Managing Working Capital

STUDY ON WORKING CAPITAL MANAGEMENT
INTRODUCTION
General Introduction
This report is prepared on the base of working capital
management which comes under financial management.

Whether, big, medium or small each business needs finance for
its establishment and to carry out its routine operations. Today
finance is the life blood of an organization. Financial management
or corporation finance deals with the financial planning,
acquisition of funds, use and allocation of funds and financial
control. No business can run successfully and to achieve its
objectives without an adequate finance.
Working capital is the nerve center of the
business. Just as circulation of blood is essential in the human
body for maintaining life, working capital is very essential to
maintain the smooth running of the business. The main objective
of this study includes the existing system of working capital of the
company to evaluate the changes in working capital and to
suggest a better way of managing working capital. This study is
conducted in DISA INDIA PVT. LTD
Working capital management shows credit worthiness and

financial efficiency of an enterprise. The main idea of selecting
working capital management is that, it is significant in financial
management due to the fact that it plays a pivotal role in keeping
the wheels of business enterprise running. It is concerned with the
short term financial decisions.
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CONCEPTUAL BACKGROUND OF
WORKING CAPITAL
WORKING CAPITAL- AN OVERVIEW
Every business needs funds for two purposes for its
establishment and to carry out its day-to-day operations. One is
fixed capital and the other one is working capital. Investments in
assets represent that part of firms capital which is blocked on a
permanent or fixed basis is called fixed capital. Working capital
means excess of current assets over current liabilities.
Working capital means funds required for routine
operations of the company. The interaction between current
assets and current liabilities is the main theme of working capital
management. The term current asset refers to those assets,
which are converted into cash with in the span of one year or
short period. The term current liabilities refer to those liabilities,
which are to be paid in the ordinary course of business.
Current asset management is one of the very
important financial decision to be taken by financial Manager. The
management of working capital is a challenging task and it is
considered as an integral part of the overall corporate
management. The firm should maintain sufficient level of working
capital to produce up to given capacity and maximize the return
on investment in fixed assets.
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Shortage of working capital leads to capacity

utilization, lower turnover and hence lower profits. Working
capital, in excess of the amount required producing to full
capacity; it is idle and consequently leads to decline in profits. So
every business concern should have adequate working capital to
run its business operations. Working capital is also known as
revolving or circulating or short term capita
DEFINITION OF WORKING CAPITAL

According to Genestenberg working capital means
current assets of a company that are changed in the ordinary
course of business from one to another, as for example, from cash
to inventories, inventories to receivables, receivables into cash.
According to shubin working capital is the amount
of funds necessary to cover the cost of operating the enterprise.
CONCEPTS OF WORKING
CAPITAL
There are two concepts of working capital :
a) Balance sheet concept
b) Operating cycle or circular flow concept
BALANCE SHEET CONCEPT

There are two interpretations of working capital under balance
sheet concept
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Gross working capital refers to firms investment in

current assets, like cash, bank balance, inventory and receivables.
It represents the commitment of funds to different items of
current assets and their relationship to turnover.
The gross working capital focus on two aspects.
a) Optimum investment in current asset, in order to avoid the
problem arising out of excessive and inadequate investment
in current assets.
b) The second aspect on which the gross working capital focus
is the need of arranging funds to finance current assets and
the need may arise due to changes in the level of business
activity.
Net working capital

Net working capital refers to the difference between the
current assets is more than the current liabilities the working
capital is positive. The negative working capital arises when
current liabilities are more than the current assets. Net working
capital concept is qualitative in nature and gross working capital
is primarily quantitative or it says:
Net working capital = current asset current
liabilities
OPERATING CYCLE OR CIRCULAR FLOW CONCEPT

The duration of time required to complete the fallowing
cycle of events in case of a manufacturing firm is called the
operating cycle.
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DEBTORS
(RCEIVABLES)
CASH
FINISHED GOODS
RAW MATERIALS
WORK IN PROCESS
In a manufacturing concern, the working capital

starts with the purchase of raw materials and ends with
realization of cash from the sale of finished products. This cycle
involves purchase of raw materials and stores, its conversion into
stocks of finished goods through work in progress with
progressive increment of labour and service costs, conversion of
finished stocks into sales, debtors and receivables and ultimately
realization of cash and this cycle continues again from cash to
purchase of raw materials and so on.
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Operating cycle of a manufacturing company involves three

phases
1. Acquisition of resources such as raw materials, labour, power,
and fuel etc.
2. Manufacture of products which include conversion of raw
materials into work-in-process and into finished goods.
3. Sales of the products either for cash or credit. Credit creates
book debts for collection.
Acquisition of materials
Manufacture of the product
Sale of the product
Operating cycle indicates the length of time between

companys paying for materials, entering into stock and receiving
the cash from sales of finished goods.
IMPORTANCE OF WORKING CAPITAL

The need for working capital arises for day-to-day
operations of business. Management of working capital is
considered to be an integral part of overall finance management
because it has been realized that business failure will occur
mainly due to inadequate or mismanagement of working capital.
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Adequate working capital helps a firm in fallowing

ways
1. Adequate working capital helps in maintaining
solvency of the business.
2. Sufficient working capital enables a firm to make
prompt payments and helps in creating and
maintaining goodwill.
3. Sufficient working capital ensures regular supply
of raw materials and continuous production.
4. Adequate working capital make regular of
salaries, wages and other day-to-day
commitments.
Excessive Working Capital May Lead To The

Fallowing Reasons
Excess of working capital may result in unnecessary
accumulation of inventories. This may result in terms of inventory
mishandling, waste and theft. Due to excessive working capital
may adopt liberal credit policy and slacken the collection of
receivables, which has an adverse effect on profits. In order to
avoid the above mentioned problems it is important to have
efficient working capital.
CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in two ways:
on the basis of concept
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On the basis of concept, working capital is classified

as gross working capital and net working capital as I gave a brief
explanation earlier. This classification is important from the point
of financial manager.
permanent or fixed working capital
temporary or variable working
KINDS OF WORKING CAPITAL
ON THE BASE OF CONCEPT

BASE OF TIME
GROSS WORKING
TEMPORARY
CAPITAL
CAPITAL
NET WORKING
CAPITAL
WORKINGCAPITAL
REGULAR WORKING
SPECIAL
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RESERVE
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PERMANENT
WORKING
SEASONAL
CAPITAL
CAPITAL
WORKING CAPITAL
WORKING CAPITAL
WORKING
A. Temporary Working Capital Requirements

Temporary working capital requirement refers to the
extra working capital needed to support to change in production
and sales activities. It is also called as fluctuation or variable
working capital.
Depending upon the changes in production and
sales the need for working capital over and above permanent
working capital will fluctuate. For example, extra inventory of
finished goods will have to be maintained to support the peak
periods of the sale and investment in receivables may also
increase during such periods. On the other hand, investment in
raw material, work-in-process, finished goods will fall if the market
is slack.
A.
Permanent Working Capital
Requirements
Permanent or fixed working capital is the minimum
amount which is required to ensure effective utilization of fixed
facilities and for maintaining the circulation of current assets. For
example, every firm has to maintain a minimum level of raw
materials, work-in-process, finished goods and cash balance.
This minimum level of current assets is called permanent capital.
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As the business grows, the requirements of permanent working

capital also increase due to the increase in current assets.
FACTORS AFFECTING THE WORKING CAPITAL

The various factors that affect the working capital requirements of
a concern are:
1. Nature of the business
2. Size of the business
3. Growth of the business
4. Manufacturing cycle
5. Length of the operating cycle
6. Production policies
7. Rapidity of turnover
8. Price level changes
9. Business fluctuations and seasonal fluctuations
10.
Supply conditions
11.
Operating efficiency
12.
Firms credit policy
13.
Credit facilities enjoyed from the creditors
14.
Taxes
15.
Profit margin and appropriation
16.
Market condition/competitiveness
17.
Government restrictions
18.
Development of transport and communications
IMPORTANCE:
Every firm should have a balance working capital
position. Both excessive as well as inadequate working capital
position are dangerous from the firms point of view. Excessive
working capital means idle funds which earns no profits for the
firm. Paucity of working capital not only weakens firms
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profitability but also results in production interruptions and

inefficiencies.
The Dangers of Excessive Working Capital are as

fallows:
1. Unnecessary accumulation of inventories chances of
inventories mishandling waste theft and losses will increase.
2. It is an indication of defective credit policy and slack collection
period. Consequently, higher incidence of bad debts results,
which adversely affects profits.
3. Leads to managerial inefficiency.
4. Will create a tendency of accumulate inventories and
speculative profits. This may tend to make dividend policy liberal
and difficult to cope with in future the firm is unable to make
speculative profits.
Inadequate Working Capital Is Also Bad With

Fallowing Reasons:
1. It stagnates growth. It becomes difficult for the firm to
undertake profitable projects for non-availability of working
capital.
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2. It becomes difficult to implement operating plans and achieve

the firms profit target.
3. The firm has found difficult to make the day-to-day
commitments.
4. Fixed assets are not efficiently utilized and there by affect the
profitability.
5. The firm cannot avail attractive credit opportunities.
6. The firm loses its reputation when it is not in a position to honor
its short-term obligations. As a result, the firm faces tight credit
terms. Therefore an enlightened management should maintain
the right amount of working capital on a continuous basis. Then
only a proper functioning of business operations will ensure.
WORKING CAPITAL POLICY

An important working capital policy is concerned
with the level of investments in current assets how the working
capital requirement is financed. The alternative policies regarding
the total amount of current assets carried to support given level
of sales, hence in the turnover of those assets. Three policies are
namely, relaxed policy, moderate policy and restricted policy.
In relaxed policy current asset investment policy
relatively large amount of stimulated by the use of credit policy
that provides a liberal financing to customers and corresponding
high level of receivable. Conversely with the restricted the holding
of cash, securities, inventories and receivables are minimized,
under the restricted policy. Current assets are turned over more
frequently, so each dollar of current assets is forced to work
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harder. The moderate current asset investment policy lies in

between two extremes.
RATIO OF SHORT - TERM FINANCING TO LONG

- TERM FINANCING
Current assets of a firm are supported by
spontaneous short term bank financing and long term sources of
finance (debentures and equity in the main); the level of
spontaneous current liabilities is determined by extraneous in
current asset financing is what should be the relative proportions
of short term bank financing.
Choosing the working capital policy

The overall working capital policy adopted by the
firm may broadly be conservative, moderate or aggressive. A
conservative overall working capital policy means that the firm
chooses a conservative current asset policy. A moderate overall
working capital policy reflects a combination of a conservative
current asset policy and a conservative current asset financing
policy. An aggressive overall working capital policy consists of an
aggressive current asset policy and an aggressive current asset
financing policy.
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Moderate Overall Working
Aggressive Overall Working

Capital Policy
Capital Policy
conservative overall working
moderate Overall Working
Capital policy
Capital policy
Usually the various ways of combining individual policies with

respect to current assets and current assets financing into an
overall working capital policy. An overall conservative working
capital policy reduces risk and offers low return. An overall
moderate working capital policy offers moderate return
accomplished with moderate risk an overall aggressive working
capital policy would depend on the risk disposition of
management.
There are several strategies available to firm for
financing its capital requirements. They are as fallows
Strategy 1
Long term financing ensures the fixed assets
requirements as well as working capital requirements. Then
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working capital requirement is less than peak level. The surplus is

invested liquid assets.
Strategy 2
Long-term finance is to meet fixed assets
requirements, permanent working capital requirement and a
portion of fluctuated working capital requirements. During
seasonal offspring, short term financing is used. During seasonal
down spring surplus is invested in liquid asset.
Strategy 3
Long term financing is used to make fixed assets
requirement and permanent working capital requirement. Short
financing is used to make fluctuating working capital
requirements.
CASH MANAGEMENT
Introduction
Cash is the important asset for the business. Cash is the
basic input need to keep the business running on a continuous
basis, it is also the ultimate output expected to be realized by
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selling, service, and product manufactured by the firm should

keep sufficient cash neither more nor less. Cash shortage will
disrupt the firms manufacturing operations. While excessive cash
will remain idle without contributing anything towards the firms
profitability. Thus a major function of a financial manager is to
maintain a sound cash position.
Cash is the money that the firm can disburse

immediately without further conversion. The term `cash includes
coins, currency, and
cheques held by the firm and balance in its bank accounts. Some
times near- cash items such as marketable securities are also
included in cash. The basic
Characteristic of near-cash assets is that they can readily be

converted into cash. Generally, when this firm has excess cash, if
invested in marketable securities, this kind of investment
contributions some profits to the firm.
Management of cash is concerned with the managing of

Cash flows into and out of the firm
Cash inflows within the firm
Cash balances held by the firm at a point of time
Management of cash assumes more important than
other current assets because cash is the most significant and the
least productive asset that a firm holds.
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It is significant because it is used to pay the firm

obligations. However, cash is unproductive like fixed assets or
inventories, it does not produce goods for sale. Therefore, the aim
of the cash management should be to maintain adequate cash
position to keep the firm sufficiently liquid and to use excess cash
income profitable way.
MOTIVES FOR HOLDING CASH

The firm is need to hold cash may be attributed to the
fallowing 3 motives:
1. Transaction motives
2. Precautionary motives
3. Speculative motives
Transaction motive
The transaction motive requires a firm to hold cash
primarily to make payments for purchases, wages, other
operating expenses, taxes, dividends etc. The need to hold
carriers simply because there is no synchronization of cash
inflows into cash outflows. Transaction motive mainly refers to
holding cash to anticipated payments whose timings is not
perfectly matched with cash receipts.
Precautionary motives
The precautionary motive is the need to hold cash to
meet any contingencies in future. It provides better to withstand
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some unexpected emergency. The precautionary amount of cash

depends upon the predictability of cash flows. If cash flows are
regular in nature then less cash will be maintained for emergency.
Speculative motive
The speculative motive relates to the holding of cash
for investing in profits making opportunities as and when they
arise. The firm can purchase the securities when the interest rate
can be expected to full. The firm will subsequently benefit by the
subsequent rise in the price of the securities, because these types
of speculations are too risky for the firms.
CASH PLANNING
Cash inflows and outflows are inseparable parts of
the business operations for the firm. This firm needs cash to
invest in inventories, receivables and fixed assets and to make
payments for operating expenses.
In order to maintain growth in sales and earnings it

is possible that this firm may be able in making adequate profits.
But may suffer from the shortage of cash as its position growing
needs may be consuming cash very last. The cash poor position
of the firm can be corrected if its cash needs are planned in
advance. Then the cash planning can help anticipate future cash
floes and needs of the firm and reduces the profitability and cash
defects. This can cause the firm failure.
Cash planning is a technique to plan for and central
the use of cash.
It may be done on daily working or monthly basis.
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INVENTORY MANAGEMENT
Efficient management of inventories is very
necessary to minimize the operating cash of the firm and at the
same time of ensure sufficient inventories of satisfy production
and sales demand the term inventory refers to the stock piece of
the product of a firm which is offered afford for a sale and the
components that make up the product the inventories include
Raw materials
Work-in-progress
Finished goods
Raw materials: are those units, which have been
purchase and started for future productions and those are the
basic inputs that are converted into finished products.
Work-in-progress: are semi-manufactured products
they represent products that need more work before they become
finished products for sale.
Finished goods: finished goods are those completely
manufactured products, which are ready for sake. Therefore,
inventory management means an optimum investment in
inventories. It should neither be too low to affect the production
nor too high to block the funds unnecessary investment in
inventories should not be profitable for the business.
Meaning:
Inventory management is apart of industrial
management which is concerned with the activities involved in
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the acquisition and use of all in materials employed in production

inventory in every industry has a ritual role to play and forms
significant factor in the total cost of production expenditure on
inventories may constitutes 20 to 90% of cost of production in an
industry.
Objectives of inventory management:

The main objectives of the inventory management
are as fallows:
To maintain a sufficient size of inventory for efficient and
smooth production and sales operation.
To maintain a minimum involvement in inventories to
maximize profitability.
Essentials of good inventory control system:

The following are the essentials of good inventory control
system:
1. Classification and identification of inventory by allowing
proper code number to each item.
2. Standardization and simplification of inventories in order to
maintain quality and reduce the number of item.
3. Adequate storage facilities to reduce waste.
4. Setting minimum, maximum and re-ordering limits for each
part of inventory.
5. Fixing economic ordering quantity.
6. Maintaining adequate inventory records, reports and
statements.
7. Intelligent and experienced persons for handling inventories
properly.
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Benefits of holding inventory

The benefits of holding inventory are as fallows
Benefit in purchasing: Through a larger amount of purchase

at a time the firm can avail the discounts that are available on
bulk purchases more over the ordering costs will also be low. Firm
can purchase the inventory before anticipated price increase. This
will lead to decline in cost of production.
Benefit in production: finished goods inventory serves to
increase the production and sales. This enables production at a
different rate from a sale. In production it can carried on at a
higher rate or lower than the sales. This would be a special
advantage to the firms of seasonal character. In their cost, the
sales rate will be higher than the production rate during peak
season and lower during off-season. The level of production is
more economical and as it owes to the firm to reduce.
Benefit in sales: The maintenance of inventory also helps firm
to enhance its sales. If there is no inventory of finished goods, the
level of sales will depend upon the level of current production. A
firm will not be able to meet the demand immediately. If the firm
has inventory, actual sales will have to depend on lengthy
manufacturing process. This inventory serves as a bridge between
current production and actual sales.
Inventory control: inventory control means regulating the
availability of right materials of right quantities with a view to
maintain the economic and uninterrupted flow of production
maintenance of activities.
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Cost of holding inventory:

The costs associated with handling inventories are as follows:
1. Ordering cost
2. Carrying cost
Ordering cost: the term ordering cost is used in case of rawmaterials. They include the costs incurred during the activities of
requisitions, purchase, ordering, transporting, receiving,
inspecting, and storing.
Ordering costs increase with the member of orders
more frequently the inventory is acquired the higher will be the
firms ordering cost on the other hand, if the firm maintains large
inventory level, the ordering cost will be less.
Economic ordering quantity: in that inventory level which

minimizes the total of ordering costs and carrying costs.
At this level of ordering the firm acquires the raw materials with
minimum ordering cost and also further carrying costs are also
minimized.
This can be mathematically calculated by applying the following
formula
EOQ=2AO/C
Where A= Annual requirements
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O=ordering cost/order
C=Carrying cost/ unit
Reordering level: It is a point where orders for supplies of

materials have to be placed. The point is fixed somewhere
between the maximum and minimum point in such a way that
quartile available between minimum level and this point is
Adequate to meet the requirements of production until the fresh

supply are received.
acquiring
Reordering level = Minimum + (time in

* rate of
Level
materials
consumptions)
ABC Analysis system: Under this system all items are grouped
into three categories ABC. A being the most important and C
being the least important. The classification is made on value
wage rate and critically of items. After classification as AB&C
they are ranked by their values. With the help of this firm finds as
to what percentage of items should be held and for what
percentage of value.
RATIO ANALYSIS
Ratio analysis is one of the most powerful tools of financial
analysis. it is the process of establishing and interpreting various
ratios for helping in making certain decisions. The ratios may be
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used as a symptom like blood pressure, the pulse rate or the body
temperature and their interpretation depends upon the caliber
and competence of the analyst.
The ratios are classified into five types namely:
Liquid ratio, current movement ratio, long term financial position,
profitability ratio, and capital structure ratio. As for as study of
working capital management is concerned, only the liquid ratio
and current asset movement ratio needs to be employed.
Meaning of Ratio
The relationship between two figures expressed
mathematically is called ratio. It is a numerical relationship
between two numbers which are related in some manner..
Definition of Ratio
According to accountants Handbook by wixon, kell,
and Bedford, a ratio is an expression of the quantitative
relationship of between two numbers .
According to James.c, van harne, ratio is a
yardstick used to evaluate the financial condition and
performance of a firm, relating to two pieces of financial data to
each other.
Importance of ratio analysis:

It is an important technique of financial analysis. It is
a way by which financial stability and wealth of a concern can be
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judged. The following are the main points of importance of ratio

analysis:
Useful in financial position analysis.

Useful in simplifying accounting figures.
Useful in assessing the operational efficiency.
Useful in forecasting purpose.
Useful in locating the weak spots of the business.
Useful in comparison of performance.
Limitations of Ratio analysis:

Ratio analysis is one of the most power tools of financial
management. Though ratios are simple to calculate and easy to
understand, they suffer from serious limitations.
1.
2.
3.
4.
5.
limited use of single ratios

Lack of inadequate standards
Price level changes
Limitation of accounting records
Differences in def
RECEIVABLES MANAGEMENT
Accounts receivables occupy an important position in the
structure of current assets of a firm. The term receivables defined
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as, dept owned to the firm by customers arising from sale of

goods/services in ordinary course of business.
Accounts receivable management means making decisions
relating to the investment in these current assets as an integral
part of operating process, the objective being maximization of
return on investment in receivables.
According to Joseph, The purpose of any commercial
enterprise is the earning of profits. Credit in itself is utilized to
increase sales, but sales must return a profit.
Receivables management is the process of making
decisions relating to investment in trade debtors. The objectives
of receivables management is to promote sales and profits until
that point is reached, where return on investment in further
funding of receivables is less
Characteristics of receivables :
Risk involvement : receivable invoves risk, since payment
takes in future, and future is uncertain . so they should carefully
analysed.
1) Based on economic value : accounts receivables based on
economic value. The economic value in goods or services
passes to the buyer currently in return thr seller expects an
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equivalent value from the buyer latter than the cost of funds
raised to finance that additional credit.
2)Objectives of Receivables management:

The
following
are
the
main
objectives
of
accounts
receivables management:
Maximizing the value of the firm:

The basic objective of debtors management is to maximize
the value of the firm by achieving a tradeoff between liquidity and
return.
The main purpose of receivables management is to minimize
the risk of bad debts and not maximization of order.
3.Optimum investment in sundry debtors:

Credit sales expand, but they involves block of funds, that
have an opportunity cost, which can be reduced by optimum
investment in receivables. Providing liberal credit increases sales
consequently profit will increase, but increasing investment in
receivables results in increased costs.
4. Control and Cost of trade credit:
When there are no credit sales, there will not be any trade
credit cost. But credit sales increases profits. It is possible
only when the firm is able to keep the costs at minimum.
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Benefits of receivables mangement:

Increased sales: providind goods or services on credit
expands sles, by retaining old customers and attraction of
prospective customers .
1) Market share increase : when the firm is able to retain old
customers and attract new customer automatically market
share will be increased to the extent of new sales .
2) Increase in profits : increase sales leads to increase in
profits, because it need to produce more products with a
give sales fixed costs and sales of products with a given
sales network, in both cost per unit comes down and the
profit will be increased .
Establishing
optimum
credit
policy
or
influencing the size of accounts receivables:

A firms accounts receivables depends on
1. Volume of credit sales.
2. The collection policy/credit policy.
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Factors
The volume of credit sales is the first factors which

increases or decreases the size of receivables. The higher the part
of credit sales out of total sales, figures of receivables will also be
more or vice versa.
A firm with conservative credit policy will have a low size of

receivables while with a liberal credit policy will be increasing this
figure.
Establishing of credit policy involves determination of the
level of credit sales, credit standards and credit terms.
Establishing of collection policy means the
determination of policies and procedures to be followed for the
collection.
Control of accounts receivables is maintenance at the
minimum possible level. Tools for control or management of
accounts receivables are many.
Effectiveness
of
accounts
receivables
can
be
ensured through certain techniques or tools:

1. Formation of suitable credit and collection prices.
2. Computation of debtors turnover ratio and average
collection period.
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3.
Preparation of using schedules and accounts
receivables.
Formulating suitable credit and collection policies ensure
effective control over accounts receivables.
By computing the debtor turnover ratio and average
collection period of the current year and comparing them with
previous year for making enquiry into the under increase if any
accounts receivables can be controlled. They are calculated as:
Credit
sales/sales
Debtor
turnover
ratio
=-----------------------------------Average accounts
receivables
365 days
Average collection period =
-------------
Ageing
DTR
schedule
break down the receivable at a point of time into different age
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groups account to the length of time for which they are

outstanding. It helps to spot out the slow paying debtors.
INDUSTRY PROFILE
Birth of the automobile industry
The history of the automobile industry actually
began about 4000 years ago when the first wheel was used for
transportation in India. Several Italians record design for winddriven vehicles. The first was guido da Vigevano in 1335. It was
also never built. Later Leonardo da Vinci designed clockwork
driven tricycle with tiller steering and a differential mechanism
between the rear wheels.
The origin of the machine tools industry can be traced to
the human civilization. In the stonage, Man first learnt to make
round whole s in stones us in hands to rotate wooden sticks while
pressing sand against the surface being worked upon. Later on
man learnt to use the ropes and the bow string to rotate the tools
much faster rate.
The history of the bow-drives turning lathes, for making
wooden ornaments, has been traced to a far back as much as
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5000 B.C. Relatively those sophisticated foot,
driven tuning
lathes has been found depicted in 14th century miniature by a

French scholar. By the year 1568, a lath using a pedal and wood
spring and a tool rest was in use for making articles like eating
plates, flasks, wind instruments, vessels and furniture parts etc a
separate drive in for of a pulley also appeared around that time.
Specialized turning shops producing only wooden dishware

were since from the 17th century. The 18th century saw the use
of water power and horse power for driving laths and its use in
the production of highly complicated articles such as vehicles,
tables, ornaments and snuff boxes etc, made of wood and bone
also precision parts for use i
watch manufacture. around 1800
A.D the first shaping machine with a crank-connecting rod

mechanism was put in to use until the advent of the first
revolution that is till about 1750, skilled craftsman and each
machine tool made machines along time but the requirement of
mass production resulting from the industrial revolution made it
necessary to create machine tools in order to produce other
machines. Consequently the development
become much faster.
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in the tool technology
The most rapid growth of machine tools industry and

technology has occurred in the 20th century.
DEVELOPMENT OF FORGING COMPANY

Notable achievement of the past century is new tool such as
carbides and oxides, special purpose machines for flow line
production machining heads, transfer machines numerically
controlled machine tool development of robots, automate guided
vehicles (AGVs) and flexible manufacturing system.
The first numerically controlled machine was developed in

1951 and in these modes: data was fed by punched tape. This
was now developed into computer-controlled machine tool. Each
machine has a separate computer attached to machine and it can
be programmed, thus eliminating punched tape. These are called
computer numerical control or CNC machine. More powerful
computers are used to operate more than one machine. These
machines are called direct numerical (DNC) machines.
A new
type of machine called machining center has an array of the tools

for the purpose. The machine can choose and pick the desired
tool and put it on the machine. With the above mentioned,
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development experts are now thinking of having a completely

automatic factory. In such a factory there would be no work
experts for maintenance purpose. It would be completely
managed by computer with the help robots and AGVs.
The architecture of such a factory would quite different from
the present day factory. It has no windows, no lighting, no
canteens
and
other
facilities
required
by
the
workers.
completely automatic factory has got to come; ever-complete

automation in section has been successfully achieved.
In todays market the demand for forged components is high
and it is increasing day by day. The requirement of these
components is very high in the automobile industry. Since, the
Automobile industry is not able to produce the components,

so that the forging industry is necessary.
In the todays market the automobile industry is growing
at a faster rate, along with this forging industry is also growing
faster.
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COMPANY PROFILE
ESTABLISHMENT OF DISA & NATURE OF WORK

CARRIED ON
Established in the year 1987
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Managing director: D.R.subramanya, B.Sc,

B.E.Mechanical
Located about 70kms(45miles) from Bangalore
ISO/TS 16949: 2002 certified company
TPM being practiced
Worked as an ancillary to M/s KSSIDC for about 3 years
to manufacture forged hand tools.
Company became independent in the year 1990
Since then, we have diversified into manufacture of small

precision forged components both horizontal and vertical forgings.
They specialize in the manufacture of arm valve rocker, gear shift
fork, connecting rods, control levers, pump barrels for diesel
engine application, Gear shafts, drive shafts, rotor forge and
various other precision forged components.
we are single source to:

1. M/s SEPL( for some components)
2. M/s MICO-BOSCH for their control levers
3. M/s Delphi TVS Diesel system for their vertical forgings
( import substitution)
4. M/s Stanadyne Amalgamation (100% EOU)for their pump
barrel forgings.
In October 2006 company became subsidiary of M/s
Sansera Engineering pvt. Ltd.
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Scope
Manufacture, sales and supply of precision forged rocker
arms, connecting rods, Gear shifters, levers, shafts, flanges, for
automotive applications. without element 7.3 (product design)
Vision:
To achieve and maintain leadership in precision forging
industry is through customer satisfaction and improvement
methods.
Mission:
To give superior products and service to automobile
industries to maintain market leadership through quality, cost
efficiency and modern manufacturing technology.
Board of directors:
1 D.R Subramanya
Functional heads:
1) D.R Subramanya -Managing Director
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2) D.N Nagakumar - Plant manager

3) D.S Ananth - Administration manager
Classification of employees:
In Disa Private Limited the employees are classified in to three
groups,
1 Administrative staffs (Members).
2 Union (Members).
3 Casuals (Members).
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ORGANISATION CHART
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Managing Director
Admin
Manager
Customer
Asst. Accounts Mgmt
Office. Asst. cum typist
Representative
Personnel OfficerRepresentative
In chargeIn charge
In chargeIn charge
In charge
In charge
In charge Stores/material
In charge
In chargeIn charge
ProductionProcess
Purchase Quality
Design
Dies and tools
Development
Maintenance(mechanical)
Maintenance(electrical)
Forge Assistant
shop incharge(shift
Assistant
(shift
Inward
wise)
Assistant
(shift
wise)
inspection
wise)
Production
(shift3 wise)
quality
Final
3 quality
inspection
inspection
inspection
6 1&2
quality
Assistant
1,2
shift
inspection&2
&3 shifts
Assistant
(shift wise)
shifts
Assistant
(shift wise)
(shift wise)
Hammer wise line inspector
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Plant
Manager
Quality policy
To achieve and maintain leadership in precision forging
industry by customer satisfaction and continuous improvement
methods.
Quality objectives
Zero customer complaints
Maintain 100% delivery performance
Maintain in-house rejection within 2%
Suppliers:
The
Disa is getting raw material from,

Sansera engineering private limited
Mukund private limited.
Sun flag private limited
In
char
ge of
CN
C
Assis
tant
(shif
t
wise
Area of operation-Global/National/Regional:
The companys products are sold In the Inland India. The major
customers are:
Bosch
Delphi TVS Limited
Sansera Engineering Private Limited.
BUSHARUS
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Ownership pattern:
Disa India is a private limited company. Managing director
Mr. M.S.Subramanya holding 60% of the shares of the company
and Sansera Engineering Private Limited holding 40% of the
shares of the company.
LAND & BUILDING

Total Area
: 150,000 sq ft
Built up Area
: 70,000 sq ft. (46%)
Open Land
: 80, 000 sq ft ( 54%)
Facilitated and buildings:

Infrastructure:
58,000sq.ft. of built up area housing forge shop, heat
treatment, die shop, is fishing section and administration.
67,000sq.ft. area of open grounds for storing, movement of raw
material and finished products leaving sufficient space for
expansion of the unit covers of total area 125,000sq.ft.
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Plant and machinery:

1)Hammer/vertical forging
Power press
Trimming press
Induction heater
2)Press/horizontal forging
Power press
Trimming press
Material gathering machine.
3)CNC (computer numerical control)
PRODUCTS IN DISA
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Achievements and Awards:
zero PPM award from BOSCH

partnership for leadership wander award from YAMAHA.
efficient productivity from BOSCH
company achieved ISO/TS16949-2002
TECHNITIUM-2009 from Siddaganga Institution
Best supplier Award-2009 from BOSCH
Best supplier award-2009 from DELPHI TVS For consistent
Award Quality Rating
COMPETITORS INFORMATION
Disa is facing stiff companies after liberalization. Some of the
major competitors are:
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Bharath precision and forging private limited

Kalyani forge private limited
Bill forges private limited
Lakshmi forge private limited
Diagram forging private limited
Blue Stamping Forging private limited
WORK FLOW MODEL:

Send back
to suppliers
Raw Material Inspection
Rejected
Accepted
Shearing
Rejected
Scrap
Accepted
Forging
Non confirming product

Trimming
Rejected
Scrap
Accepted
Normalizing
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Rejected
Scrap
Shot Blasting
RW
Final inspection
Rejected
Scrap
Dispatch
RW
Manufacturing Facility:
FORGE SHOP
Drop hammers:
i.
1250 Kgs: 1 no.,
ii.
1000 Kgs: 2 no.,
iii.
750 Kgs: 1 no.,
iv.
500 Kgs: 2 no.
(All are equipped with induction heating facility; trimming presses

and conveyors for movement of material from hammers to
trimming press).
Hydraulic Drop Hammer(imported):

1. 500 Kgs: 1 no.
Forging press:
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1. 1No. 560 Ton(imported) with 200 kw Induction

Heater and End heating facility.
2. 2Nos. 350 Ton (Tos make)with 50kw gathering
machines for manufacturing vertical upset
Forging-9Nos.
3. 1No.300 Ton(Tos make) with 100 kw Induction
heater.
4. 250 Ton power press: 2Nos.
Continuous Electric Furnace for

Normalizing:
50 kw 2 No.,
100 kw
200 kw
(Total 400 Kgs per hour normalizing capacity with PLC control
and SKADA Software).
Trimming press: 50-150 Tons capacity(10No.s)
Bogie Hearth Batch Furnace: 50kw(2No.s)
Pit type Furnace: 27kw(2No.s)
Magnoflux Machine: 3No.s
Shot Blasting Machine : 1No.(Disa India Ltd)
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Die Welding Facility: Technology got from Italy

CNC Turning Centre: 5No.s
LIST OF CUSTOMER V/S PRODUCT

Sl.
Customers
Products
No
Rocker Arms,
Gear Shift Forks,
M/S Sansera
1.
Engineering Pvt. Ltd.
Connecting Rods,
Crank Shafts.
Control levers,
Tension Levers,
Spanners,
M/S Motor Industries

2.
Co. Ltd. (BOSCH
Drive Shafts,
Group).
Pump Barrets etc.

Vertical Forgings
M/S Delphi TVS Diesel

3.
Links,
Systems Ltd., Chennai.
(Rotors, Drive
Shaft, Pump
Barrel)
for diesel
pumps.
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M/S Stanadyne
4.
Barrel Forgings.
Amalgamations Pvt.
Ltd., Chennai.
5.
M/S MIVIN Engineering
Gear Shaft (Driver
Technologies Pvt. Ltd.,
and Driven) for
(REXROTH BOSCH
their gear
group)
pumps.
Cross Head for
6.
M/S Quest Machining

and Manufacturing Pvt.
Ltd.
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Engine Breaking
System
(Deemed Export).
COMPANY GROWTH
CHART
Chart Title
3000
2500
2000
1500
1000
500
0
FY 09-10 FY 10-11 FY 11-12 FY 12-13 FY 13-14

FY 14-15 (Projected)
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SPECIAL CERTIFICATES
EXPANSION AND FUTURE PLANS

The company is planning to expand and grow in
forging well as machining sectors.
2000 tons press is being planned.

1010 tons hot forging presses is being planned.
One more 1600 Tons hot forging press is being planned
Machine shop is being planned with CNC Turning centre, CNC
Milling and all other related machinery.
Cold forging facility is being planned.
Die milling facility is being planned
ISO 14001 systems and procedures.
Around 6 to 10 turning centers.
Cold forgings.
To be a machining leader in the precision forging and

machining industry by investing in the latest technology, develop
infrastructure to meet the increasing Quality and Quantity
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requirements of the customers both inland and overseas and

create a good working environment for our work.
SWOT ANALYSIS
STRENGTHES:
I.
Major strength: Two and four wheeler automobile players are

its customers.
Good infrastructure for present and future requirements
Customers are satisfied with their quality standards
Good financial backup
They are paying good salary and it is above Tumkur cost of
living.
Emphasis on exports.
II.
III.
IV.
V.
VI.
WEAKNESSES
I.
II.
Yielding to customer pressures.

Company premises is far from customer places.
OPPORTUNITIES
Customer wants their products in machined conditions. So good
chance to the company for expansion and are diversification.
I.
II.
Few customers but high volume demand

They can improve good relationship with customers.
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III.
To attract more customers there is need to invest money in

marketing for bringing new customers to the company.
THREATS
I.
II.
III.
IV.
V.
High competition
High price sensitive customers.
High quality expectation from customers.
Lower capacity of machine
Tax and regulatory structure
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RESEARCH DESIGN
RESEARCH:
A systematic search for an answer to a question or
solution to a problem is called research.
According to Black and Champion, Scientific research
consists of obtaining information through empirical observation
that can be used for the systematic development of logically
related among variable.
RESEARCH DESIGN:
A research design is a logically and systematic plan
prepared from directing a research study. It specifies the
objectives of the study. Its the methodology and technology to be
adopted for achieving the objectives. It constitutes the blue print
for the collection, measurement and analysis of data.
Definition:
According to Clair Seltiz, a research design is a logical
and systematic plan prepared for directing a research study. It
specifies the objectives of the study, the methodology and
techniques to be adopted for achieving.
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STEPS IN RESEARCH DESIGN:

Identification and Selection of research
problem
Prepare
list
of
information
Design
the
data
collection
Select
sample
Determine
the
Sample size
Organize
field
work
Analyze the data and report the

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findings
Title of the study:

A study on Working Capital Management at Disa
Tools and Forgings Pvt . Ltd. Anthrasanahalli .
Place of the study
Fitwe l Tools and Forgings Pvt. Ltd.

No.5, K T Complex,
Anthrasanahalli,
Tumkur 572106,
Karnataka-India
Statement of the problem:

WORKING CAPITAL MANAGEMENT
To analyze and evaluate financial position of Disa India
Pvt. Ltd., with specific regards to working capital and related
ratios.
Objectives of the study

To know the existing system of working capital management
in Disa
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To know the technique and objectives of cash management

To analyze the changes in working capital
To study the liquidity position of Disa
To study the management of inventory in Disa
To study above the future trend of working capital
management
Research methodology
The data for the study include both primary data and
Secondary data collection method.
Primary data
Primary data means the primary information collected
for a specific purpose and gives accurate data relevant
information and it is generated in an investigation according to
the needs of the problem.
Primary data collected from interviewing and
interacting with concerned official from various departments of
Disa India Pvt. Ltd.
Secondary data
Secondary data can be defined as data collected by
secondary source for purpose other than solving problem being
investigation and are previously mean for another purpose.
Secondary data is collected through company
journals , books, company website, and from the audited reports
of the company.
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Tools :
Three years balance sheet and profit & loss
account stated in the annual reports were used
for analysis.
Working capital and concerned ratios were used
as a tool of analysis, based upon this
performance was evaluated and suggestions
were made.
Procedure for data collection

There are three processes for analyzing the data,
Collection of the information
Analyzing and interpretation
Findings and suggestions
Collection of the information

Primary data
Secondary data
Analyzing and interpretation

Ratios are the main tools and technique for analysis
and interpretation of working capital management.
Findings and suggestions
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Findings and suggestions are drawn from the data

what I gathered from the survey.
Limitations of the study

The analysis of the study is based on the
available data only.
Due to time constraint the study is
restricted to 10 weeks only
As the executives were found to be
always busy in the work it was difficult
to get the data from them.
This study has analyzed with only few
ratios
Chapter scheme:
Chapter.1: introduction
The chapter deals with the introduction of the topic
and its background.
Chapter.2: industry profile

this chapter deals with the brief history of forging industry.
Chapter.3: company profile

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This chapter explains various significant information of

the DISA INDIA PVT. LTD.
Chapter.4: Research Design

This chapter explains title of the study, statement of
the problem, scope of the study, tools, objectives of the study and
its limitation, methodology adopted for analysis and chapter
scheme.
Chapter.5: analysis and interpretation

This chapter deals with analysis of data by using
various ratios drawn on interpretations relating to each ratio of
data.
Chapter.6: findings, suggestions, and conclusions

Under this important aspects have been drawn
based on analysis research for providing suitable suggestions.
Remaining parts will be containing Annexure and Bibliography.
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ANALYSIS AND INTERPRETATION OF

WORKING CAPITAL
Working capital is important to all type organization. Without
working capital no business organization can be carried any
activity with this reason we can say that working capital is hardly
required to carry effective and efficient activity of DISA.
Working capital is of two types:

Gross working capital
Net working capital
Gross working capital is nothing but all current assets
of the company. The gross working capital focuses on two aspects
of current asset management.
1 Optimum investment in current assets
2 Financing of current assets
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Net working capital means the difference between the

current assets and current liabilities, alternative definition of
Networking is that part of the current assets, which are financed
with long term funds.
Gross Working Capital=Total current assets

Net Working Capital=Current asset-Current liabilities
Components of gross working capital

The main components of gross working capital are
1
2
3
4
Criteria
for
Inventories
Sundry debtors
Cash and Bank balance
Loans and Advances
judging
the
efficiency
of
working
capital management:
The efficiency of working capital management can be
judged through accounting ratio. The important accounting ratios
that could be used for judging the efficiency of working capital
management are:
I. Ratio Analysis
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i. Current ratio.
ii. Quick ratio.
iii. Absolute liquidity ratio.
iv. Working capital turnover ratio.
v. Current asset turnover ratio.
vi. Fixed asset turnover ratio.
vii. Ratio of Current Assets to Fixed Assets.
viii. Book debts to Sales ratio.
ix. Net working capital.
II. Cash Management.
i.
Cash balance to Current Assets ratio.
ii.
Cash position
III. Receivables management.
i.
Debtors turnover ratio.
ii.
Debtor collection period.
IV. Inventory management.

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i.
Inventory turnover ratio.
Current Ratio
This ratio measures the solvency of the company in
the short term. Current assets are those assets, which can be
converted into cash with in a year. Current liabilities and
provisions are those liabilities that are payable with in a year. A
current ratio of 2:1 indicates a highly solvent position. i.e., current
assets should be twice of the current liabilities. Banks consider a
current ratio of 1.33:1 as the minimum acceptable level for
providing working capital finance.
It is calculated dividing current assets by current
liabilities
Current assets
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Current Ratio=-------------------------Current liabilities

Year
2012-
Current
Current
Current
Assets
Liability
Ratio
54964152
20239088
2.72
72614053
22062187
3.29
90673361
25907525
3.50
13
201314
201415
Graph No.1
Graph showing the current
ratio
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Current Ratio
140000000
120000000
100000000
Current RATIO
80000000
Current Liability
Current Assets
60000000
40000000
20000000
0
2012-13
2013-14
2014-15
Interpretation:
o
In the year 2012-13 it was 2.72. It was again increased to

3.29 in the year 2013-14. Lastly in the year 2014-15 it has
been 3.50
o From the above analysis, it is clear that the current ratio is

increasing year by year. It shows that the company
liquidity position is good.
Quick Ratio or Liquid Ratio
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Quick Ratio=Quick assets/Quick liabilities
Quick assets=current assets- inventories

Quick liabilities=current liabilities-bank overdrafts
Quick ratio is used as measure of the companys

ability to meet its current obligations since bank overdrafts is
secured by the inventories, the other current assets must be
sufficient to meet other current liabilities. A quick ratio of 1:1
indicates highly solvent position. This ratio is also called as Acid
Test Ratio. This ratio serves as a supplement to the current ratio
in analyzing liquidity.
TABLE NO. 2:
SHOWING THE QUICK RATIO OF THE
COMPANY:
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Year
Quick
Quick
assets
liabilities
Ratio
2012-13
38447227
23261951
1.6528
2013-14
43894152
20239088
2.1688
2014-15
56969053
22062187
2.582
GRAPH 2:
SHOWING THE QUICK RATIO OF THE COMPANY
Graph showing quick ratio

3
2.58
2.5
2.17
1.65
1.5
1
0.5
0
Graph showing quick ratio
2012-13
2013-14
Interpretation:
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2014-15
The liquidity ratio of the company in the year 2012-13 was

1.65 which has increased to 2.16 and 2.58 in the year 2013-14 &
2014-15.From the above table it is clear that the concern has
favorable liquid ratio in the above 3 years.
The company
maintained to the standard i.e. 1:1. It shows the company has

repaid their liabilities immediately. The company can easily meet
all current claims, i.e. the firms short-term financial position is
satisfactory.
Absolute Liquidity ratio or Super Quick ratio:

Absolute liquid ratio is a ratio, which expresses the
relationship between absolute liquid assets and current liabilities.
Absolute liquid assets include cash in hand, cash at bank and
temporary investment. The desirable norm for this ratio is 1:2.
i.e., Re.1 worth of absolute liquid assets or sufficient for Rs.2
worth of current liabilities. Even though the ratio gives a more
meaningful measure of liquidity.
Absolute liquid
assets
Absolute Liquid Ratio =
-------------------------------
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Current
liabilities
Table. NO: 3
SHOWING THE ABSOLUTE LIQUIDITY
RATIO
Year
Cash and
Current
bank
liabilities
Ratio
balance
2012-13
870395
20239088
0.04300
2013-14
956476
22062187
0.0433
2014-15
1330181
23261951
0.05718
Graph.3
Graph showing absolute liquid
ratio
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Absolute Liquid Ratio

25000000
20000000
Ratio
15000000
0.04
0.04
current liabilities
0.06
cash and bank balance
10000000
5000000
0
2012-13
2007-08
2014-15
2013-14
2008-09
2009-10
Interpretation:
An Absolute ratio of 1:2 or 0.5:1 is considered as a
satisfactory financial condition the above table we can observe
that the concern has the absolute ratio above the satisfactory. It
shows the companys increasing efficiency in absolute assets and
it shows a favorable liquidity position of the company.
Current asset turnover ratio:

Assets are used to generate sales therefore a firm should
manage its assets efficiency to maximize sales. The relationship
between sales and assets is called assets turnover. The current
asset turnover ratio is the ratio between sales and current assets.
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This ratio indicates how many net sales have made for every Re
of investment in current assets.
Net sales
Current Asset Turnover Ratio =
-----------------------
Current Assets
Table No. 4
Table showing the current asset turnover

ratio
Year
Net Sales
Current
Current
Assets
Asset
Turnover
Ratio
2012-
140300529
54964152
2013
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2.55
2013-
162020062
72614053
2.23
209825912
90673361
2.31
2014
20142015
Graph No. 4
Graph showing the current asset turnover ratio
Current asset turnover ratio

350000000
2.31
300000000
250000000
200000000
ratio
2.23
current assets
2.55
netsales
150000000
100000000
50000000
0
2012-13
2007-08
2013-14
2008-09
2014-15
2009-10
Interpretation:
Though there is no standard ideal current assets turnover ratio,
the higher the current indication of a better utilization current
asset. From the above table it is clear that current asset
turnover ratio is In the year 2012-2013 the ratio was 2.55 and
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the ratio was gradual decrease to 2.23 in the 2013-2014.

Finally in the year 2014-2015 it was 2.31.It shows that the
concern is utilizing its current assets to the better extent.
Fixed Assets Turnover Ratio:

Fixed asset turnover ratio is the ratio between fixed assets
and turnover. Fixed assets means Net fixed assets i.e., fixed
assets less depreciation. Turnover means net sales. i.e., total
sales less sales turnover.
This ratio indicates as to what extent the fixed assets of a
concern have contributed to sales. In other words it indicates the
extent of fixed assets utilized. This ratio is usually expressed as a
proportion .i.e.,
Table
Net Sales
No. 5
Fixed assets turnover Ratio =

-------------------
Table
Fixed Assets
showing Fixed Assets Turnover Ratio
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Year
Net sales
Fixed
Fixed assets
assets
turnover
ratio
2012-
140300529
66891487
2.10
162020062
62324776
2.60
209825912
74672294
2.81
2013
20132014
20142015
Graph No. 5
Graph showing Fixed assets Turnover ratio
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Fixed asset turnover ratio
27%
41%
32%
Interpretation:
By seeing the above table and graph we can understand that
there is are slight differences in every year from the past
three years. There were 2.10 by the year 2012-2013, then it
is increased to 2.60 in the year 2013-14 and then also have
been increased to 2.81 for the year 2014-2015. So it shows
that the fixed assets are well maintained in the company.
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Ratio of Current assets to fixed assets:

This ratio will differ from industry to industry. A decrease in a
ratio may mean that trading is slack or more mechanization has
been put through. An increase in the ratio may reveal that
inventories and debtors have unduly increased or fixed assets
have been intensively used. A increase in the ratio accompanied
by increase in profit, indicates the business is expanding.
Current assets
Ratio of Current assets to Fixed assets =
---------------------Fixed assets
Table No.6
Table showing the current asset to fixed asset ratio
Year
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Current
Fixed assets
Page 80
C.A to F.A
assets
2012-
Ratio
54964152
66891487
0.82
72614053
62324776
1.17
90673361
74672294
1.21
2013
20132014
20142015
Graph No. 6
Graph showing current asset to fixed asset ratio.
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current asset to fixed asset ratio

300000000
2.81
250000000
2.6
2.1
200000000 2012-13
2013-14
2014F.A. TURNOVER RATIO
Fixed assets
15
Net sales
150000000
100000000
50000000
0
Interpretation:
The table and graph showing the sligth differences from the
intial year to the assessment year. It is most ranging from .6
to 1.2 of fixed assets turnover ratio.
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Here in this table and chart it was 0.82 in the year 20122013 and then increased to 1.17 in the year 2013-14 and
again slight increase to 1.21 in the final year i.e., 2014-15.
Book debts to sales Ratio:

This is the ratio which shows the relationship between book
debts and sales (here book debts includes both good and bad
debts).
Book
debts
Book debts to sales Ratio =
----------------- x 100
Sales
Table No. 7
SMU MBA 2016
Page 83
Table showing the percentage of

debts to sales
Year
Book debts
Sales
Percentage
2012-
18826176
140300529
13.42
21056135
16202062
13
22956004
209825912
10.94
2013
20132014
20142015
Graph No. 7
Graph showing the percentage of debts to sales
SMU MBA 2016
Page 84
percentage of debt to sales

Bookdebts
Sales
Percentage
250000000
10.94
200000000
150000000
13.42
100000000
50000000
0
13
2012-13
2007-08
15
2013-14
2008-09
20142009-10
Interpretation:
Decrease in the ratio shows the efficient management of
debts in the company.
The ratio of debts to sales was 13.42 during 201213.Finally in the year 2014-15 it has decrease to the
ratio of 10.94.
WORKING CAPITAL TURNOVER RATIO

Net working capital turnover ratio, is the turnover divided by
the cost of goods sold and net working capital of the company.
SMU MBA 2016
Page 85
Working capital turnover ratio =
net sales
Net working capital
TABLE No 8
SHOWING THE WORKING CAPITAL TURN
OVER RATIO
Year
Net credit
Net
Ratio
Sales (Rs.) working

capital
(Rs)
2012-13
2013-14
2014-15
SMU MBA 2016
113229663
23417386
140300529
34725064
152020062
50551866
Graph No. 8
Page 86
4.8353
4.0403
3.0072
Graph showing working capital turnover ratio
Working capital turnover ratio
28%
37%
35%
Analysis and interpretation:

The working capital turnover ratio of the company was 4.83
in the year 2012-13 which has decreased to 4.04 in the year
2013-14 and which decreased to 3.0072 in the year 2014-15.
Analysis of Cash management:

Cash balance to current assets ratio:
As cash in hand and at bank is the most liquid form of all the
current assets. The ratio of cash to current assets will indicate the
SMU MBA 2016
Page 87
liquidity position of a company much better than the earlier

ratios. While a high ratio is indicative of better liquidity the
opportunity loss sustained by the company by keeping a large
amount of idle cash should be taken note of.
Cash balance
Cash balance to current assets ratio =
---------------------
Current assets
Table 9
Table showing balance to current asset ratio
Years
Cash
Current
balances
assets
2012-2013
870395
54964152
0.015
2013-2014
2956476
72614053
0.040
2014-2015
5987723
90673361
0.066
SMU MBA 2016
Page 88
Percentage
GRAPH 9
Graph showing balance to current assets ratio
Balance to current asset ratio

2012-13
2013-14
90673361
5987723
2014-15
0.07
72614053
0.04
2956476
54964152
870395
cash balances
current assets
0.02
percentage
Interpretation :
The cash balance has an upward & downward trend which
dipicts the continous changed in cash balance .
The ratio was 0.015 in the year 2012-2013 and graduall

increase in other year .
We can say that the liqudity position od the firm is

satisfactory .
SMU MBA 2016
Page 89
Cash postion ratio:

This ratio of cash to current liability helps in measureing short
term solvency of a concern .
Cash
Cash positon ratio =
-----------------Current
liability
Table 10
Table showing the cash position ratio to current
liabilities
Year
Cash
Current
Cash
balance
liability
postion
ratio
2012-2013
SMU MBA 2016
870395
202039088
Page 90
0.043
2013-2014
2956476
22062187
0.134
2014-2015
5987723
25907525
0.231
Graph no 10
Graph showing cash positon ratio
cash position ratio

cash balance
0
202039088
870395
2012-13
2014-15
current liability
0.13
cash position ratio

0.23
22062187
2956476
25907525
5987723
2013-14
Interpretaion :
The ratio of cash and current liabilities has seen as graduall
changed in all the three years exceeded the highest value of
0.231 and the least of 0.0043 .
We can say that company should increase its cash postion
percentage to the requried percentage .
SMU MBA 2016
Page 91
Analysis of Receivables mangement:

Debtor turnover ratio:
Debtors constitute and important constituent of
currrent assets and therefore the quality of debtors turnover ratio
indicates the velocity of debt collection of firm. In simple words it
indicates the number of times average debtors are turned over
during year .
An average debtors includes sundry debtors,
bills receivables and accounts receivables.
Credit sale/
net sale
Debtor turnover ratio =
------------------------------Average debtors
Table. NO: 11
SHOWING THE DEBTORS TURN OVER RATIO
SMU MBA 2016
Page 92
Year
Net
credit
sales
(Rs)
Average
debtors
(Rs)
Ratio
2012-13
113229663
16691973
6.7835
2013-14
140300529
18571956
7.554
2014-15
152020062
22941156
6.6265
GRAPH 11
SHOWING THE DEBTOR TUENOVER RATIO
7.6
7.4
7.2
7
7.55
6.8
6.6
6.78
6.63
6.4
6.2
6
2007-2008
2012-13
2008-2009
2013-14
Analysis and Interpretation
SMU MBA 2016
Page 93
2009-2010
2014-15
The debtors turnover ratio of the company was 6.7835 in

the year 2012-13, 7.554 which have increased to in the year
2013-14 and 6.626 which further decreased to in the year 201415. It shows company has high ratio which is indicative of shorter
time lag i.e. time between the credit sales and cash collection.
This shows that the entity is effective in collecting its debts.
Debtors collection period :

It indicates on an average that credit sales are pending
uncollected by the concern. This also reflects the credit policy &
terms of the concern. It shows the quality of debtors. Since it
ventilates the speed at which debtors are collected
Days in a year
Collection period =
-----------------------Debtor turnover ratio
TABLE NO.12
SMU MBA 2016
Page 94
SHOWING THE AVERAGE COLLECTION PERIOD:

Year
Days
Debtor
Period
s
turnove
r ratio
2012-13
365
6.7835
54 days
2013-14
365
7.554
48 days
2014-15
365
6.6265
55days
GRAPH 12
Chart Title
56
54
55
54
52
50
48
48
46
44
SHOWI
NG THE AVERAGE COLLECTION PERIOD
SMU MBA 2016
Page 95
2012-13
2013-14
2014-15
Analysis and Interpretation:

The average collection period of the company was 54 days in
the year 2012-13 which has decreased to 48 days in the year
2013-14 and which further increased to 55 days in the year 201415. It shows the company is able to collect from the debtors as
possible over the period.
Analysis of Inventory management:

Inventory turnover ratio:
This ratio establishes relationship between cost of
goods sold during a given period and the average amount of
inventory held during that period. This ratio reveals the number of
times finished stock is turned over during a given accounting
period. Higher the ratio, the better it is because it shows that
finished stock is rapidly turned over. On the other hand a low
SMU MBA 2016
Page 96
stock turnover ratio is not desirable because it reveals the

accumulation of absolute stock or the carrying of too much stock.
Cost of
goods sold
Inventory turnover ratio =
----------------------------Average
stock
Opening stock +
closing
Average stock =
----------------------------------2
Table.
NO: 13
SHOWING THE INVENTORY TURN OVER
RATIO
Year
Sales
Closing
(Rs)
inventory
Ratio
(Rs)
2012-13
SMU MBA 2016
113229603
7383346
Page 97
15.335
2013-14
140300529
9651055
14.537
2014-15
152020062
11357500
13.384
GRAPH
13
OVER RATIO
SHOWING THE INVENTORY TURN
Graph showing inventory turn over ratio

15.34
15.5
14.54
15
14.5
14
13.38
13.5
13
12.5
12
2012-13
15 2007-2008
2013-14
2008-2009
20142009-2010
Analysis and Interpretation:

The inventory turnover ratio of the company was 15.335 in the
year 2012-2013.It has decreased 14.537 to in the year 2013-2014
and which further decreased to 13.375 in the year 2014-15. It
reflects the efficient of the inventory management. Here the
inventories are fast moving, it helps the company to lower the risk
SMU MBA 2016
Page 98
of obsolescence and there is no standard inventory turnover ratio

for any company. But higher the inventories turnover ratio, better
for the company. A ratio of 6-7 times is considered satisfactory.
From the above table, we can say that in all the three year
companys inventory turnover ratios are in satisfactory level.
Summary of findings
The study made for the purpose of findings out
efficiency of working capital management of DISA INDIA PVT. LTD
SMU MBA 2016
Page 99
. the follwing are the summarry of findings arieve at after

analysing the following :
Ratio analysis
Cash mangement
Receivables management
Inventory mangement
Finding of Ratio analysis

The the current ratio of DISA in the year 2014-2015 is able to
meet the standard norm or ratio of 2:1 which is often refered
to as bankers rule of thumb
The company has been able to maintain its quick ratio
above of the standard ratio ie, 1:1
Absolute ratio of the company quite satisfactory .
The companys working capital turnover ratio gradually
decreasing from last three years. In the year 2014-2015 the
ratio is quite increase ie. 3.24
Current assets turnover ratio is slight changed in the last
three years. It shows efficient mangement of the current
assets .
By the Fixed asset tuenover ratio it has been increased upto
2.81 in the analysis of three years, so it can be said as efficient
in maintaining fixed assets.
The current asset to Fixed asset Ratio has been increased in the
all succeeding years from 2012-13 and this increase in profit
ratio shows the expansion or growth of Disa.
Suggestions
SMU MBA 2016
Page 100
After analyzing the overall performance of the

present and past years working, a few short comings have come
into notice. Though the company is doing well overall, a little
more care taken about some of the aspects of working capital will
add to the profitability of the firm. An efficient management of all
the aspects of working capital provides a financial defense
against stiff competition in the market and enhances the credit
worthiness of the firm , enables the management to operate
efficiency and flexible and allows the firm to take advantage of
special favorable opportunities .
Keeping this view, the following recommendations are put
forth after a detailed study was made.
1. The current ratio of the company is showing increasing
trend and it has to increase further to repay the short
term obligations quickly.
2. The quick ratio of the company is standard and it has to
maintain the same in future to repay the liabilities
immediately.
3. The cash ratio of the company is not standard so it has to
maintain the standard cash ratio
4. The inventory turnover ratio of the company is showing
decreasing trend so the company has to manage its
inventory efficiently.
SMU MBA 2016
Page 101
5. We can suggest that the company should increase its

cash position percentage to the required percentage of 10
% to 15 %
6. The company is able to collect from the debtors as
possible over the period and it has to increase further.
Conclusion
The study of the working capital management in DISA
INDIA PVT. LTD was done to know the working capital status.
Being an export oriented unit it is able manage its inventory 7
working capital successfully. Now the company is utilizing SAP
system to ensure accuracy in its dealings. All the employees were
found to be very co-operative for the smooth running of the
production operations. The company in its quest for excellence
seeks new frontiers delivering best of breed products that meet
global quality standards & adopts innovative techniques to further
improve customer service.
BIBLIOGRAPHY
Prasanna Chandra - Financial Management
M.Y. Khan & P.K. Jain - Financial management
SMU MBA 2016
Page 102
I.M. Pandy Financial Management
WEBSITES
http://www.disagroup.com/
Magazines and Journals
Company brochures and annual
reports
ANNEXTURES
Balance sheet for the year ended-2014-15
Particulars
31-03-13
31-03-14
Sources of funds: share

holders funds:
SMU MBA 2016
Page 103
31-03-15
3039060
3555560
3470565
19887360
40952450
45151767
36072761
53158829
588086043
2690906
454954
2843941
3197940
3494757
3324326
64888027
101616558
112876642
61977174
94125533
95371293
20506533
27234046
33046517
41470641
66891487
----------
62324776
----------
1. Share capital
2. Reserves &
surplus
Loans funds:3. Secured loans
4. Unsecured loans
Deferred tax liability
Total
Application of funds:
5. Fixed assets
Gross block
Less: Depreciation
Investments
SMU MBA 2016
Page 104
Current assets, loans&

advances
8232110
11070000
15645000
18317736
18026176
27056135
1338181
870395
956476
18799310
24197588
28956442
46679337
54964152
72614053
8400184
8365102
7984422
5697846
35738
42343
9163921
11838251
14035422
23261951
20239088
22062187
23417386
34725064
50551866
64888027
101616550
112876642
1. Inventories
2. Sundry debtors
3. Cash & Bank

balances
4. Loans &advances
Total
Less: current liabilities &
provisions:
Sundry creditors
Current liabilities
Provisions
Total
Net current assets
Miscellaneous expenses
Nor written off
SMU MBA 2016
Page 105
Total
Profit and loss a/c for the year ended-2014-15
31-03-13
31-03-14
31-03-15
113229663
140300529
152020062
877955
646740
467450
(-) 13. Manufacturing

expenses G/P
(+) 14. other income
83886807
105631027
11230942
305693
644166
756521
Total
30526504
35960408
142019091
5538402
7545643
6452943
3820087
5331398
4444518
6727512
5672891
7621413
Particulars
Income:
11. Sales and
labor charges
(+) 12. accretion

/recreation of stock
Administrative and other

expenses:
(-) administrative
expenses
(-) financial expenses
(-) depreciation
19747247
Total
Net profit before tax:
(-) provision for income
tax
(-) provision for fringe
benefit tax
14689887
15836563
5892649
18717673
17242735
5905971
122265844
6864321
68584
63440
71250
SMU MBA 2016
Page 106
Total
9875384
11273324
115330273
9755541
18963960
19272445
6406701
Nill
723544
296817
32448
666911
296817
755992
18964014
29940467
133846726
Profit after tax :

Profit (loss) brought
forward from previous
year
(-) earlier year income

tax paid written off
(-) deferred tax
opening balance
(-) deferred tax
26310
liability for the year
Total
Balance carried to
balance sheet
SMU MBA 2016
Page 107

Managing Working Capital

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Managing Working Capital

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STUDY ON WORKING CAPITAL MANAGEMENT

management which comes under financial management.

Working capital management shows credit worthiness and

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

Shortage of working capital leads to capacity

DEFINITION OF WORKING CAPITAL

BALANCE SHEET CONCEPT

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

Gross working capital refers to firms investment in

Net working capital

OPERATING CYCLE OR CIRCULAR FLOW CONCEPT

STUDY ON WORKING CAPITAL MANAGEMENT

In a manufacturing concern, the working capital

STUDY ON WORKING CAPITAL MANAGEMENT

Operating cycle of a manufacturing company involves three

Manufacture of the product

Sale of the product

Operating cycle indicates the length of time between

IMPORTANCE OF WORKING CAPITAL

STUDY ON WORKING CAPITAL MANAGEMENT

Adequate working capital helps a firm in fallowing

Excessive Working Capital May Lead To The

CLASSIFICATION OF WORKING CAPITAL

STUDY ON WORKING CAPITAL MANAGEMENT

On the basis of concept, working capital is classified

KINDS OF WORKING CAPITAL

ON THE BASE OF CONCEPT

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

A. Temporary Working Capital Requirements

STUDY ON WORKING CAPITAL MANAGEMENT

As the business grows, the requirements of permanent working

FACTORS AFFECTING THE WORKING CAPITAL

STUDY ON WORKING CAPITAL MANAGEMENT

profitability but also results in production interruptions and

The Dangers of Excessive Working Capital are as

Inadequate Working Capital Is Also Bad With

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

2. It becomes difficult to implement operating plans and achieve

WORKING CAPITAL POLICY

STUDY ON WORKING CAPITAL MANAGEMENT

harder. The moderate current asset investment policy lies in

RATIO OF SHORT - TERM FINANCING TO LONG

Choosing the working capital policy

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

Moderate Overall Working

Aggressive Overall Working

conservative overall working

moderate Overall Working

Usually the various ways of combining individual policies with

SMU MBA 2016

STUDY ON WORKING CAPITAL MANAGEMENT

working capital requirement is less than peak level. The surplus is

STUDY ON WORKING CAPITAL MANAGEMENT

selling, service, and product manufactured by the firm should

Cash is the money that the firm can disburse

Characteristic of near-cash assets is that they can readily be