INTRODUCTION

OBJECTIVES OF THE STUDY:

To study the sources and uses of the working capital.

To study the liquidity position through various working capital related ratios.

To study the working capital components such as receivables accounts, Cash

management, Inventory management.

To make suggestions based on the finding of the study.

RESEARCH METHODOLOGY:

Research methodology is a way to systematically solve the research problem. It May be

understood as a science of studying now research is done systematically. In that various steps,
those are generally adopted by a researcher in studying his problem along with the logic
behind them.

The procedures by which researchers go about their work of describing, explaining and
predicting phenomenon are called methodology.

TYPE OF RESEARCH:

This project A Study on Working Capital Management of Bahety chemicals & minerals
Private Ltd is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the facts,
figures, data or material.

SOURCE OF RESEARCH DATA:

There are mainly two through which the data required for the research is collected.

1
PRIMARY DATA:

The primary data is that data which is collected fresh or first hand, and for first time which is

original in nature. In this study the Primary data has been collected from Personal Interaction

with Finance manager i.e., Mr. Mahesh Nadkarni and other staff members.

SECONDARY DATA:

The secondary data are those which have already collected and stored. Secondary data easily

get those secondary data from records, annual reports of the company etc. It will save the

time, money and efforts to collect the data.

LIMITATIONS OF THE STUDY

The study duration (summer in plant) is short.

The analysis is limited to just five years of data study (from year 2006 to year 2010) for

financial analysis.

Limited interaction with the concerned heads due to their busy schedule.

The findings of the study are based on the information retrieved by the selected unit.

2
 Introduction of Working Capital

INTRODUCTION:

Working capital is the life blood and nerve centre of a 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 a business. No business can run successfully without an adequate

amount of working capital.

There is operative aspects of working capital i.e. current assets which is known as funds also
employed to the business process from the gross working capital Current asset comprises
cash receivables, inventories, marketable securities held as short term investment and other
items nearer to cash or equivalent to cash. Working capital comes into business operation
when actual operation takes place generally the requirement of quantum of working capital
is determined by the level of production which depends upon the management attitude
towards risk and the factors which influence the amount of cash, inventories, receivables and
other current assets required to support given volume of production.

Working capital management as usually concerned with administration of the current assets
as well as current liabilities. The area includes the requirement of funds from various
resources and to utilize them in all result oriented manner. It can be stated without
exaggeration that effective working capital management is the short requirement of long term
success.

The importance of working capital management is indisputable; Business liability relies on its
ability to effective management of receivables, inventory, and payables. By minimizing the
amount of funds tied up in current assets. Firms are able to reduce financing costs or increase
the funds available for expansion. Many managerial efforts are put into bringing non-optimal
level of current assets and liabilities back towards their optimal levels.

3
MEANING OF WORKING CAPITAL:

Working capital means the funds (i.e.; capital) available and used for day to day

operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a

business which are used in or related to its current operations. It refers to funds which are

used during an accounting period to generate a current income of a type which is consistent

with major purpose of a firm existence.

In Accounting:

DEFINITIONS:

Many scholars gives many definitions regarding term working capital some of these

are given below.

According to Weston & Brigham

Working capital refers to a firms investment in short-term assets cash, short

term securities, accounts receivables and inventories.

Mead Mallott & Field

Working capital means current assets.

4
OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

Effective management of working capital is means of accomplishing the firms goal of

adequate liquidity. It is concerned with the administration of current assets and current

liabilities. It has the main following objectives-

1. To maximize profit of the firm.

2. To help in timely payment of bills.

3. To maintain sufficient current assets.

4. To ensure adequate liquidity of the firms.

5. It protects the solvency of the firm.

6. To discharge current liabilities.

7. To increase the value of the firm.

8. To minimize the risk of business.

5
NEED FOR THE WORKING CAPITAL:

The need for working capital arises due to the time gap between production and realization of

cash from sales. Working capital is must for every business for purchasing raw-materials,

semi finished goods, stores & spares etc and the following purposes.

1. To purchase raw materials, spare parts and other component.

A manufacturing firm needs raw-materials and other components parts for the

purpose of converting them in to final products, for this purpose it requires working

capital. Trading concern requires less working capital.

2. To meet over head expenses.

Working capital is required to meet recurring over head expenses such as cost
of fuel, power, office expenses and other manufacturing expenses.

3. To hold finished and spare parts etc.

Stock represents current asset. A firm that can afford to maintain stock of required

finished goods, work in progress & spares in required quantities can operate

successfully. So for that adequate quantity of working capital is required.

4. To pay selling & distribution expenses.

Working capital is required to pay selling & distribution expenses. It includes cost

of packing, commission etc.

6
 5. Working capital is required for repairs & maintenance both machinery as well as

factory buildings.

6. Working capital is required to pay wages, salaries and other charges.

7. It is helpful in maintain uncertainties involved in business field.

CLASSIFICATION OF WORKING CAPITAL:

WORKING CAPITAL

On The Basis of Concepts On The Basis of Time

Permanent / Fixed Working

Gross Working Capital Net Working Capital Capital
Temporary / Fluctuating Working Capital

Initial Working Capital Regular Working

Capital

Seasonal Working Capital Special Working Capital

7
I. On The Basis of Concepts
1) Gross Working Capital
Gross working capital is the amount of funds invested in various components of current

assets. Current assets are those assets which are easily / immediately converted into cash

within a short period of time say, an accounting year. Current assets include Cash in hand and

cash at bank, Inventories, Bills receivables, Sundry debtors, short term loans and advances.

This concept has the following advantages:-

i. Financial managers are profoundly concerned with the current assets.

ii. Gross working capital provides the correct amount of working capital at the right

time.

iii. It enables a firm to realize the greatest return on its investment.

iv. It helps in the fixation of various areas of financial responsibility.

v. It enables a firm to plan and control funds and to maximize the return on investment.

For these advantages, gross working capital has become a more acceptable concept in

financial management.

2) Net Working Capital

This is the difference between current assets and current liabilities. Current liabilities
are those that are expected to mature within an accounting year and include creditors, bills
payable and outstanding expenses.

8
 Working Capital Management is no doubt significant for all firms, but its significance is
enhanced in cases of small firms. A small firm has more investment in current assets than
fixed assets and therefore current assets should be efficiently managed.

The working capital needs increase as the firm grows. As sales grow, the firm needs to
invest more in debtors and inventories. The finance manager should be aware of such needs
and finance them quickly.

II. On The Basis of Concepts

1) Permanent / Fixed Working Capital
Permanent or fixed working capital is minimum amount which is required to ensure
effective utilization of fixed facilities and for maintaining the circulation of current assets.
Every firm has to maintain a minimum level of raw material, work- in-process, finished
goods and cash balance. This minimum level of current assts is called permanent or fixed
working capital as this part of working is permanently blocked in current assets. As the
business grow the requirements of working capital also increases due to increase in current
assets.

a) Initial working capital

At its inception and during the formative period of its operations a company must
have enough cash fund to meet its obligations. The need for initial working capital is for
every company to consolidate its position.

b) Regular working capital

Regular working capital refers to the minimum amount of liquid capital required to
keep up the circulation of the capital from the cash inventories to accounts receivable
and from account receivables to back again cash. It consists of adequate cash balance on
hand and at bank, adequate stock of raw materials and finished goods and amount of
receivables.

2) Temporary / Fluctuating Working Capital

Temporary / Fluctuating working capital is the working capital needed to meet seasonal
as well as unforeseen requirements. It may be divided into two types.

a) Seasonal Working Capital

9
 There are many lines of business where the volume of operations are different and
hence the amount of working capital vary with the seasons. The capital required to meet the
seasonal needs of the enterprise is known as seasonal Working capital.

b) Special Working Capital

The Capital required to meet any special operations such as experiments with new
products or new techniques of production and making interior advertising campaign etc, are
also known as special Working Capital.

IMPORTANCE OF WORKING CAPITAL:

1. Solvency of the business: Adequate working capital helps in maintaining the

solvency of the business by providing uninterrupted of production.

2. Goodwill: Sufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

3. Easy loans: Adequate working capital leads to high solvency and credit standing can

arrange loans from banks and other on easy and favourable terms.

4. Cash discounts: Adequate working capital also enables a concern to avail cash

discounts on the purchases and hence reduces cost.

5. Regular Supply of Raw Material: Sufficient working capital ensures regular supply

of raw material and continuous production.

6. Regular payment of salaries, wages and other day to day commitments: It leads

to the satisfaction of the employees and raises the morale of its employees, increases

their efficiency, reduces wastage and costs and enhances production and profits.

10
 7. Exploitation of favourable market conditions: If a firm is having adequate

working capital then it can exploit the favourable market conditions such as

purchasing its requirements in bulk when the prices are lower and holdings its

inventories for higher prices.

8. Ability to Face Crises: A concern can face the situation during the depression.

9. Quick and regular return on investments: Sufficient working capital enables a

CASH
concern to pay quick and regular of dividends to its investors and gains confidence of

the investors and can raise more funds in future.

10. High morale: Adequate working capital brings an environment of securities,

confidence, high morale which results in overall efficiency in a business.

OPERATING CYCLE OF WORKING CAPITAL:

The working capital cycle reserves to the length of time between the firm paying cash for

materials etc., this working capital also known as operating cycle. Working capital cycle or

operating cycle indicates the length or time between companies paying for materials entering

into stock and receiving the cash from sales of finished goods. The operating cycle (Working

Capital) consists of the following events. Which continues throughout the life of business?

RA
DEBTORS

FINISHED STOCK W

11
 Conversion of cash into raw materials.

Conversion of raw materials into work in progress.

Conversion of work in progress into finished stock.

Conversion of finished stock into accounts receivables(Debtors)through sale and

Conversion of account receivables into cash.

FINANCING OF WORKING CAPITAL:

Introduction:

After determining the level of working capital, a firm has to decide how it is to be
financed. In that BCM, it was financing the working capital from the following four common
sources. They are,

1. SHARES:

The BCM has issued the equity shares for raising the funds. The Equity shares do not have

any fixed commitment charges and the dividend on these shares is to be paid subject to the

availability of sufficient funds. These funds have been injected from the companys own

personal resources and from the members.

2. TRADE CREDIT:

12
 The trade credit refers to the credit extended by the suppliers of goods in the normal

course of business. The firm has a good relationship with the trade creditors. So that suppliers

send the goods to the firm for the payment to be received in future as per the agreement or

sales invoice. In this way, the firm generates the short-term finances from the trade creditors.

It is an easy and convenient method to finance and it is informal and spontaneous source of

finance for the firm.

3. BANK CREDIT:

Commercial banks play an important role in financing the trade & industry Bank

provides short-term, medium term & long term finance to an industrialist or a business man.

1. Loans: The BCM (PVT) LTD., has taken loan from the commercial bank for working

capital requirement for a certain period at certain interest rate.

2. Cash Credit / Overdrafts: Under cash credit/overdraft from/arrangement of bank

finance, the bank specifies a determined borrowings/credit limit. The borrower can

draw/borrow up to the stipulated credit/overdraft limit. Within the specified limit/ line of

credit, any numbers of drawls/drawings are possible to the extent of his requirement

periodically. This form of financing of working capital is highly attractive to the

borrowers because, firstly, it is flexible in that although borrowed funds are repayable on

demand, banks usually do not recall cash advances/roll them over and, secondly, the

borrower has the freedom to draw the amount actually outstanding. However, cash

credit/overdraft is inconvenient to the banks and hampers credit planning.

4. CUSTOMER ADVANCES:

13
 The BCM Private Limited follows the practice of collecting advance money from the

customers as soon as orders are placed and before the actual delivery of the goods. Such an

advance received from the customers constitutes one of the short-term sources of finance.

Certain % of the price of the goods to be sold to the customers is collected in the advance.

Seller can utilize the advance money so collected for meeting these urgent financial

obligations.

FORMAT FOR DETERMINATION OF WORKING CAPITAL:

SL.N PARTICULARS AMOUNT

1 ESTIMATION OF CURRENT ASSETS

1) Minimum desired cash and Bank balances. xxx

2) Inventories

Raw material xxx

Work-in-progress xxx

14
 Finished stock xxx

3) Debtors xxx

Total Current Assets XXX

2

ESTIMATION OF CURRENT LIABILITIES

1) Creditors xxx

2) Wages xxx

3) Overheads xxx
XXX
Total current liabilities
XXX
NET WORKING CAPITAL

(Total Current assets Total Current liabilities)

XX

Add : Margin for contingency net

Working capital requirement XXXX

COMPONENTS OF WORKING CAPITAL:

The components of working capital are:

CASH MANAGEMENT
RECEIVABLES MANAGEMENT
INVENTORY MANAGEMENT

CASH MANAGEMENT:

15
 Cash is the important current asset for the operation of the business. Cash is the Basic input
needed to keep the business running in the continuous basis, it is also the ultimate output
expected to be realized by selling or product manufactured by the firm. The firm should keep
sufficient cash neither more nor less. Cash shortage will disrupt the firms manufacturing
operations while excessive cash will simply remain ideal without contributing anything
towards the firms profitability. Thus a major function of the financial manager is to maintain
a sound cash position. Cash is the money, which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm and balances
in its bank account.

RECEIVABLES MANAGEMENT:
Receivables or debtors are the one of the most important parts of the current Assets which is
created if the company sells the finished goods to the customer but not receive the cash for
the same immediately. Trade credit arises when a company sales its products or services on
credit and does not receive cash immediately. It is an essential marketing tool, acting as a
bridge for the moment of goods through production and distribution stages to customers.

INVENTORY MANAGEMENT:
Inventories are goods held for eventual sale by a firm. Inventories are thus one of the
major elements, which help the firm in obtaining the desired level of sales. Inventories
includes raw materials, semi finished goods, finished products. In company there should
be an optimum level of investment for any asset, whether it is plant, cash or inventories.

Introduction of Bahety Chemicals & Minerals Pvt Ltd:

HISTORY OF THE COMPANY:

Bahety chemicals and Minerals (Pvt) Limited is a small-scale industry. The company
purchased and constructed building in the year 1993. It started production in the year 1996. It
is a private company situated in the Industrial estate, Ambewadi. On the outskirts of Dandeli
city which is enjoying all the required facilities like water, power, transport, labours and good
environment and materials.

The company is achieving its sales target with some ups and downs. The company has been
receiving good response from customers and expected to achieve better sales in coming years

16
The Company has its nature of business. The company has not accepted any deposits from
public as per the provisions of section 58A of the company Act, 1956.

Profile:

17
Name of the company BAHETY CHEMICALS AND MINERALS PVT.LTD,

DANDELI 581325.

Year of establishment 1993.

Chairman Shri Chandrashekhar. J. Bahety

Type of company Private Limited.

Bahety Chemicals and Minerals (Pvt) Ltd.,

Area of operation C 1, Industrial Estate,

Ambewadi, Dandeli 581325. Dist: Karwar ( u.k ),

Karnataka State. Tel:-08284 - 232342.

Nature of Business Production and Sale of Alumina Sulphate (Alum).

Export places Dandeli, Harihar, Goa, Hyderbad, Hubli, Dharwad,

Banglore, Nagpur, Belgaum.

No. of departments 6 [Six] Departments.

Number of employees 127

Number of working days 6 days in a week.

Production capacity 800 MT of Aluminium sulphate (Alum) per month as per the
2009-2010 report.
18

Storage Capacity 1000 Metric TON.

CAPITAL STRUCTURE OF BCM.CO.LTD

SHARE CAPITAL:-
1. Authorized capital Rs. 10,00,000
10,000equity shares of Rs. 100 each.

2. Subscribed/ paid-up share capital Rs. 10,00,000

10,000equity shares of Rs .100 each.

BORROWED FUND:-

The Company has taken long term loans from Corporation Bank Dandeli. It has also taken

unsecured loans from its joint associate Shri. Raghavendra Chemicals. The company has also

received government subsidy of 25% on capital investments.

TABLE SHOWING THE LONG TERM LOANS TAKEN BY BCM.CO.LTD

Loan
Year
Secured Loan Unsecured Loan

2005 -2006 2019216.00 569734.00

2006 - 2007 3651599.00 115000.00

2007 - 2008 3742360.00 2664000.00

2008 - 2009 2238845.00 2651471.00

2009 - 2010 2574672.00 3049192.00

VISION AND MISSION:

VISION

To fulfil the growing demand of Alum and increasing the production

19
MISSION

1. To provide employment.

2. Quality product,

3. Maximum satisfaction to customers.

4. To ensure enterprise growth.

5. To create clean and healthy environment.

6. To develop the establishing the organization in the city.

OBJECTIVES OF BCM.CO.LTD:

To expand their market into other states.

To modernize the organization by using the hi-tech machines in the production
process.
To increase the productivity.
To produce chemical into different area.
To know the customer attitude towards alum Chemical.

PRODUCT PROFILE:-

The BCM Company is engaged in the production of Alum (Aluminium sulphate) Alum is

used in water treatment as mordant in dyeing. Aluminium sulphate mainly used in paper

sizing and in water treatment. Pharmaceutically, it is employed in dilute solution as a mild

20
 astringent and antiseptic for the skin. Soda alum or aluminium sulphate is used in some

baking powders. Aluminium sulphate is known more as alum. It is a colourless solid, which is

soluble in water but insoluble in alcohol.

MAJOR PRODUCTS OF THE COMPANY

Viz ferric alum.

Viz ferric liquid alum.
Non ferric alum.

Aluminium-Sulphate

Ferric-Alum

USES:

Industrial wastewater treatment.

Municipal wastewater treatment.

Clarification and phosphorus removal.

Potable and process water treatment Color and turbidity removal.

Pulp and paper mills, Paper sizing, Soap manufacturers, Manufacture of glycerin from
soap lyes Swimming pools, oil well operators.

21
 Aluminium-Sulphate

Ferric - liquid - Alum

USE: Dyeing and purification, Water treatment.

Aluminium-
Sulphate

Non-Ferric-Alum

USES:

Used for dyeing and purification.

Used in the pulp & paper industry.

Used in Water and Waste water Treatment Plants.

SWOT ANALYSIS OF BAHETY CHEMICALS & MINERALS PVT.LTD.

STRENTHS

22
 1. Availability of manpower.
2. High quality product.
3. Low price high quality.
4. Availability of raw materials.
WEAKNESS
1. Heavy transport charges.
2. Major consumption in paper industries but limited paper industries in Karnataka.
OPPORTUNITIES
1. Technological up gradation.
2. Foreign market expansion.
3. Online ordering process.
4. Product expansion.
5. Market expansion.
THREATS
1. Entry of competitors.
2. Product substitution.

Statement of Changes in Working Capital:

23
The purpose of preparing this statement is for finding out the increase or decrease in working
capital and to make a comparison between two financial years.

Statement of Changes in Working Capital for the Year 2015-2016

Effect on working

Particulars As on 31-3- As on 31-3-

2015 2016
Increase Decrease

CURRENT ASSETS

Inventories 2622901.00 2360611.00 __ 262290.00

Sundry debtors 3787274.00 4355365.00 568091.00 __

Cash & Bank balance 1720815.00 1978938.00 258123 .00 __

Other current assets 206206.00 185585.00 __ 20621.00

Loans and Advances 2666232.00 3066167.00 399935.00 __

(A)Total Current Assets 11003428.00 11946666.00

CURRENT LIABILITIES

Sundry creditors 2658999.00 3057849.00 __ 398850.00

Provisions 1230900.00 1107810.00 123090.00 __

(B)Total Current Liabilities 3889899.00 4165659.00

(A)-(B) Net Working Capital 7113529.00 7781007.00

Increase in Working Capital 667478.00* __ __ 667478.00*

24
 TOTAL 8270981.00 8270981.00 1349239.00 1349239.00

INTERPRETATION:

In the above table, it is seen that during the year 2014-15 and 2015-16 there was also net
increase in working capital by Rs 1157452.00

This is because

1. There is Increase in current assets such as Sundry debtors by Rs 568091.00, Cash & Bank
balance by Rs 258123.00 Loans and Advances by Rs 399935.00 and decrease in Inventories
by Rs 262290.00, other current assets by Rs 20621.00.
2. There is Increase in current liabilities such as Sundry creditors by Rs 398850.00 and
decrease in Provisions by Rs123090.00.

FINANCIAL STATEMENT 2015-2016:

PROVISIONAL BALANCE SHEET AS AT 31st MARCH, 2016

25
 LIABILITY AMOUNT ASSETS AMOUNT

SOURCES OF FUNDS FIXED ASSETS

Share capital 1000000.00 Gross block 10913360.00

Reserves and surplus 9827210.00 Less: Depreciation 5135959.00

LOAN FUNDS Net Block 5777401.00

Secured Loans 2574672.00 Capital WIP 3693764.00

Unsecured Loans 3049192.00 CURRENT ASSETS

Deferred tax liability 801098.00 Inventories 2360611.00

CURRENT LIABILITIES Sundry debtors 4355365.00

Sundry creditors 3057849.00 Cash & bank balance 1978938.00

Provisions 1107810.00 Other current assets 185585.00

Loans and Advances 3066167.00

TOTAL 21417831.00 21417831.00

CONCLUSION:

The study on working capital management conducted in Bahety Chemicals & Minerals Pvt
Ltd. to analyze the financial position of the company. The companys financial position is
analyzed by using the tool of annual reports from 2005-06 to 2009-10. The financial status of
Bahety Chemicals & Minerals Pvt Ltd. is good. In the last year the inventory turnover has
increased, this is good sign for the company.

The companys liquidity position is very good With regard to the investments in current
assets there are adequate funds invested in it. Care should be taken by the company not to
make further investments in current assets, as it would block the funds, which could
otherwise be effectively utilized for some productive purpose. On the whole, the company is
moving forward with excellent management.

26
 BIBLIOGRAPHY

TEXT BOOKS:

I. M. Pandey Financial Management

Pillai & Bagavati Management Accountancy
Annual Report of Bahety Chemicals & Minerals Private Limited.

WEB SITE VISITED:

www.google.com

www.wikipedia.org

www.transtutors.com

27