the time of sale$ #h ile seller e&pects an e)uivalent value to be received later on" 3) It implies futurity" The cash payment for goods or serves received by the buyer #ill be made by him in a future period"
&!8ecti(e of Receivable 1anage=ent+

The sales of goods on credit basis are an essential part of the modern competitive economic system" The credit sales are generally made up on account in the sense that there are formal ac%no#ledgements of debt obligation through a financial instrument" 's a mar%eting tool$they are intended to promote sales and there by profit" <o#ever e&tension of credit involves ris% and cost$ management should #eigh the benefit as #ell as cost to determine the goal of receivable management" Thus the objective of receivable management is to promote sales and profit until that point is reached #here the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit"
+articulars !undry (ebtor Indices
2..0/2..1 21241313 1..
2..1/2..2 1 01313.1 2.2 Table
2..2/2..3 10302 32. 41. !i,e Of Receivables
2..3/2..4 23033 10 042
2..4/2.1. 2311224.1 1.40
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=e"eivables Indi"es
12.. 1... 3.. 1.. .. 2.. $ =e"elvabes " d;ces
B sF @e
@As
#'" W
.~ ~
'"
o
2..0/2..1 2..1/2..2 2..2I2..3 2..3I2..4 2..g"2.1.
#ears
?igure
Receivables Indices
A(erage Co>ection Period+

The average collection period measures the )uality of debtors since it indicate the speed of their collection" The shorter the average collection period$ the better the )uality of the debtors since a short collection period implies the prompt payment by debtors" The average collection period should be compared against the firms credit terms and policy judges its credit and collection efficiency" The collection period ratio thus helps an analyst in t#o resp ects@
471
CJ)m
l. In determining collection efforts"
the collectability
of debtors
and thus$ the efficiency
of
2" In ascertaining the firm "s comparative credit policy and perform ance"
strength and advantages
related to its
The debtorBs turnover ratio can be transformed hold ing of debtors@/

+articulars Eross sales 'vg"(ebtors 2.. /2..0 240222 00 1132114 131"12 2..0I2..1 1.2 12.01 31 2303 11"02 2..1/2..2 13333211.1 211423120 1"12 03
111
to the number of days of
2..2I2..3 31312.4 14 344300333 2"30 1
2..3/2..4 12 3202200 0 1.03413 11"0 31
2..4I2.1. 1..100. 233 1.2323133 11"02
("T"R
'"7"+B
22
Table
22
'verage collection period
'veraEe "olle"tion @eriod8ln daysF

3..$///////////////////////////////$
20. /c o *C
/1///////////
"g II
C
3"
&''
G#
/1/////////// /1///////////
a0erage oollectio period
10.
~ ~
./B/B/"///
2..0/2..1 2..2/2..3 2..4/2.1. 2.. /2..0 2..1/2..2 2..3/2..4
""
1..
years
&!ser(ation
The average collection period increased from 2.. /.0 to 2..1/.2 and then it decreases from 2..1/.2 to 2..4/1." The increasing average collection period sho#s the inefficiency of the management in collecting the debtors money #hile the decreasing average collection period sho#s the efficient management and better credit policy" The reason behind average collection period is high due to debtors turnover ratio is lo#" In 2..1/.2 the company had ta%en a 11. of projects but the company did projects alone" !o there is no chance of debting in 2..1/.2" *hile in 2..2/.3 the company had ta%en 1. projects .11 the joint venture basis" 7ompanyXs share is 1..K in those projects" In 2..3/.4 and 2..4/1. the company has ta%en 3 and 0 projects on the joint venture basis so there is case of debting"
In(entory 1anage=ent+
In financial vie#$ inventory defined as the sum of the value of ra# material and supplies"including spares$ semi/processed material or #or% in progress and finished goods" The nature of inventory is largely depending upon the type of operation carried on" ' firm neglecting the management of inventories #ill be jeopardi,ing its long term profitability and may fail ultimately" It is possible to reduce the inventory to a certain level #ithout affecting production and sales$ by using simple inventory planning and controlling techni)ue" The reduction in Fe&cessiveF inventories carries a favourable impact on the companyBs profitability" Maintaining inventories involves tying up of the companyBs funds and incurrence of storage and handling cost" There are three components@ Ra# material$ *or% in progressA and finished goods involved in inventory management"
Objective of Inventory l8lanagement@

In the case of Inventory Management$ the finn is faced #ith the problem of meeting t#o conflicting needs@
COlli
I) To maintain a large amount of inventory for efficient and smooth productionA 2) To maintain a minimum amount of inventory for increasing the profitabilityA -ut the firms avoid both the cases" In the first case$ the firms avoid overinvestment because of@/ Da) unnecessary tie/up of the firmBBs funds and loss of profits Db) e&cess carrying cost Dc)ris% of li)uidity" 'nother danger of holding e&cess inventories is deterioration of the inventories" Maintaining a minimum level of inventories is also dangerous" The conse)uences of under/investment in inventories are@ Da) production hold/ups Db) failure to deliver commitments" !o the aim of inventory management is@ DI)To ensure a continuous supply of ra# material to facilitate uninterrupted productionA D2) To maintain a sufficient stoc% of the ra# material in period of short supply and overpricesA D3) To maintain sufficient finished goods inventory for smooth sales operation$ and efficient customer serviceA D ) To maintain the carrying cost and timeA D0) To control investment in inventories and %eep at optimum levelA
+articulars Ra# materials *"I"+ ?inished
Eoods 2..0/2..1 13.3.4 1422 02. 32123221 . 1. 2.1330 1.. 2..1I2..2 101221. 023..1 . 1 . 23243330 2."3 3.430 2..2/2..3 1...3232 01.12201. .0232 . 11 3123 2..3I2..4 200 3421. 1012. 011. 31210 0. 33 0 12. 13322. 4 . 13.1"2 2..4/2.1. 1 03401. 2023132 03 101 0123. 1130 33. 32.1.33123 300 l.2
!tores and spares Total Indices
1221.311. 042".
Table"
!i,e of Inventory
0.
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Inventory indi"es "#oo

30..
"U"U
3... 20.. 2... 10.. 1... 0.. . 2..0I0..1 2..1/2..2 2..2I2..3 #ears 2..3I2..4 2..g"2.1.
" 0e lory i dcas
~
24#
#"
~ ~
?igure
Inventory indices
In(entory Co=ponents+
The firmFs inventory consist follo#ing components Di) Ra# material Dii) *or%/ in/progress Diii) ?inished goods To analy,e the level of ra# material inventory and #or% in progress inventory held by the firm on an average it is necessary to e&amine the efficiency #ith #hich the firm converts ra# material inventory and #or% in progress into finished goods" +articulars Ra# Material *":+
01 2..0/2..1 1"23 11"41 2..1/2..2 2".2 23"12 2..2/2..3 1"1 4.".3 2..3/2..4 13"02 3."31 2..4/2.1. 12"00 13"13
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?inished Eoods 31"31 !toresY!pares TotalDK)

. 1..
14"20 . 1..
1"01 1"3 1..
"3 1"23 1..
12"1 1"11 1..
Table
1.. 4. 3. 2. 1. 0. . 3. 2. 1. . 2..0I2..1 2..1/2..2
"Inventory componentsDK)
"$C$
Ra1 ~1alerel
o
!
-*"I"+
3@/is7ed 4oods Stores.2Spares
2..2I2..3
2..3/2..4
2..4/2.1.
?igure """"" "5nventory components in ?
1..
T."$
4. 3. 2. 1. 0.
"p"/
i##
Hal1
> -@@@@@@@@@@@@@A
/""""""""""" ..,$
,"""
3. / 2.
C$"C
-
'I
@@@@@@@@@@@@@@@
l7.51
~.
2
~r
1.
'+
25@
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o
2..0I2..1
&'')!3''*
2))'B2)),
2..3I2..4
,
2..4I2.1.
&!ser(ation+
's the 'R!! Infrastructure +rojects :imited is a construction company" 'nd it ta%es project of different segment in constmction sector li%e road$ rail#ay$ irrigation$ aviation$ marine$ jetty etc" The companyBs inventory #or% in progress is very high in terms of cash as #ell as in terms ofK and it increases year by year" The company is ta%ing a no of projects #hich completes in more than one year because of season factor"
The company did not concern about the stores and spares in the period of 2..0 and 2..1" -ut as the stores and spares plays a important role in the construction industry e&amples for e)uipments" !o from 2..2 on#ards the company made a certain account in the inventories" In 2..3/.4 the recession #as happening" The company #as unable to good projects because of the do#nturn in the industry" 's mentioned earlier the company had ta%en only three projects in the rail#ay segment in 2..3/.4" !o the ra# material remained high and the finished goods remained lo#"
Inventory
<olding +eriod@
The reciprocal of inventory turnover gives average inventory holding in percentage term"
COlli
*hen the no of days in a year Dsaid as 31.) are divided by inventory turnover$ days of inventory holding D(I<) can obtain 31.
BI& 5 #######
Inventory Turnover
To e&amine the efficiency of the finn Dho# the firm converts ra# material into #or% in process and #or%/in/process into finished goods)$ ra# material inventory and #or% in process inventory should be %no#n" The ra# material inventory should be related to materials consumed$ and #or%/in/process to the cost of production"
Material consumed Ra# Material Inventory Turnover 5 ################ 'vg" Ra# Material Inventory
7ost of +roduction *or%/in/+rocess Inventory Turnover 5 ################ 'vg" #or%/in/process inventory
541
COlli
551
COlli
Cas7 1anage=ent+
7ash is common purchasing po#er or medium of e&change" 's such$ it forms the most important component of #or%ing capital" The term cash #ith reference to cash management is used in t#o senses$ in narro# sense it is used broadly to cover cash and generally accepted e)uivalent of cash such as che)ues$ draft and demand deposits in ban%s" The broader vie# of cash includes near cash items$ such as mar%etable securities or ban% time deposits" The basic characteristic of near/cash assets is that they can readily be converted into cash" They also provide short term investment outlet for e&cess and are also useful for meeting planned outflo# of funds" Irrespective of the form in #hich it is held$ a distinguishing feature of cash as assets is that it has no earning po#er" 7ompany have to al#ays maintain the cash balance to fulfill the dally re)uirement of e&penses" There are lour primary motives lor maintain the cash as follo#@
CJ)m
7ash management is concerned #ith the managing of@ Di) 7ash flo#s into and out of the firm$ Dii) 7ash flo#s #ithin the firm" and Diii) 7ash balances held by the firm at a point of the time by financing deficit or investing surplus cash" Motives for <olding 7ash@ The firmFs need to hold cash may be attributed to the follo#ing three motives@ Transaction Motive@ The transactions motive re)uires a firm to hold cash to conduct its business in the ordinary course" The firm needs cash primarily to ma%e payments" for purchases$ #ages and salaries$ operating e&penses$ ta&es$ dividends etc" There should be a proper channel bet#een the cash inflo# and cash outflo# in the firm" ?or periods #hen cash payments e&ceed cash receipts$ the finn should maintain some cash balance to be able to ma%e re)uired payments" =sually the finn maintains such accounts to meet anticipated payments #hose timings is not perfectly matched #ith cash receipts" The +recautionary Motive@ The precautionary motive is the need to hold cash to meet contingencies in the future" It helps in the future" The precautionary amount of cash depends upon the predictability of cash flo#s" lf cash flo#s are predicted #ith accuracy$ less cash #ill be maintained for emergency" I + the firm is able to borro# at short notice there #ill less need for precautionary balance" Eenerally the precautionary balance held in mar%etable securities and relatively less in cash" The specula tive Motive@ The speculative motive relates to the holding of cash for investing in profit ma%ing
opportunities as and #hen they arise" 's the firm can postpone materialsF purchasing #hen the price of materials is high" 'nd ma%e purchase in future #hen the price of materials falls" The primary motives to hold cash and mar%etable securities are@ the transactions and the precautionary =oti(es@ 'dvantage of 7ash Management@ 7ash does not enter in to the profit and loss account of an enterprise$ hence cash is neither profit nor losses but #ithout cash" profit remains meaningless for an enterprise o#ner"
l. ' sufficient of cash can %eep an unsuccessful firm going despite lossesA
2" 'n efficient cash management through a relevant and timely cash budget may enable a firm to obtain optimum #or%ing capital and ease the strains of cash shortage$ fascinating temporary investment of cash and providing funds normal gro#thA 3" 7ash management involves balance sheet changes and other cash flo# that do not appear in the profit and loss account such as capital e&penditure@
+articulars 7ash Y-an% balance Indices
2.. /2..0 141..11 1..
2..0/2..1 0.1 3332 210"13 Table
2..1/2..2 111 20242 1.4"00
2..2/2..3 323444210 1403".4
2..3/2..4 21221 4 3 3200".2
2..4/2.1. 1.40.4.031 0233" 2
7ashY-an% balance lodices
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Cas &.an! balan"e indi"es
'.".
c
1...
g "m
CB
""
0... Zl.. 3... 2... 1... . 2.. I2..0 2..0I2..1 2..1/2..2 2..2I2..3 2..3I2..4 2..4/2.1.
s
iii
..
D5
~ ~
""
R
#ears
" dices
?igure
7ash & -an% balance indices
Observation@
The cash and ban% balances of 'R!! #as continuously increasing from 2..0/.1 to 2..4/ 1." The reason of increasing cash and ban% balances #as the increasing no of projects #ith their value" The company entered into ne# areas and earned increasing profits" There #as a sharp increase in cash and ban% balances in 2..2/.Y from ifBs previous year Di"e" 212"23K increase)" There #as increase due to 1. projects of rail#ay$ road$ irrigation ta%en" 7ash7ydc@ One of the distinguishing features of the fund employed as #or%ing capital is that constantly
changes its form to drive Fbusiness #heelF" It is also %no#n as Fcirculating capitalF #hich means current assets of the company$ #hich are changed in ordinary course of business from one form to another$ as for e&ample$ from cash to inventories$ inventories to receivables and receivables to cash"
1.
CJ)m
I1
COlli
*or%ing capital finance and estimation
Introduction !ources of capital finance *or%ing capital loan and interest 6s timatio n of #o r%ing cap ital
COlli
Introd uction+
?unds available for period of one year or less is called short term finance" In India short term finance are used as #or%ing capital finance" T#o most significant short term sources of finance for #or%ing capital are trade credit and ban% borro#ing" Trade credit ratio of current assets is about 40"10, it is indicated by Reserve -an% of India data that trade credit has gro#n faster than the gro#th in sales" -an% borro#ing is the ne&t source of #or%ing capital finance" The relative importance of this varies from time to time depending on the prevailing environment" In india the primary source of #or%ing capital financing are trade credit and short term ban% credit" 'fter determine the level of #or%ing capital$ a firm has to consider ho# it #ill finance" ?ollo#ing are sources of #or%ing capital finance" !ources of *or%ing 7apital ?inance@ I) Trade credit 2) -an% ?inance
14 Trade credit@
Trade credit refers to the credit that a customer gets from suppliers of goods in the normal course of business" The deferral of payment in short term financing is called trade credit" It is major source of financing for firm" +articularly small firms are heavily depend on trade credit as a source offinance since they find it difficult to raised funds from ban%s or other sources in the capital mar%et" Trade credit is mostly an informal arrangement$ and it granted on an open account basis"
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?or 'R!! infrastructure +rojects :imited the sundry creditors are the trade credit finance #hich is sho#n in the balance sheet of the finn" 2) -an% finance@ -an%s are main institutional source of #or%ing capital finance in India" 'fter trade credit$ ban% credit is the most important source of financing #or%ing capital in India" ' ban%s considers firmBs contract revenue and services and desirable levels of current assets in determining its #or%ing capital re)uirements" The amount approved by ban% for the firmBs #or%ing capital is called credit limit" 7redit limit is the ma&imum funds #hich a firm can obtain from the ban%ing system" In pmctice ban%s do not lend 1..K credit limitA they deduct margin money" There are t#o types of loans involved as ban% finance in 'R!! Infrastructure +rojects :imited"
I) !ecured loans in #hich the term loan$ #or%ing capital loanA and loan from >-?7s" The #or%ing capital loan is secured by #ay of mortgages of land and building and hypothecation of plant and machinery$ stoc% and boo% debts"
2) =nsecured loans in #hich the loans from ban%s and from others are included"
D'mount in crores)
+articulars
*"7 loan Interest
2..0/2..1 12"3
2..1/2..2 23". 2"34 Tabl e
2..2F2..3 3"33 2"3
2..3/2..4 134".1 23"44
2..4/2.1. 233"0 1"33
1"1
*or%ing capital loan si,e
COlli
@W@C!an
$ E%po e tial Re! gressio for *"7 ban
2..0/2..1
2..1I2..2
2..2I2..32..3/2..42..4I2.1.
?ugure
*or%ing 7apital si,e
COlli
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tsform ba. blo g"Pl)t.
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' +roject report

on
*or%ing capital management of 'R!! infrastructure ltd

' project report submitted for the partial fullfillmeru of
+O!T ER'(='T6 (I+:OM' I> M'>'E6M6>T

!ubmitted by
'S
QQQ
<uman (eBlelopment ?oiiiidation
<(? !7<OO: O? M'>'E6M6>T 'l/>aranpur"belagachnia"cuttac% '++RO86( -9 'I7T6 D2..4I2.11)
P rojec
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CERllRC9>CE
This is to satisfy that the summer project #or% of " Titled *or%ing capit"al management is an original #or% and this #or% has not been submitted else#here in any form" The indebtness to other #or%sNpublications has been duly ac%no#ledged at the relevant places" The project #or% #as carried out during in 5RSS ilfrast67ct.re pro8ects pri0ate linlted
9ate:
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'7G>O*:6(E6M6>T
It gives me immense pleasure to present this project report on *or%ing 7apital Management carried out at 'R!! infrastructure projects :td" In partial fulfillment of post/graduate course of +E(M" >o #or% can be carried out #ithout the help and guidance of various persons" I am happy to ta%e this opportunity to e&press my gratitude to those #ho have been helpful to me in completing this project report" 't the outset I #ould li%e to than% for their valuable advice and guidance during my project for timely help concerning various aspects of project" I also than%s to all staff members of account department for help me to complete the summer internship program" I #ould be fail ing in my duty if I do not e&press my deep sense of gratitude to """""""""""""" sir #ithout his guidance it #ouldnBt have been possible for me to complete this project #or%" :astly I #ould li%e to than% my parents$ friends and #ell #ishers #ho encouraged me to do this research #or% and all those #ho contributed directly or indirectly in completing this project to #hom I am obligated to"
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:EC6AIRATI&2
""""""""""""""""""""""""""""""" !tudent of +E(M 2..4/2. 11studying at <(? school of Management$ cuttac%$orissa declare that the project #or% entitled *or%ing 7apital management of 'R!! infrastructure +rojects :td" #as carried by me in the partial fulfillment of +E(M @roEra6 under the 'l7T6 "This project #as underta%en as a part of academic curriculum according to the 'l7T6B! rules and norms and it has not commercial interest and motive" It is my original #or% It is not submitted to any other organi,ation for anyother pmIpose"
('T6@ +:'76@
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7O>T6>T!
7hpter >o" +articular +age >o"
7ertificate 'c%no#ledgement (eclairation 7ontents :ist of tables :ist of 7harts
I II
11l
IJ J
8I
*ORGI>E
7'+IT': U;Bl'>'E6U;BI6>T
1"1 Introduction
12 1.7 1" 1"0 >eed of #or%ing capital Eross *"7 and >et *"7 Types of #or%ing capital (eterminants of*"7 R6!6'R7< M6T<O(O:OE9 Introduction Types of Reserch methodology Objective of he study !cope and limitation of the study
2"1 2"2 2"3 2"
3"1 3"2 3"3 3" 3"0 3"1 3"2
*ORGI>E 7'+IT': !IH6 '>( '>':9!I! l9or%ing capital level *or%ing capital trend analysis 7urrent assets analysis 7urrent liability analysis 7hanges of #or%ing capital Operating cycle *or%ing capital leverage
*or%ing 7apital Ratio analysis

0" I Introduction 0"2 Role of ratio analysis 0"3 :imitations of ratio analysis 0" 7lassifications of ratios 0"0 6fficiency ratio 0"1 :i)uidity ratio
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0"1 02 0"3
*or%ing 7anital comnonents Receivables management Inventory management 7ash management
"1
C#orking
Cauital 3inance
and Est8ulat8on
1"1 12 1"3 1"
Introduction" !ources of #or%ing capital finance" *or%ing capital loan and interest" 6stimation of #or%ing capital"
7onclusions and rccomandations 2"1 7onclusion 22 Reconunendations
K!
'nnendices 3"1 -ibliography 32 -alance sheets
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7<'+T6R/l
*or%ing capital management
1) 2) 3) ) 0)
Introduction >eed of #or%ing capital Eross #"c & >et #"c Types of #or%ing capital (eterminants of #or%ing capital
*ORGI>E 7'+IT': M'>'E6M6>T
.@.)Introduction
FMore business fails for lac% of cash than for #ant of profitF" 6fficient management of #or%ing capital is one of the pre/conditions for the success of an enterprise" 6fficient management of #or%ing capital means management of various components of #or%ing capital in such a #ay that an ade)uate amount of #or%ing capital is maintained for smooth running of a firm and for fulfilment of t#in objectives of li)uidity and profitability" *hile inade)uate amount of #or%ing capital impairs the firmBs li)uidity" <olding of e&cess #or%ing capital results in the reduction of the profitability" -ut the proper estimation of #or%ing capital actually re)uired$ is a difficult tas% for the management because the amount of #or%ing capital varies across firms over the periods depending upon the nature of business$ production cycle$ credit policy$ availability of ra# material$ etc" Thus efficient management of #or%ing capital is an important indicator of sound health of an organisation #hich re)uires reduction of unnecessary bloc%ing of capital in order to bring do#n the cost of financing"
Working capital =anage=ent

*or%ing capital management is concerned #ith the problems arise in attempting to manage the current assets$ the current liabilities and the inter relationship that e&ist bet#een them" The term current assets refers to those assets #hich in ordinary course of business can be$ or$ #ill be$ turned in to cash #ithin one year #ithout undergoing a diminution in value and #ithout disrupting the operation of the finn" The major current assets are cash$ mar%etable securities$ account receivable and inventory" 7urrent liabilities #are those liabilities #hich intended at there inception to be paid in ordinary course of business$ #ithin a year$ out of the current assets or earnings of the concern" The basic current liabilities are account payable$ bill payable$ ban% over/ draft$ and outstanding e&penses" The goal of #or%ing capital management is to manage the firm s current assets and current liabilities in such #ay that the satisfactory level of #or%ing capital
L1
COlli
is mentioned" The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety"
(efinition@/
I"
I.
'ccording to Euttmann & (ougall/ 6&cess of current assets over current liabilities" 'ccording to +ar% & E ladson/
The e&cess of current assets of a business Di"e" cash$ accounts receivables$ inventories) over current items o#ned to employees and others Dsuch as salaries & *ages payable$ accounts payable$ ta&es o#ned to government) "
1"2) >eed of #or%ing capital management

The need for #or%ing capital gross or current assets cannot be over emphasi,ed" 's already observed$ the objective of financial decision ma%ing is to ma&imi,e the shareholders #ealth" To achieve this$ it is necessary to generate sufficient profits can be earned #ill naturally depend upon the magnitude of the sales among other things but sales can not convert into cash" There is a need for #or%ing capital in the form of current assets to deal #ith the problem arising out of lac% of immediate reali,ation of cash against goods sold" Therefore sufficient #or%ing capital is necessary to sustain sales activity" Technically this is refers to operating or cash cycle" If the company has certain amount of cash" it #ill be re)uired for purchasing the ra# material may be available on credit basis" Then the company has to spend some amount for labour and factory overhead to convert the ra# material in #or% ill progress$ and ultimately finished goods" These finished goods convert in to sales on credit basis in the form of sundry debtors" !undry debtors are converting into cash after e&piry of credit period" Thus some amount of cash is bloc%ed in ra# materials$ *I+$ finished goods$ and sundry debtors and day to day cash re)uirements" <o#ever some part of current assets may be financed by the current liabilities also" The amount re)uired to be invested in this current assets is al#ays higher tban the funds available from current liabilities" This is the precise reason #hy the needs for #or%ing capital arise
91
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.@3) 4ross $orking capital and 2et $orking capital

There are
1\'10
concepts of #or%ing capital management
1"
Eross #or%ing capital
Eross #or%ing capital refers to the firmBs investment In current assets" 7urrent assets are the assets #hich can be convert in to cash #ithin one financial year includes cash$ short term securities$ debtors$ bills receivable and inventory"
2.
>et #or%ing capital
>et #or%ing capital refers to the difference bet#een current assets and current liabilities" 7urrent liabilities are those claims of outsiders #hich are e&pected to mature for payment #ithin an accounting year and include creditors$ bills payable and outstanding e&penses" >et #or%ing capital can be positive or negative 6fficient #or%ing capital management re)uires that firms should operate #ith some amount of net #or%ing capital$ the e&act amount varying from finn to firm and depending$ among other thingsA on the nature of industries"net #or%ing capital is necessary because the cash outflo#s and inflo#s do not coincide" The cash outflo#s resulting from payment of current liabilities are relatively predictable" The cash inflo# are ho#ever difficult to predict" The more predictable the cash inflo#s are$ the less net #or%ing capital #ill be re)uired" The concept of #or%ing capital #as$ first evolved by Garl Mar&" Mar& used the term variable capital means outlays for payrolls advanced to #or%ers before the completion of #or%" <e compared this #ith constant capital #hich according to him is nothing but dead labour" This variable capital is nothing #age fund #hich remains bloc%ed in terms of financial management$ in #or%/ in/process along #ith other operating e&penses until it is released through sale of finished goods" 'lthough Mar& did not mentioned that #or%ers also gave credit to the finn by accepting periodical payment of #ages #hich funded a portioned of *"I"+$ the concept of #or%ing capital$ as #e understand today #as embedded in his variable capital"
10
CJ)m
.@ ) Type of #or%ing capital

The operating cycle creates the need for current assets D#or%ing capital)" <o#ever the need does not come to an end after the cycle is completed to e&plain this continuing need of current assets a destination should be dra#n bet#een permanent and temporary #or%ing capital" I) +ermanent #or%ing capital or fi&ed #or%ing capital The need for current assets arises$ as already observed$ because of the cash cycle" To carry on business certain minimum level of #or%ing capital is necessary on continues and uninterrupted basis" ?or all practical purpose$ this re)uirement #ill have to be met permanent as #ith other fi&ed assets" This re)uirement refers to as permanent or fi&ed #or%ing capital 2) Temporary #or%ing capital or variable #or%ing capital 'ny amount over and above the permanent level of #or%ing capital is temporary$ fluctuating or variable$ #or%ing capital" This portion of the re)uired #or%ing capital is needed to meet fluctuation in demand conse)uent upon changes in production and sales as result of seasonal changes
"
e
r
C (
'
" o
Temporary or variable #or%ing capital
'
Of
# o
$ $
,
C ( 1
Of
$ ,
I (
(
)
fi&ed #or%ing capital
C '
$ ,
C
'
$
T5M6
5
5T
M444444I
lM6
Eraph sho#s that the permanent level is fairly castanetA #hile temporary #or%ing capital is fluctuating in the case of an e&panding firm the permanent
Projectsformbu.blagspot.com #or%ing capital line may not be hori,ontal" This may be because of changes in
II
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demand for permanent current assets might be increasing to support a rising level of activity"
.@") :eter=inants of $$Bor%ing capital

The amount of #or%ing capital is depends upon a follo#ing factors
I"
>ature of business
!ome businesses are such$ due to their very nature$ that their re)uirement of fi&ed capital is more rather than #or%ing capital" These businesses sell services and not the commodities and that too on cash basis" 's such$ no founds are bloc%ed in piling inventories and also no funds are bloc%ed in receivables" 6"g" public utility services li%e rail#ays$ infrastructure oriented project etc" there re)uirement of #or%ing capital is less" On the other hand$ there are some businesses li%e trading activity$ #here re)uirement offi&ed capital is less but more money is bloc%ed in inventories and debtors"
2"
:ength of production cycle
In some business li%e machine tools industry$ the time gap bet#een the ac)uisition of ra# material till the end of final production offinished products itself is )uit high" 's such amount may be bloc%ed either in ra# material or #or% in progress or finished goods or even in debtors" >aturally there need of #or%ing capital is high"
3"
!i,e and gro#th of business
In very small company the #or%ing capital re)uirement is )uit high due to high overhead$ higher buying and selling cost etc" as such medium si,e business positively has edge over the small companies" -ut if the business start gro#ing after certain limit$ the #or%ing capital re)uirements may adversely affect by the increasing si,e"
"
-usinessU Trade cycle
If the company is the operating in the time of boom$ the #or%ing capital re)uirement may be more as the company may li%e to buy more ra# material$
121
CJ)m
may increase the production and sales to ta%e the benefit of favorable mar%et$ due to increase in the sales$ there may more and more amount of funds bloc%ed in stoc% and debtors etc" similarly ill the case of depressions also$ #or%ing capital may be high as the sales terms of value and )uantity may be reducing$ there may be unnecessary piling up of stac% #ithout getting sold$ the receivable may not be recovered in time etc"
0"
Terms of purchase and sales
!ome time due to competition or custom$ it may be necessary for the company to e&tend more and more credit to customers$ as result #hich more and more amount is loc%ed up in debtors or bills receivables #hich increase tbe #or%ing capital re)uirement" On the other hand$ in the case of purchase$ if the credit is offered by suppliers of goods and services$ a part of #or%ing capital re)uirement may be financed by them$ but it is necessary to purchase on cash basis$ the #or%ing capital re)uirement #ill be higher" 1" +ro fita bility The profitability of the business may be vary in each and every individual case$ #hich is in turn its depend on numerous factors$ but high profitability #ill positively reduce the strain on #or%ing capital re)uirement of the company$ because the profits to the e&tend that they earned in cash may be used to meet the #or%ing capital re)uirement of the company"
2) Operating efficiency
If the business is carried on more efficiently$ it can operate in profits #hich may reduce the strain on #or%ing capitalA it may ensure proper utili,ation of e&isting resources by eliminating the #aste and improved coordination etc"

Arss WCM

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Projectsformbu.blagspot.

161 Projectsformba.blogspot. CJ)m

2" ) !7O+6 & :<;=T'1l.>! O?TR6 !T=(9

?ollo#ing limitations #ere encountered #hile preparing this project@

Working capital level and analysis

Working capital level

03$ 24$012 1$110$3.. 14$1.."11 3$020$211 122$22.$1 2

1. "2.1$330 21241313 0."1 3"332 31$214$021 3.2311111

23$243$330 1 0$131$3.1 111$ 20$242 2.0$43 $0.2 0 .$3 0$ 34

122$1.3$11. 103$02 $32. 323$444"210 0.1$412$102 2$101$1 3$402

1$332$2. $4 . 23"033$ 10 212$21 "4 3 002$ 1.$223 3$030$313$121

3$2.1$.33$123 2311224. I 1".40$.4.031 1$ .1 3.431 1$433A232$0.1

-) 7urrent :iabilities 7urrent liabilities

2$132$212 2$030$41 0.$113$231 22$1.1$411

121$1 3$02. 4$323$322 131$ 22$3 2 12134 31

1.0$213$331 30$211$043 1 1$.20$ 23 344$32.$. II

303$430$.31 42$130$..4 401$.2.$.40 1$2.0$023$302

1$1 2$423$111 122$240$02. 1$32.$22 $131 2$210$134$ .

1$ 2$ 0 $102 203$33.$. 3 1$2.0$33 $14 0$23$24 $33.2

!i,e of #or%ing capital

*or%ing 7apital Trend 'nalysis@

7'+IT': !IH6 O? 'R!!

2.. I2..0 221.14.1

2..4I2.1. 02324 33.2

*"7 indices 1..

Table """"""""" #or%ing capital si,e

*or%ing 7apital Indices base year 2.. /2..0 ta%en as 1..

\\'Ofkhg cap;ta1 hdicesyea.lStpoo91ool Regressio for Vo*&rking capital i ! dices

<lI1lan (e8elopment ?ouildation

6000 5000 4000

3000 2000 1000

because cash is non earning assets"

2.. /2..0 0"4.K ."42 10".1 33"12 1..

2..0/2..1 33"30 23"32 11" 0 21"33 1..

2..1/2..2 13"00 21"33 21"02 33".4 1..

2..2/2..3 23"30 3."31 12"3 23"01 1..

2..3/2..4 02"0. 11"40 2.".. 10"0 1..

2..4/2.1. 02"41 11"20 10"12 2."12 1..

3..."..K inventories Sundry debtors ~Cas and ban! balan"e

loa ns and adva n"es

current lia!ility si,e

203$33.". 3 1$2.0$33 $14 3 .."14

Table """""""" current liability si,e and its indices

Current liability indi"es

$ C.% d"es $ E%po e tial Re! gressio 5or7":F

7urrent liability indices

251 Projectsformba.blogspot. CJ)m

13322. 4 . 23033 10 21221 4 3 002 1.223 3030313121

32.1.33123 2311224. I 1.40.4.031 1 .1 3.431 14332320.1

1313333133 302034 31 322320043 3 4.2.103 3 .2413320

Total current assets -)7urrent liabilities 7urrent liabilities

11 2423111 12224002. 132.22 131

244020031 31.3 23 33011...3

L#or%ing capital cycleNoperating cycleO

B1" 7hanges in RO76 K 7hanges in current assets

6-IT Return on capital cmployctlP//// Total assets

O? *ORGI>E 12.13.31 11.2 4 23 1."03

2..0/2..1 230.11 244334023 1 "24 30".2 3.2311111 /203".4 /.".0

>"' 12222.1 2 >"'

*or%ing capital >"' leverage

*or%ing 7apital Ratio 'nalysis

*ORGI>E 7'+IT': R'TIO '>':9!I!

8i9 *or%ing 7apital Turnover Ratio

!ales or%ing 7apital Turnover RatioP //////// >et or%ing 7apital

+articulars sales >et"7 "7 TOR