INTRODUCTION

The concept of working capital is much confusing in the business circles. It is very unfortunate,
there is much disagreement among financiers, accountants, businessmen and economists as to the
exact meaning of the term working capital. According to a few, working capital means current
assists. For some others it is an excess of current assets over current liabilities. Some authorities
prefer to call it circulating capital in place of working capital.

MEANING OF WORKING CAPITAL:The term working capital is commonly used for the capital required for day-to-day working in
business concern. Such as for purchasing raw material for meeting day-to-day expenditure on
salaries, wages, rent rates advertising etc. but there is much disagreement among various
financial authorities as to the exact meaning of the term working capital

DEFINITION OF WORKING CAPITAL

Working Capital refers to that part of the firms capital, which is required for financing shortterm or current assets such a cash marketable securities, debtors and inventories. Funds thus,
invested in current assets keep revolving fast and are constantly converted into cash and this cash
flow out again in exchange for other current assets. Working Capital is also known as revolving
or circulating capital or short-term capital.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

Working capital management includes a number of aspects that make it especially important for
the financial health of the firm. Surveys indicate that the largest portion of the financial manager
time is devoted to the day-to-day operations of the firm, which fall under the heading o working
capital management.
Current assets represent the largest proportion i.e. if total assets forms 1% then current assets are
generally above 60%. Moreover current assets fluctuate with sales and sales vary over time. Thus
managing current asset is the dynamic process and it requires the financial mange to closely
monitor sales to ensure that assets in hand are at the right level for actual sales production levels.

DETERMINANTS OF WORKING CAPITAL

Nature of Industry
Seasonality of Operations
Production Policy
Market Conditions
Conditions of supply
Size of Business
Volume of Sales
Terms of Purchase and Sales
Business Cycle
Growth and Expansion of the firm
Price Level Changes
Operating Efficiency of the firm
Profit Appropriation
Capital Structure of the firm

THE SONA GROUP

The Sona Group was founded in 1987 to manufacture components for the automotive industry.
Today it is a USD 800 million multi-national with over 16 plants across India, 3 in Germany
2

and 1 in the USA. The group also has a strategic position in Fuji Autotec, Europe - which has
subsidiaries in Brazil, France, Sweden and the Czech Republic. Starting out as a Manufacture to
Print organisation, the group today boasts having created its own IPR particularly in the areas of
power steering for off highway applications and precision forging.
The Sona Group has engineering capabilities in the areas of machining and assembly, precision
forging, cold & hot forging and heat treatment. The Groups range of products primarily consists
of steering and driveline components for the automotive OEM segment namely passenger cars,
utility vehicles, commercial vehicles and specialty vehicles.
The Group is committed to expansion of its products range and clientele by continuous
investment in research and development. SONA is drawing upon the strength of its joint venture
partners which include JTEKT Corporation, Japan and Mitsubishi Materials Co., Japan to
upgrade it's systems, skills and production values to offer its customers contemporary and high
quality products
The Group boasts the worlds largest precision forging enterprise, Indias largest steering systems
manufacturer recognized in 1997, by the World Economic Forum as a topperforming Global
Growth Company; a recipient of the prestigious Deming Award in 2003 it received the TPM
Excellence award in 2007.
Sona Koyo Steering Systems Limited (SKSSL) the flagship company of The Sona Group, is
currently the largest manufacturer of steering systems for the passenger car and utility vehicle
market in India. Its collaborator and partner, JTEKT Corporation, is the market leader in Japan
and in the recent past announced a merger with Toyota Machine Works. Post this merger, JTEKT
will become the world's largest steering systems manufacturer. The company also has a technical
collaboration with Mando Corporation, Korea.

As part of Sona Koyo Steering Systems Ltd's (SKSSL) globalization strategy, the company has
acquired a position in Fuji Autotech France, SAS, the 4th largest steering system supplier in
Europe. Via Fuji Autotech, The Sona Group footprint extends to Eastern Europe and South
America.
3

Established in 1985, Sona Koyo Steering Systems Ltd. is the group's flagship company, and the
largest manufacturer of steering systems in India, catering to passenger cars, utility vehicles and
light commercial vehicles. Sona Koyo has technical and financial collaboration with JTEKT
Corporation, Japan (formally known as Koyo Seiko Co. Ltd.), the largest producer of passenger
vehicles' steering systems in the world.
Sona Koyo's customers include major vehicle manufactures in India such as Maruti Suzuki,
Toyota, Hyundai, Tata Motors, Mahindra & Mahindra, General Motors and Mahindra-Renault.
Independently, as well as through its network of overseas joint-venture partners, it exports high
quality precision products to USA, Europe and Japan
PLANT DETAILS
GURGAON PLANT
Plant location

38/6, Delhi-Jaipur Road, Gurgaon (Haryana), India, 38 Km from

New Delhi, 22 Km from Delhi Airport, 10 Km from Maruti Udyog
Ltd.

Total Site Area

56,970 sq. m

Total Floor Area

14,125 sq. m

PLANT SYSTEM

PRODUCT SYSTEM

REVIEW OF LITERATURE:
DEFINITION OF WORKING CAPITAL
Working Capital refers to that part of the firms capital, which is required for financing shortterm or current assets such a cash marketable securities, debtors and inventories. Funds thus,
invested in current assets keep revolving fast and are constantly converted into cash and this cash
flow out again in exchange for other current assets. Working Capital is also known as revolving
or circulating capital or short-term capital.

MEANING OF WORKING CAPITAL:The term working capital is commonly used for the capital required for day-to-day working in
business concern. Such as for purchasing raw material for meeting day-to-day expenditure on
salaries, wages, rent rates advertising etc. but there is much disagreement among various
financial authorities as to the exact meaning of the term working capital.

WORKING CAPITAL MEANING AND SIGNIFCANCE

The concept of working capital is much confusing in the business circles. It is very unfortunate,
there is much disagreement among financiers, accountants, businessmen and economists as to the
exact meaning of the term working capital. According to a few, working capital means current
assists. For some others it is an excess of current assets over current liabilities. Some authorities
prefer to call it circulating capital in place of working capital. The present study is related to
working capital management in HERITAGE FOODS INDIA LIMITED , more effective and
interacted for research work in corporate sectors . for the assessment of working capital
management .
T.anitha , jnt university , hyd , researchers evalutated the working capital management on his
study on wcm in HERITAGE FOODS INDIA LIMITED . That working capital management is
consider to involve the administration of current assets and current liabilities in such a way that
an option level of working capital maintained in the business .she also narrated that firm may
resist without making profits but it cannot survive with out liquidity . I therefore based on case
study, I have selected my topic on different approach .

TOOLS AND TECHNIQUES:

Current ratio =

Current Assets
Current Liabilities

Quick ratio =

Liquid Assets
Current Liabilities

Cash ratio =

Cash & Bank balances

Current Liabilities * 100

Working capital turnover ratio =

sales(turnover)
Working capital

debtors turnover ratio =

sales (turnover)
accounts recieveble

Stock turnover ratio =

Sales (turnover )
Inventory

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

Working capital management includes a number of aspects that make it especially important for
the financial health of the firm. Surveys indicate that the largest portion of the financial manager
time is devoted to the day-to-day operations of the firm, which fall under the heading o working
capital management. Current assets represent the largest proportion i.e. if total assets forms 1%
then current assets are generally above 60%. Moreover current assets fluctuate with sales and
sales vary over time. Thus managing current asset is the dynamic process and it requires the
financial mange to closely monitor sales to ensure that assets in hand are at the right level for
actual sales production levels.

FACTORS INFLUENCING WORKING CAPITAL NEEDS:1. Nature of Business: - The amount of working capital is basically related to the nature and
volume of the business. In concerns, where the cost of raw materials to be used in the
manufacture of a product is very large in proportion to its total cost of manufacture the
requirements of working capital will be very large. For instance, a cotton or sugar mill requires a
large amount of working capital. On the contrary, concerns having large investments in fixed
assets require less amount of working capital.
2. Size of Business Unit: - Size of the business unit is also a determining factor in estimating the
total amount of working capital. The general principle in this regard is that the bigger the size the
larger will be the amount of working capital required as because the larger business units are
required to maintain big inventories for the flow of the business.
3. Seasonal Variations: - Strong seasonal movements create certain special problems of working
capital in controlling the internal financial swings. A great many companies have to carry on
seasonal business such as sugar mills, oil mills or woolen mills etc. and therefore they require
large amount of working capital in the season to purchase the raw materials in large quantities
and utilize them throughout the year.
4. Time Consumed In Manufacture: - The average time taken in the process of manufacture is
also an important factor in determining the amount of working capital. The longer the period of
manufacture the large the investor required.
5. Turnover of Circulating Capital: - Turnover means the ratio of annual gross sales to average
working assets. In simple words, it means the speed with which circulating capital completes its
rounds or the number of times the amount invested in working assets has been converted into
cash by sales of the finished goods and reinvested in working assets during a year.

10

6. Labor Intensive Vs Capital Intensive Industries: - In labor intensive industries, large

working capital is required because or regular payment of heavy wage-bills and more time taken
in completing the manufacturing process. Conversely, the capital intensive industries require
lesser amount of working capital because of the heavy investment in fixed and shorter period in
manufacturing process.
7. Need to Stockpile Raw Material and Finished Goods: - In industries where it is necessary
to stockpile the raw materials and finished goods increase the amount of working capital lied up
in stocks and stores in certain lines of business where the materials are bulky and best
purchasable in large quantities such as cements stockpiling of raw material is very usual or where
labor stoppage is frequent finished goods stock have to be large in stored quantities.
8. Terms of Purchase and Sales: - Terms of purchase and sales also affect the amount of
working capital. If a company purchases all goods in cash and sells its finished product on credit
also naturally it will require large amount of working capital. On the contrary a concern having
credit facilities and allowing no credit to its customers will require lesser amount of working
capital
9. Conversion of Current Assets Into Cash: - The need of having cash in hand to meet the day
to day requirements payment of wages and salaries rent rates has an important bearing in
deciding the adequate amount of working capital. The greater the cash requirement the higher
will be the need of working capital but if a company has ample stock of liquid current assets will
require lesser amount of working capital because the company can en cashes such assets
immediately in the open market.
10. Growth and Expansion of Business: - Growing concerns require more working capital than
those that are static. It is logical to expect larger amount of working capital in a growing concern
to meet its growing needs of funds for its expansion programmers though it varies with economic
condition and corporate practices.

11

11. Business Cycle Fluctuations: - Business cycle affects the requirement of working capital. At
times when the prices are going up and up and boom conditions prevail the tendency
management is to pile up a big stock of raw materials and to maintain a big stock of finished
goods with an expectation to earn more profits.
12. Profit Margin and Profit Appropriation: - Some firms enjoy a dominant position in the
market due to quality product or good marketing management or monopoly power in the market
and therefore earn a high profit margin. On the other hand form facing tough competition earn
low margin of profit.
13. Price level changes: - The financial manager should also anticipate the effect of price level
changes on working capital requirements of the firm. Generally, rising price levels will require a
higher amount of working capital because to maintain the same levels of current assets will
require higher investment. However if companies may revise their product prices will not face a
severe working capital problem. The effects of rising price levels will be different for different
firms depending upon their price policies nature of the product etc.
14. Dividend policy: - There is a well established relationship between dividend and working
capital in companies where conservation dividend policy is followed. The changes in working
capital position bring a about an adjustment in dividend policy. With a view to maintain and
established dividend policy is the management before declaring a dividend gives due
consideration to its effects on cash and cash requirements.

12

WORKING CAPITAL MANAGEMNENT-AN OVER VIEW

Working capital of a firm may be different as the amount by which its current assets exceed its
current liabilities. Working capital management is concerned with the problem that arises
attempting to manage current assets, current liabilities and the interrelationship that exists
between them. The current assets to those assets, which in the ordinary course of the business
and be, or will be, turned into cash with in 1 year without disrupting the operations of the firm.
The major current assets are cash marketable securities account receivable and inventories.
Current liabilities are those liabilities, which are intended at their inception to be payee in the
ordinary course of business with in the year, out of current assets or earning of the concern. The
basic current liabilities are account payable, bills payable, bank overdraft and outstanding
expenses.
The goal of working capital management is to manage the firms current assets and current
liabilities in such a way that the satisfactory level of the working capital is maintained. The
Interaction between the current assets and current liabilities is the main theme of the theory of
the working capital management.
The important elements of working capital includes inventory management, cash management,
credit and collection policy and short term borrowings where as long term financial analysis is
primarily concerned with strategic planning, working capital management is primarily concerned
with day to day operations making shore, production lines out stop as firms run our of the raw
material and thus preventing the slowing down of the process. Obviously with out good working
capital management no firm can be efficient and profitable.

13

CONCEPT OF WORKING CAPITAL

There are two possible interpretations of working capital concept:
1. Balance sheet concept
2. Operating cycle concept

Balance sheet concept:

There are two interpretations of working capital under the balance sheet concept.
a. Excess of current assets over current liabilities
b. Gross or total current assets

Excess of current assets over current liabilities are called the net working capital or net

current assets.
Working capital is really what a part of long term finance is locked in and used for

supporting current activities.

The balance sheet definition of working capital is meaningful only as an indication of the

firms current solvency in repaying its creditors.

When firms speak of shortage of working capital they in fact possibly imply scarcity of

cash resources.
In fund flow analysis an increase in working capital, as conventionally defined,
represents employment or application of funds.

Operating cycle concept:

14

A companys operating cycle typically consists of three primary activities:

Purchasing resources,
Producing the product and
Distributing (selling) the product.

These activities create funds flows that are both unsynchronized and uncertain.
Unsynchronized because cash disbursements (for example, payments for resource purchases)
usually take place before cash receipts (for example collection of receivables).
The firm has to maintain cash balance to pay the bills as they come due.

In addition, the company must invest in inventories to fill customer orders promptly.
And finally, the company invests in accounts receivable to extend credit to customers.

Operating cycle is equal to the length of inventory and receivable conversion periods.
Types of working capital

Permanent working capital

Temporary working capital

Permanent working capital = minimum amount of investment in all current assets which is
required at all times to carry out minimum level of business activities.
Permanent working capital = core current assets
Temporary working capital:
The amount of temporary working capital fluctuates depending upon the changes in the
production and sales.
Temporary working capital = fluctuating working capital - variable working capital

MANAGEMENT OF WORKING CAPITAL (WCM)

15

Management of working capital is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter-relationship that exists between
them. In other words, it refers to all aspects of administration of CA and CL. Working Capital
Management Policies of a firm have a great effect on its profitability, liquidity and structural
health of the organization
OBJECTIVES OF WOEKING CAPITAL MANAGEMENT:

To study on working capital a large portion of total investment in assets.

To study on working capital requires much of financial managers time
To study on working capital changes in price level
To study on working capital day-to-day activities
To study on working capital current assets and current liabilities

RATIO ANALYSIS
Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number
to another. It may be defined as the indicated quotient of two mathematical expressions.
According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of
the quantitative relationship between two numbers.
Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of
items and group of items in the statements. According to Batty J. Management Accounting
Ratio can assist management in its basic functions of forecasting, planning coordination, control
and communication.
It is helpful to know about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgement, otherwise complex situations.

Ratio may be expressed in the following three ways :

16

1. Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number by another.
For example , if the current assets of a business are Rs. 200000 and its current liabilities are Rs.
100000, the ratio of Current assets to current liabilities will be 2:1.
2. Rate or So Many Times :- In this type , it is calculated how many times a figure is, in
comparison to another figure. For example , if a firms credit sales during the year are Rs.
200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is
200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.
3. Percentage :- In this type, the relation between two figures is expressed in hundredth. For
example, if a firms capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in
term of percentage, is 200000/1000000*100 = 20%

Types of ratios (working capital associated ratios)

1) CURRENT RATIO:
Current Ratio may be defined as the relationship between current assets and current liabilities.
This ratio is also known as working capital ratio, is a measure of general liquidity and is most
widely used to make the analysis of a short-term financial position or liquidity of a firm. It is
calculated by dividing total current assets by total of the current liabilities.

Current assets=

current asset
Current liabilities

17

2) QUICK RATIO:
Quick ratio is a ratio of assets to quick liabilities. Quick assets are assets that can be converted
into cash very quickly without much loss. Quick liabilities one liabilities, which have to he
necessarily paid with in one year. The acid test ratio is a measure of liquidity designed to over
come of firms ability to convert its current assets quickly into cash in order to meet its current
liabilities. Thus, it is measure of quick or acid liquidity.
The acid test ratio is the ratio between current assets and current liabilities and is calculated by
dividing the quick assets by the current liabilities.

Quick Ratio=

Quick Assests
Current liabilities

Quick Assets = Current Assets (Inventory + Prepaid Expenses)

3) CASH RATIO (SUPER QUICK RATIO):

Definition

Total dollar value of cash and marketable securities divided by current liabilities. For a bank this
is the cash held by the bank as a proportion of deposits in the bank. The cash ratio measures the
extent to which a corporation or other entity can quickly liquidate assets and cover short-term
liabilities, and therefore is of interest to short-term creditors. also called liquidity ratio or cash
asset ratio.
Cash ratio=

cash & bank balances

Current liabilities

4) WORKING CAPITAL TURNOVER RATIO:

18

Working capital of a concern is directly related to sales.

The working capital is taken as:
Working capital = Current assets Current Liabilities
The working capital turnover ratio indicates the velocity of the utilization of net working capital.
Working capital turnover ratio=

sales*100
Net working capital

5) DEBTORS TURNOVER RATIO

Definition:
Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words it
indicates the number of times average debtors (receivable) are turned over during a year.
Formula of Debtors Turnover Ratio:
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors
The two basic components of the ratio are net credit annual sales and average trade debtors. The
trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills
Receivables. The average receivables are found by adding the opening receivables and closing
balance of receivables and dividing the total by two. It should be noted that provision for bad and
doubtful debts should not be deducted since this may give an impression that some amount of
receivables has been collected. But when the information about opening and closing balances of
trade debtors and credit sales is not available, then the debtors turnover ratio can be calculated by
dividing the total sales by the balance of debtors (inclusive of bills receivables) given. And
formula can be written as follows.

Debtors Turnover Ratio = Total Sales / Debtors

6) STOCK TURNOVER/INVENTORY TURNOVER RATIO:
19

DEFINITION:
Stock turn over ratio and inventory turn over ratio are the same. This ratio is a relationship
between the cost of goods sold during a particular period of time and the cost of average
inventory during a particular period. It is expressed in number of times. Stock turn over
ratio/Inventory turn over ratio indicates the number of time the stock has been turned over during
the period and evaluates the efficiency with which a firm is able to manage its inventory. This
ratio indicates whether investment in stock is within proper limit or not.
Formula of Stock Turnover/Inventory Turnover Ratio:
The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost.
(a) Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost
Generally, the cost of goods sold may not be known from the published financial statements. In
such circumstances, the inventory turnover ratio may be calculated by dividing net sales by
average inventory at cost. If average inventory at cost is not known then inventory at selling
price may be taken as the denominator and where the opening inventory is also not known the
closing inventory figure may be taken as the average inventory.
b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost]
c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price]
d) [Inventory Turnover Ratio = Net Sales / Inventory]
Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It
needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep
its workforce and ensure its supplies.

Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity
must be maintained in order to ensure the survival of the business in the long-term as well. Even
20

a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they
fall due.
Therefore, when businesses make investment decisions they must not only consider the financial
outlay involved with acquiring the new machine or the new building, etc, but must also take
account of the additional current assets that are usually involved with any expansion of activity.
Increased production tends to engender a need to hold additional stocks of raw materials and
work in progress. Increased sales usually means that the level of debtors will increase. A general
increase in the firms scale of operations tends to imply a need for greater levels of cash.

Introduction of Working Capital Management

Working capital management is the device of finance. It is related to manage of current assets
and current liabilities. After learning working capital management, commerce students can use
this tool for fund flow analysis. Working capital is very significant for paying day to day
expenses and long term liabilities.

Meaning and Concept of Working Capital and its management

Working capital is that part of companys capital which is used for purchasing raw material and
involve in sundry debtors. We all know that current assets are very important for proper working
of fixed assets. Suppose, if you have invested your money to purchase machines of company and
if you have not any more money to buy raw material, then your machinery will no use for any
production without raw material. From this example, you can understand that working capital is
very useful for operating any business organization. We can also take one more liquid item of
current assets that is cash. If you have not cash in hand, then you can not pay for different
expenses of company, and at that time, your many business works may delay for not paying
certain expenses. If we define working capital in very simple form, then we can say that working
capital is the excess of current assets over current liabilities.

Types of Working Capital

21

1. Gross working capital

Total or gross working capital is that working capital which is used for all the current assets.
Total value of current assets will equal to gross working capital.
2. Net Working Capital
Net working capital is the excess of current assets over current liabilities.
Net Working Capital = Total Current Assets Total Current Liabilities
This amount shows that if we deduct total current liabilities from total current assets, then
balance amount can be used for repayment of long term debts at any time.
3. Permanent Working Capital
Permanent working capital is that amount of capital which must be in cash or current assets for
continuing the activities of business.
4. Temporary Working Capital
Sometime, it may possible that we have to pay fixed liabilities, at that time we need working
capital which is more than permanent working capital, then this excess amount will be temporary
working capital. In normal working of business, we dont need such capital.

In working capital management, we analyze following three points

22

1st Point
What is the need for working capital?
After study the nature of production, we can estimate the need for working capital. If company
produces products at large scale and continues producing goods, then company needs high
amount of working capital.
2nd Point
What is optimum level of Working capital in business?
Have you achieved the optimum level of working capital which has invested in current assets?
Because high amount of working capital will decrease the return on investment and low amount
of working capital will increase the risk of business. So, it is very important decision to get
optimum level of working capital where both profitability and risk will be balanced. For
achieving optimum level of working capital, finance manager should also study the factors which
affect the requirement of working capital and different elements of current assets. If he will
manage cash, debtor and inventory, then working capital will automatically optimize.
3rd Point
What are main Working capital policies of businesses?
Policies are the guidelines which are helpful to direct business. Finance manager can also make
working capital policies.
1st Working capital policy
Liquidity policy
Under this policy, finance manager will increase the amount of liquidity for reducing the risk of
business. If business has high volume of cash and bank balance, then business can easily pays his
dues at maturity. But finance manger should not forget that the excess cash will not produce and
earning and return on investment will decrease. So liquidity policy should be optimized.

2nd Working Capital Policy

Profitability policy
23

Under this policy, finance manger will keep low amount of cash in business and try to invest
maximum amount of cash and bank balance. It will sure that profit of business will increase due
to increasing of investment in proper way but risk of business will also increase because liquidity
of business will decrease and it can create bankruptcy position of business. So, profitability
policy should make after seeing liquidity policy and after this both policies will helpful for
proper management of working capital.

STATEMENT OF THE PROBLEM:

24

The present study is titled PROBLEM OF WORKING CAPITAL MANAGEMENT ON

SONA KOYO STEERING SYSTEMS LIMITED
In order to study the statement it is necessary to define important terms used in statement of the
problem. The term working capital management refers to total current assets of SONA KOYO
STEERING SYSTEMS LIMITED. During a particular period of time. current assets are the
assets which can be converted into cash within accounting year. The term working capital
management implies determination of requirements of working capital ,financing the
requirements and efficient utilization of working capital in SONA KOYO STEERING
SYSTEMS LIMITED
.

NEED OF THE STUDY

Current assets must be managed efficiently in order to maintain the liquidity of the firm to know
about the financial mixed strategies. Hence forth so far researchers not touched with said topic to
knowing the information in organization exactly the working capital wants to know the balances
of current assets & current liabilities increases or decreases to know the corrected netprofit of
balance and we can know the difference of the year of balance how much it is profit or loss will
be there in company.

OBJECTIVES OF STUDY :

To study overall position of SONA KOYO STEERING SYSTEMS LIMITED.

To examine the changes in working capital of SONA KOYO STEERING SYSTEMS

LIMITED.
To study existing system of working capital management in SONA KOYO STEERING

SYSTEMS LIMITED.
To analyze financial performance of company with reference to its working capital

components.
To know the financial position of a company.

LIMITATIONS OF THE STUDY:

25

In present study the analysis is mainly based on secondary data given in annual audited
balance sheets , profit and loss a/c and reports of SONA KOYO STEERING SYSTEMS
LIMITED

The study does not touch all the units of SONA KOYO STEERING SYSTEMS
LIMITED

Limited span of time is a major limitation of this project.

The present study cannot be used for inter firm comparision.

The result does not reflect the day to day transactions.

The study does not cover the all working capital.

Balancing liquidity , profitability and risk in managing working capital .

RESEARCH METHODOLOGY
26

PERIOD OF THE STUDY: The period of the study of this project of working capital
management on SONA KOYO STEERING SYSTEMS LIMITED is one month.

COLLECTION OF DATA:
To achieve a fore said objective the following methodology has been adopted. The information
for this report has been collected through the Primary and Secondary sources.
1. Primary Data Sources
2. Secondary Data Sources
PRIMARY DATA SOURCES:
It is also called as first handed information the data is collected through the observation in the
organization and interviews with the accounts and the persons in the financial department.
A part from these, some information is collected through the seminars which were held by
SONA KOYO STEERING SYSTEMS LIMITED
SECONDARY DATA SOURCES:
These secondary data is existing data which is collected by other sources, i.e. financial journals
annual reports of SONA KOYO STEERING SYSTEMS LIMITED, website of SONA KOYO
STEERING SYSTEMS LIMITED and other publication of SONA KOYO STEERING
SYSTEMS LIMITED

27

STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2014-2015

Particulars
31-3- 2014 31-3-2015
Increase
Decrease
Current Assets
Inventories
Sundry Debtors
Cash and Bank Balance
Bills Receivables
Loan and Advances

26239.45
165665.88
3710.39
49400.06
15655.14

39388.49
148917.78
3982.41
93617.55
3450.92

13149.04

Total Current Assets (1) 260668.92

289357.15

28688.23

61718.05
44903.20
88800.73
7107.69

969.33

16748.10
274.02
44217.49
12204.22

Current Liabilities
Sundry Creditors
Deposits
Other Liabilities and Provisions
Interest

62687.38
25563.52
52077.46
9853.22

Total Current Liabilities (2) 150181.58

Working Capital [ (1) - (2 )]

Increase in working capital :

110487.34

110487.34

28

19339.68
36723.27
2745.53

202529.67

52348.09

86827.48
23659.86

23659.86

110487.34

52348.09

52348.09

Particulars
Current Assets

31-3- 2013

31-3-2014

Increase

Decrease

Inventories
Sundry Debtors
Cash and Bank Balance
Bills Receivables
Loan and Advances

28885.48
197944.41
7072.47
29846.01
8703.41

26239.45
165665.88
3710.39
49400.06
15655.14

Total Current Assets (1) 272451.78

260668.92

11782.86

62687.38
25563.52
52077.46
9853.22

22692.91
5703.44
6256.68
1129.2

150181.58

34471.07

2646.03
32278.03
3364.10
19554.05
6951.73

Current Liabilities
Sundry Creditors
Deposits
Other Liabilities and Provisions
Interest

39994.47
19860.10
45820.78
8724.02

Total Current Liabilities (2) 115710.51

Working Capital [ (1) - (2 )]

156741.27

Increase in working capital

156741.27
:

29

110487.34
46253.93

46253.93

156741.27

46253.93

46253.93

STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2012-13

Particulars
31-3- 2012 31-3-2013
Increase
Current Assets
Inventories
Sundry Debtors
Cash and Bank Balance
Bills Receivables
Loan and Advances

22831.69
203161.62
1681.45
10242.06
9722.43

28885.48
197944.41
7072.47
29846.01
8703.41

6053.79

Total Current Assets (1) 247639.25

272451.78

24812.53

39994.47
19860.10
45820.78
8724.02

2168.59

115710.51

3065.63

Decrease

5217.21
5391.02
19603.95
1019.02

Current Liabilities
Sundry Creditors
Deposits
Other Liabilities and Provisions
Interest

49046.67
17691.49
43097.96
8289.46

Total Current Liabilities (2) 118776.14

Working Capital [ (1) - (2 )]

128863.11

9052.2
2722.82
434.56

156741.27

27878.16

Increase in working capital :

156741.27

30

27878.16

156741.2

27878.16

27878.16

STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2011-2012

Particulars
31-3- 2011
31-3-2012 Increase
Current Assets
Inventories
Sundry Debtors
Cash and Bank Balance
Bills Receivables
Loan and Advances

28791.65
186198.50
6202.27
12467.18
12739.87

22831.69
203161.62
1681.45
10242.06
9722.43

Total Current Assets (1) 246399.47

247639.25

1239.78

49046.67
17691.49
43097.96
8289.46

37918.98

118776.14

17395.46

Decrease

5959.96
16963.12
4520.82
2225.12
3017.44

Current Liabilities
Sundry Creditors
Deposits
Other Liabilities and Provisions
Interest

86965.65
17163.61
25337.85
6112.18

Total Current Liabilities (2) 136171.60

Working Capital [ (1) - (2 )]

110227.87
18635.24

31

527.88
17760.11
2177.28

128863.11
18635.24

Increase in working capital :

128863.11

STATEMENT OF WORKING CAPITAL FOR 2011-15

Year
Current
Current
Working
assets
liabilities
Capital

128863.11

18635.24

18635.24

N et Working Capital
Increase

Decrease

2011-12

247639.25

118776.14

128863.11

18635.24

2012-13

272451.78

115710.51

156741.27

27878.16

2013-14

260668.92

150181.58

110487.34

46253.93

2014-15

289357.15

202529.67

86827.48

23659.86

Interpretation:

For the periods 2011-12 and 2012-13 the net working capital is decreased due to high of
current assets and current liabilities

For the periods 2011-12 and 2012-13 increase in working capital due to remaining year
figures, because in these 2 years current assets are high and current liabilities are low.

32

In the year 2013-14 the current liabilities are very low & current assets are high ,so the
working capital is increased.

In the year 2014-15 the current liabilities are low & current assets are high,so the working
capitial is increased.

COMPARISION OF INCREASE AND DECREASE OF WORKING CAPITAL

Year
2011-12

N et Working Capital
Increase /Decrease
(-)18635.24

2012-13

(-)27878.16

2013-14

(+)46253.93

2014-15

(+)23659.86

Interpretation:

For the periods 2011-12 and 2012-13 the net working capital is decreased due to lower
investments in acquisition of fixed assets and making less payments to the payables

For the periods 2014-15 and 2013-2014increase in working capital leads to major
investments in fixed assets as well as capital expenditure

33

1. Calculation of Current Ratio:

Principle

2011-2012

2012-2013

2013-2014

2014-2015

Current Ratio

247639.25
118776.14

272451.78
115710.51

260668.92
150181.58

289357.15
202529.67

= Current Assets
Current Liabilities

=2.104

=2.354

=1.735

=1.428

Interpretation:

Variance of current ratio in the year 2012-12 shows that increase in current assets as well
as decrease in current liabilities when compare to 2011-12 figures.

For the year 2014-15 and 2013-2014 the current ratio has been declined due to increase in
current liabilities and decrease in current assets.

The above ratio clearly indicates that for the period 2014-15 and 2013-2014the current
ratio is below 2 hence it indicates that the firm has not maintaining sufficient current
assets to meet current liabilities

34

2. Calculation of Quick Ratio:

Principle

2011-2012

2012-2013

2013-2014

2014-2015

Quick Ratio

224807.56
118776.14

243566.30
115710.51

234429.47
150181.58

249968.66
202529.67

= Liquid Assets
Current Liabilities

=1.892

=2.104

=1.560

=1.234

Interpretation:

For the years 2011-12 and 2012-13 the firm has maintained sufficient current assets
(excluding inventory of stock) in order to meet its current liabilities.

Due to the increase in current liabilities for the year 2014-15 and 2013-2014 it leads to
decrease in Quick ratios when compare to 2011-12 and 2012-13 figures

35

3. Calculation of Cash Ratio:

Principle

2011-2012

2012-

2013-2014

2014-2015

2013
Cash Ratio

1681.45
118776.14

7072.47
115710.51

3710.39
150181.58

3982.41
202529.67

= Cash & Bank balances

Current Liabilities

=0.014

=0.061

=0.024

=0.019

Interpretation:

The cash ratio of the organization clearly indicates that the firm has maintaining moderate
cash balances to meet its current liability obligations

In order to maintain sufficient cash balance the firm has to maintain control over its credit
sales (Debtors) and making payments to the suppliers

36

4. Calculation of Working Capital Turn Over Ratio:

Principle

2011-2012

2012-2013

2013-2014

2014-2015

Working Capital Turn

Over Ratio

417255.56
128863.11

388868.06
156741.27

419999.51
110487.34

461703.22
86827.48

= Sales (Turn Over)

Working Capital

=3.237

=2.480

=3.801

=5.317

Interpretation:

The overall position of the working capital turn over ratio is positive

For the year 2014-15 and 2013-2014 there is a substantial growth in sales turn over due to
this the firm has huge working capital turn over ratio for the above said periods

For the period 2012-13 the sales turn over of the firm has been decreased when compare
to 2011-12 figures due to this the working capital turn over ratio is declined.

37

5. Calculation of debtors Turn Over Ratio:

Principle

2011-2012

2012-2013

2013-2014

2014-2015

Debtors Turn Over Ratio

417255.56
203161.62

388868.06
197944.41

419999.51
165665.88

461703.22
148917.78

= Sales (Turn Over)

Accounts receivable

= 2.053

= 1.964

= 2.535

= 3.100

A
ccount receivable includes sundry debtors and bills receivable

Interpretation:

The debtors turn over ratio of the firm is ideal for the year 2011-12

There is substantial decrease in sundry debtors for the year 2012-13 due to this the
debtors turn over ratio is decreased when compare to 2011-12 and remaining years
figures .

For the year 2014-15 and 2013-2014 the firm has maintained sufficient debtors turn over
ratio.

38

6. Calculation of stock or inventory Turn Over Ratio:

Principle

2011-2012

2012-

2013-

2013

2014

2014-2015

Stock Turn Over Ratio

417255.56
22831.69

388868.06 419999.51
28885.48 26239.45

461703.22
39388.49

= Sales (Turn Over)

Inventory

= 18.275

= 13.462

= 11.721

= 16.006

Interpretation:

The stock turn over ratio of the firm is ideal for the year 2014-15

There is substantial decrease in stock for the year 2011-12 due to this the stock turn over
ratio is decreased in 2013-2014when compare to 2011-12 and remaining years figures .

In the year 2011-12 the firm has maintained sufficient stock turn over ratio

39

FINDINGS

The profits are in the increasing trend. There is a drastic improvement in profit from the
year 2014-15 to 2013-2014where the profit is almost doubled. This indicates the good
financial soundness of the company.

Sundry Debtors have been reduced which indicates increase in realization of amount
from debtors which indicates higher liquidity of the business.

Sundry Creditors showed a fluctuating trend. Concentrating on the last two years we can
see that though the profit have been increasing, creditors have decreased indicating more
cash purchases than credit purchases.

It is obvious that as the net profit i.e., profit before tax is increased the tax paid are also
shown an increasing trend.

The working capital has increased for the first three years. But in 2014-15 and 20132014 working capital reduced, though the net profit is increased during the years. This
shows that more of cash transactions have taken place and cash if available in excess is
the least productive asset.

For the year 2014-15 and 2013-2014the firm has maintained sufficient working capital
turnover ratio.
40

CONCLUSIONS

The efficiency of management at financial position of SONA KOYO STEERING

SYSTEMS LIMITED is good

From the analysis it is clear that the share capital remained intact during the five years
upto 2014-2015 and the reserves and surplus reached to 19763.59 Lakhs.

From the observation it is clear that capital expenditure on fixed assets is increased
gradually over the period of time which might be due to construction and commission of
new projects.

Company inventories observed an increment except in the year 2011-12.

Cash and bank balances was increased during the years 2012-13 and 2014-15.

Miscellaneous expenses observed decrement over the years and is Nil during the year
2014-15.

Current liabilities also increased from 2011-12 to 2014-2015 which shows prompt
clearance of liabilities.

The SONA KOYO STEERING SYSTEMS LIMITED uses more of long term
loans/debts than owners equity.

41

From the observation it is clear that equity share capital of SONA KOYO STEERING
SYSTEMS LIMITED remained fixed over the years. There is no preference share capital
in SONA KOYO STEERING SYSTEMS LIMITED

Based on the analysis made the total financial position is good.

SUGGESTIONS

As the working capital has been reduced in 2014-15 and 2013-2014 though the profit has
increased, the company is advised to take all necessary steps to find out the reasons for
reduction in the working capital.

High availability ensuring minimum cost of generation

To add generating capacity, with in prescribed time and cost

To maintain the financial soundness of SONA KOYO STEERING SYSTEMS LIMITED

Managing financial operations in accordance with good commercial utility practices

To develop R&D for achieving improved plant reliability

In order to increase the working capital, discount should be given to debtors and see that
the average collection period reduces.

42

43