SUMMER TRAINING REPORT

ON
“WORKING CAPITAL ANALYSIS
OF COSMO FERRITES LIMITED” at COSMO
FERRRITES LIMITED Undertaken at, Jabli

Submitted in partial fulfillment for the requirement of

Award of Degree in Master of Commerce
PANJAB UNIVERSITY

Under the guidance of

Mr. Puran Chand

PROJECT COORDINATOR: SUBMITTED BY:

Dr. Divya Sharma Kritika Chhabra
Roll no. 47509
M.com – 2nd sem

DAV COLLEGE, SECTOR – 10, CHANDIGARH

 ACKNOWLEDGMENT

No task is a single man’s effort. Any kind of job cannot be accomplished without the
assistance of others.

This formal piece of acknowledgment may not be sufficient to express my feelings

and deep respect that I had experienced during my process of completion of this
project of WORKING CAPITAL MANAGEMENT WITH RESPECT TO COSMO
FERRITES Ltd. (BRANCH – JABLI, HIMACHAL PRADESH). This endeavor would
not have been successful without the help and encouragement of lot of people with
whom I had good fortune of interacting during my course of journey.

A precious debt of learning can be repaid only through gratitude.

My sincere thanks to Mr. Puran Chand. Assistant Manager, Cosmo Ferrites Ltd,
Jabli. For his cordial support and cooperation throughout the course of my training
at their organization.

I thank the H.O.D of commerce department Dr. SARIKA MAHENDRU for providing
me with such wonderful opportunity.

I take this opportunity to express my profound gratitude and deep regard to my

project coordinator Dr. DIVYA SHARMA, for her exemplary guidance, monitoring and
constant encouragement throughout the course of this project.

I am obliged to the staff members of COSMO FERRITES LIMTED, JABLI, for the
valuable information provided by them in the respective fields. I am grateful for the
cooperation during the period of my report.

Lastly, I would also like to pay my sincere gratitude to my family, friends and all other
persons who encouraged and guided me throughout this project.
 STUDENT DECLARATION

I, KRITIKA CHHABRA, a student of M.COM 2nd SEMESTER, DAV college sector –

10, affiliated to Panjab University hereby declare that all the information, facts and
findings furnished in this report are based on my indigenous work and original in
nature. Any literature, data, or work done by others and citied within the dissertation
has been given, due to acknowledgement. This information is used purely for
academic purposes. Any resemblance to any other existing work is purely
coincidental.

DATE: NAME: KRITIKA CHHABRA

PLACE: CHANDIGARH ROLL NO: 47509

PROJECT COORDINATOR
 TABLE OF CONTENTS
CHAPTER TITLE PAGES
CHAPTER 1 INTRODUCTION OF COSMO FERRITES LTD. 1-7

1.1 COMPANY PROFILE

1.2 HISTORY

1.3 PRODUCT

1.4 APPLICATIONS

1.5 QUALITY OF PRODUCTS

1.6 MISSION & VALUES

CHAPTER 2 CONCEPT OF WORKING CAPITAL 9 - 26

2.1 WORKING CAPITAL

2.2 OPERATING CYCLE

2.3 CLASSIFICATION OF WORKING CAPITAL

2.4 WORKING CAPITAL MANAGEMENT

CHAPTER 3 LITERATURE REVIEW 27 - 30

CHAPTER 4 RESEARCH METHODOLOGY 31 - 35

4.1 RESEARCH METHODOLOGY

4.2 RESEARCH DESIGN

4.3 OBJECTIVES OF THE STUDY

4.4 SOURCES OF DATA COLLECTION

4.5 SCOPE OF THE STUDY

4.6 DATA ANALYSIS & PRESENTATION TECHNIQUES

4.7 LIMITATIONS
CHAPTER 5 ANALYSIS AND INTERPRETATION OF DATA 36 - 51

5.1 NET WORKING CAPITAL

5.2 CASH MANAGEMENT ANALYSIS

5.3 INVENTORY MANAGEMENT ANALYSIS

CHAPTER 6 FINDINGS AND RECOMMENDATIONS 52 - 53

BIBLIOGRAPHY
 CHAPTER – 1

INTRODUCTION
 1.1 COMPANY PROFILE
COSMO FERRITES LIMITED is one of the leading manufacturer and exporter of
SOFT FERRITES, was established in 1986 with its state of art manufacturing
facility in the foothills of Himalaya. Since Inception Cosmo has maintained
product and Quality leadership in both the Domestic and Export segments. With a
belief of constant growth and innovations, they upgraded their production
capacity from 500 MT to 3600 MT over the time and consequently are ranked
#1in India in terms of capacity.

The focus on quality, productivity and environment made it eligible for ISO
certifications ISO 9001:2008, ISO 14001:2004 & ISO/TS 16949:2009. All Input
Raw materials and manufactured Ferrite materials comply with RoHS norms as
per EU Standards and Epoxy coating material is UL94 V-0 approved.

State of the Art Equipment from leading manufacturers of Europe, Rigorous

Quality Standards and well equipped in-house R&D set up; ensures delivery of
high quality ferrites to our customers along with continuous product up-gradation.
They place overriding value on developing close and long-lasting relationships
with the customers. Wealth of experience, technical capabilities and resources to
support the design and development activities enable them to deliver customized
ferrites on time.

The production facility is equipped with best German, Taiwan made equipment
supported by finest Indian Technical team. With over 300 employees involved in
production & dispatch, ensuring a high degree of quality control at every stage of
production. Its commitment towards adhering quality in product, process, and
parameters helps us in ensuring smile on customers face.

Customer Satisfaction, Transparency, Innovation, Cost-consciousness, Fair

business practices, Flexibility, Long term relationship are cores values which set
us apart from other organization.

High Quality combined with impressive widespread, well-knit marketing-sales

network & 24x7 interactive customer support team enables Cosmo to become
synonyms of Soft Ferrites. Our success story is written by Quality, On-time
Delivery, Price, 24 hrs customer supports.
 1.2 HISTORY
Cosmo group is known in every corner of world for its world class product, state
of art & patented production technology & commitment towards its customer
satisfaction.

In 1981 visionary leader Mr. Ashok Jaipuria, put the first founding stone of Cosmo
Films marked the beginning of Cosmo Group. Cosmo Film is a pioneer of BOPP
manufacturing in India.

Later, in year 1986 second member of Cosmo Group - Cosmo Ferrites founding
stone was kept, adding another golden feather in Cosmo Group. Cosmo Ferrites
is also a pioneer of Soft Ferrites manufacturer in India.

BOARD OF DIRECTORS
The board of directors of the company comprises of an optimum combination of
Executive and Non Executive Directors headed by an Executive Chairman and
more than fifty percent independent directors.

Name – COSMO FERRITES LTD Company Type – ELECTRONICS

Chairman& Executive Director

Mr. Ambrish Jaipuria

Non – Executive Director

Mr. A.K. Jain

Independent Non – Executive Director

Mr. Shreekant Somany

Mr. N.K. Gupta

Ms. Jyoti Dixit

Mr. Janardhan Pralhadrao Gupta

Mr. Ramakant Dwivedi

BUSINESS TYPE

 Exporter & Manufacturer

 Public Limited Company

SALES SHARE

 Export 55%
 Domestic (India) 45%

TYPE OF PLANT & MACHINERY IN FACTORY

 Presses : Dorst (Germany)

 Kilns : Riedhammer (Germany)
 Finishing lines : Speedfam, Linear Abrasive (Switzerland)
 XRF : Philips (Holland)
 Testing equipment : HP & Norma (Austria)

PRIMARY COMPETITIVE FEATURES

 Quality, Delivery, Economy

 Customized Products
 In-House material development and tool design
 ERP Environment

PRODUCT RANGE

 MHz Ferrite Components (EE, EC, ETD, EER, EI, EFC, UU, TOROIDS,
EP, RM, PQ, Pot, Planar, PTS, I Bar, EFF, EVD and EED)
 Pre-Calcined Ferrite Powder

ANNUAL CAPACITY

 Ferrites Powder 4350 Tons

 Ferrites Component 3600 Tons
EXPORTS

 Europe, USA, UK, New-Zealand, Israel, Turkey, Thailand, Malaysia,

China, Sri Lanka, etc.

1.3 PRODUCT
About Soft Ferrites:

Ferrites are polycrystalline oxides manufactured by ceramic technology and

belong to a class of materials that exhibit the technically useful property of
ferromagnetism. In a ferromagnetic material, magnetism occurs under the
influence of an externally applied field. On removals of this field, material returns
to its non-magnetic state. This behaviour is termed as magnetically "soft".

The general composition of such ferrites is MeFe2O4, where Me represents one

or several of the divalent transition metals such as Manganese (Mn), Zinc (Zn),
Nickel (Ni), Copper (Cu), Iron (Fe) or Magnesium (Mg), the most popular being
Manganese-Zinc (Mn-Zn) and Nickel-Zinc (Ni-Zn) ferrites. These compounds
exhibit good magnetic properties below a certain temperature called the Curie
Temp (Tc). These materials can be used up to very high frequencies without
laminating. Ni-Zn ferrites have a very high receptivity and are most suitable for
frequencies over 1 MHz however Mn-Zn ferrites exhibit higher permeability and
saturation induction levels and are suitable up to 3 MHz.

COSMO FERRITES LIMITED is second largest company of group, pioneered

manufacturing & export of Mn-Zn soft ferrites from India. Started its operation in
1986 under the foot hills of Himalaya i.e. Himachal Pradesh India. They have a
leading position in Indian Soft ferrite Market & also a prominent exporter of soft
ferrites since 1987. CFR product serves all major applications like Solar Inverters,
Sensors, VLT Drives, Energy Meter, Lighting, SMPS, Battery Charger, Induction
welding/heating application.

1.4 QUALITY OF PRODUCTS

The quality assurance system is based on statistical quality control methods.
All products are tested in accordance with IEC 410/IEC 414 sampling plan to
ensure an acceptable Average Quality Level (AQL) for major and minor
defects.
A brief review of defect categories & AQL is presented below:
 CLASSIFICATION OF DEFECTS:
MAJOR DEFECTS: These defects lead to a malfunction of the finished wound
components. Cosmo lot acceptance criteria permits 0.4 AQL for major defects.

MINOR DEFECTS: These defects do not have a severe effect on the function
of wound component. Often, they have a negative effect on the visual
appearance of the product.
Cosmo lot acceptance criteria permit 0.4 AQL for minor defects.

TRACEABILITY

A 7-digit batch number written on each label stuck on each Box and allows to
get information about:

 Material Grade used

 Type of core
 Granulate/powder batch used
 Quantity and date of pressing
References of machines involved in the process of relevan
1.5 APPLICATIONS
COSMO FERRITES offer its customers a wide range of soft ferrite for application:

LIGHTING:

 Electronic Ballast for energy efficient Lamps viz CFL, LED.

 Electronics Chokes for Tubular Lamps.

POWER CONDITIONING:
 UPS/Inverter transformers.
 Welding transformers.
 Switch Mode Power Supplies.
 Medical Electronics.
 Telecom Power supplies.
 Induction Heating Applications.

EMI FILTERS/CHOKES/SENSORS:
 EMI/EMC Chokes.
 Energy Meters.

SOLAR INVERTER

ULTRA-SONIC APPLICATIONS

AUTOMOTIVE:
 EMI EMC Suppressions.
 Sensors.

PROXIMITY SWITCHES
1.6 MISSION AND VALUES

MISSION:
COSMO FERRITE LIMITED endeavours to be an organization which delivers
outstanding Customer service, respect all individuals working with it, always
encourages Initiative & Innovation.

CORE VALUES:

Customer Orientation: We Believes in Long Term Relations with Customers.

Under All Circumstances we put the customer First. We ensure value for money
for our customers through better products, services & our interactions.

Innovation: We encourage innovation in every facet of its business activity

including developing cost effective innovative solutions for our customers.

Cost Consciousness: We always work towards continuous improvement in

ongoing process to bring down the cost in a structured manner.

Fair Business Practice: We as company believes fairs business practice is

important ingredients for success in all dimensions of business.

Transparency: We Practices transparency with all stakeholders through

structured periodical communication and adhering to best corporate governance
practices.

Housekeeping: Adhere to world class housekeeping standards at all its

locations.
 CHAPTER – 2
CONCEPT OF
WORKING CAPITAL
INTRODUCTION
Capital required for a business can be classified under two main categories:

1. FIXED CAPITAL

2. WORKING CAPITAL

Every business needs funds for two purposes-for its establishment and to carry
out its day to day operations.

Long term funds are required to create production facilities through purchase of
fixed assets such as plant and machinery, land, building, furniture, etc.
Investments in these represent that part of firms’ capital which is blocked on a
permanent or fixed basis and is called FIXED CAPITAL.

Funds are also needed for short term purpose for the purchase of raw material,
payment of wages and other day to day expenses, etc. These funds are known
as WORKING CAPITAL.

2.1 WORKING CAPITAL

In simple words Working capital refers to that part of the firm’s capital which is
required for financing short term or current assets such as cash, marketable
securities, debtors and inventories. Funds thus invested in current asset keep
revolving fast and are being constantly converted into cash and this cash flows
out again in exchange for other current assets.

In short, working capital is the excess of current assets over current liabilities.
Funds required and acquired by a business may be invested in two types of
assets:

A. FIXED ASSETS

B. CURRENT ASSETS

Working capital is the difference between the current assets and the current
liabilities.

The basic calculation of the working capital is done based on the gross current
assets of the firm.
WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

Working capital can affect a company's longer-term investment effectiveness and

its financial strength in covering short-term liabilities. Working capital represents
what a company currently has to finance its immediate operational needs, such
as obligations to its vendors for extending credit on purchases of various goods
and services to be used in the production process, inventory, cash balance and
accounts receivable. Prepaid expenses are also part of working capital. When
conducting valuations, certain investment professionals consider adjusted non-
cash working capital that does not include cash and cash equivalents, short-term
investments, and any loans and debt payments coming due within a year.

POSITIVE WORKING CAPITAL

When a company has more current assets than current liabilities, it has positive
working capital. Having enough working capital ensures that a company can fully
cover its short-term liabilities as they come due in the next 12 months. This is a
sign of a company's financial strength. However, having too much working capital
in unsold and unused inventories, or uncollected accounts receivables from past
sales, is an ineffective way of using a company's vital resources.

The additional funds parked in inventories or receivables are not financed by

short-term liabilities but rather long-term capital, which should be used for longer-
term investments to increase investment effectiveness. Therefore, the key is to
maintain an optimal level of working capital that balances the needed financial
strength with satisfactory investment effectiveness.

ZERO WORKING CAPITAL

When a company has exactly the same amount of current assets and current
liabilities, there is zero working capital in place. This is possible if a company's
current assets are fully funded by current liabilities. Having zero working capital,
or not taking any long-term capital for short-term uses, potentially increases
investment effectiveness, but it also poses significant risks to a company's
financial strength.
NEGATIVE WORKING CAPITAL
Negative Working Capital is when a company’s current liabilities exceed its
current assets. This means that the liabilities that need to be paid within one year
exceed the current assets that are monetizable over the same period. This
implies that the whole of current assets are financed by the current liabilities and
a portion of fixed assets also. On the other hand, it may be understood that the
portion of currrent liabilities other than the current assets is invested in short-term
invested to earn interest from them.

A company usually considers negative working capital in a target as detrimental

because it signifies additional capital that will be required to run the business
after closing. A company actually prefers to see a working capital ratio of 1 to 1.5
times.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

A. BALANCE SHEET CONCEPT

B. OPERATING CYCLE CONCEPT

Balance Sheet Concept:

There are two interpretations of working capital under the balance sheet
concept:

1. Gross Working Capital – capital invested in total current assets of the

enterprises

2. Net Working Capital – it is the excess of current assets over current

liabilities

Current assets are those assets which in the ordinary course of business can be
converted into cash within a short period of normally one accounting year.

Current liabilities are those liabilities which are intended to be paid in the ordinary
course of business within a short period of normally one accounting year.
COMPOSITION OF WORKING CAPITAL

CURRENT ASSETS
Current assets are those assets which in ordinary course of business can be
converted into cash within a short period normally one accounting period.
Examples of current assets are:
1. Cash in hand and bank balances.

2. Bills Receivables.

3. Sundry debtors (less provision for bad debts).

4. Short term loans and advances.

5. Inventories of stock, as

a. Raw materials,

b. Work in progress,

c. Stores and spare,

d. Finished goods.

6. Temporary Investments of surplus funds.

7. Prepaid expenses.

8. Accrued Incomes.

CURRENT LIABILITIES
Current liabilities are those claims of outsiders, which are expected to mature for
payment within an accounting year.

Major current liabilities:

1. Bills payable.

2. Sundry creditors or accounts payable.

3. Accrued or outstanding expenses.

4. Short-term loans, advances and deposits.

5. Dividend payable.

6. Bank overdraft.

7. Provision for taxation, if it does not amount to appropriation of profit.

Factors Affecting Working Capital Management

1) Nature or Character of Business — Public utility undertakings like

electricity, water supply and railways need very limited working capital because
they offer cash sales only and supply services, not products, and such no funds
are tied up in inventories and receivables. on other hand trading and financial
firms required less investment in fixed assets but must invest large amount in
current assets like inventories as such they need large amount of working capital.

2) Size of Business — Greater the size of a business unit, generally larger will
be the requirements of working capital. So, it is concern with the size of business
which may be measured in term of scale of operations.

3) Production Policy — In certain industries the demand is subject to wide

fluctuations due to seasonal variations. Then the requirement depends upon the
production policy. It should be kept either steady by accumulating inventories
during slack season and increases during peak season. If the policy is to keep
production steady it will require higher working capital.

4) Length of Production Cycle — longer the process period, larger the

amount of working capital required. The longer manufacturing time, the raw
materials and other supplies must be carried for a longer period.

5) Seasonal Variations — In certain industries like raw material is not

available throughout the year. They must buy raw material in bulk during the
season to ensure an uninterrupted process during the year, generally during the
busy season, a firm requires larger working capital than in slack season.
6) Working Capital Cycle — If a company is operating in the period of boom,
the working capital requirements may be more as the company may like to buy
more materials may increase the production and sales to take the benefits of
favourable markets, due to increased sales, there may be more and more
amount of funds blocked in stock and debtors etc.

7) Rate of Stock Turnover — There is an inverse co-relationship between the

question of working capital and the velocity or speed with which the sales are
affected. A firm having a high rate of stock turnover will needs lower amount of
working capital as compared to a firm having a low rate of turnover.

8) Credit Policy — The firm's credit policy directly affects the working
requirements. If the firm has liberal credit policy, hence the more credit policy
period will be provided to the debtors, so this will lead to more working capital
requirements. With the liberal credit policy operating cycle length increases and
vice versa.

9) Business Cycles — In a period of boom, there is a need for larger amount

of working capital due to increase in sales, rise in prices, etc. on other hand, time
of depression i.e., difficulties are faced in collections from debtors.

10) Price Level Changes — Changes in price level also affect the working
capital requirements. Generally, rise in prices leads to increase in working capital.
Other Factors

 Operating efficiency.
 Import policy.
 Asset structure.
 Management ability.
 Importance of labour.
 Banking facilities, etc.
ADVANTAGES OF ADEQUATE WORKING CAPITAL

 Solvency of the Business - Adequate working capital helps in maintaining

the solvency of the business by providing uninterrupted production.
 Goodwill - Sufficient amount of working capital enables a firm to make
prompt payments and makes and maintain the goodwill.
 Easy Loans - Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favourable
terms.
 Regular Supply of Raw Material - Sufficient working capital ensures
regular supply of raw material and continuous production.
 Ability to Face Crises - A concern can face the situation during the
depression.
 Cash Discounts - Adequate working capital also enable a concern to avail
cash discounts on the purchases and hence reduce cost.
 High Morale - Adequate working capital brings an environment of securities,
confidence, high morale which results in overall efficiency in business.
 Regular Payment of Salaries, Wages, and other day to day
commitments - It leads to the satisfaction of employees and raises the
morale of its employees, increases their efficiency, reduces wastage and
costs and enhances production and profits.

DISADVANTAGES OF ADEQUATE WORKING CAPITAL

 Excessive working capital means idle fund which earn no profits for the
business and hence the business cannot earn a proper rate of return on its
investments.
 It may result into overall inefficiency of organization.
 Due to low rate of return on investment, the value of share may also fall.
 The redundant working capital gives rise to speculative speculations.
ADEQUATE/ INADEQUATE WORKING CAPITAL

Every business needs adequate amount of working capital. to run its business
operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short
working capital positions are bad for any business. However, it is the inadequate
working capital which is more dangerous from the point of view of the firm.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

 It cannot buy it requirements in bulk and cannot avail of discounts, etc.

 The firm cannot pay day-to-day expenses of its operations and it creates
inefficiencies, increases costs and reduces the profits of the business.
 It becomes impossible to utilize efficiently by the fixed assets due to non-
availability of liquid funds.
 The rate of return on investments also falls with the shortage of working
capital.

THE NEED OR OBJECTIVES OF WORKING CAPITAL

Every business needs some amount of working capital. The need for working
capital arises due to the time gap between the production and realization of cash
from sales. There is an operating cycle involved in sales and realization of cash.
There are time gaps in purchase of raw material and production; production and
sales; and realization of cash.

Thus, working capital is needed for the following purposes

 For raw material, components and spares.

 To meet the selling costs as packaging, advertising, etc.

 To provide credit facilities to the customers.

  To pay wages and salaries.

 To maintain the inventories of raw material, work-in-progress, stores and

spares and finish stock.

 To incur day-to-day expenses and overhead costs such as fuel, power,

and office expense etc

2.2 OPERATING CYCLE OR WORKING CAPITAL CYCLE

Working capital refers to that part of firm's capital which is required for
financing short-term of current assets such as cash, marketable securities,
debtors and inventories. Funds, thus, invested in current assets keep revolving
fast and are being constantly converted into cash and this cash flows out again
in exchange for other current assets. Hence, it is also known as revolving or
circulating capital. The cycle starts with the purchase or raw material and other
resources and ends with the realization of cash from the sale of finished goods.
It involves purchase of raw material and stores, its conversion into stock of
finished goods through work-in-progress with the progressive increment of
labour and service costs, conversion of finished stock into sales, debtors and
receivables and ultimately realization of cash and this cycle continuous again
from cash to purchase of raw material and so on. The speed/time duration
required to complete one cycle determines the requirements of working capital-
longer the period of cycle, larger is the requirement of working capital.
BLLANK PAGEEEE
The gross operating cycle of a firm is equal to the length of the inventories and
receivables conversion periods. Thus,

GROSS OPERATING CYCLE =

Raw Material Conversion Period + Work-in-Process Conversion
Period + Finished Goods Conversion Period + Receivables
Conversion Period

However, a firm may acquire some resources on credit and thus defer payments for
certain period. In that case, net operating cycle period can be calculated as below:

NET OPERATING CYCLE PERIOD =

Gross Operating Cycle Period – Payable Deferral Period

Further, following formula can be used to determine the conversion periods.

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐑𝐚𝐰 𝐦𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐒𝐭𝐨𝐜𝐤

Raw Material Conversion Period= 𝐱𝟑𝟔𝟓
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐑𝐚𝐰 𝐌𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐂𝐨𝐧𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐢𝐧 𝐖𝐨𝐫𝐤 𝐏𝐫𝐨𝐠𝐫𝐞𝐬𝐬

Work-In-Progress Conversion Period = 𝐱𝟑𝟔𝟓
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐅𝐢𝐧𝐢𝐬𝐡𝐞𝐝 𝐆𝐨𝐨𝐝𝐬

Finished Goods Conversion Period = 𝐱𝟑𝟔𝟓
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐫𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬
Receivables Conversion Period = 𝐱𝟑𝟔𝟓
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬
Payables Deferral Period = 𝐱𝟑𝟔𝟓
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞
2.3 CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified on two bases

2.3.1 ON THE BASIS OF CONCEPT

2.3.2 ON THE BASIS OF TIME

2.3.1 On the Basis of Concept, Working Capital may be calculated as

 Gross working capital

 Net working capital

GROSS WORKING CAPITAL — This is a wider concept of working

capital. Under this concept, the capital invested in the total current assets
alone is considered as the working capital; therefore, gross working
capital refers to the capital invested in the current assets of a business.
This concept of working capital is called 'balance sheet approach of
working capital'. As the gross working capital is represented by the sum
of total current assets, it always becomes a positive value.

Focuses on,

 Optimum investment in current assets

 Financing of current assets.

GROSS WORKING CAPITAL = TOTAL CURRENT ASSETS

NET WORKING CAPITAL - Net working capital is the excess of current

assets over current liabilities. Current assets are the assets that are
available within 12 months. Current liabilities are the liabilities that are
due within 12 months. The net working capital measures the firm's
liquidity. The greater the margin, the better will be the liquidity of the firm.

 Difference between current assets and current liabilities.

 Net working capital is that portion of current assets which is financed
with long term funds.

NET WORKING CAPITAL = CURRENT ASSETS — CURRENT

LIABILITIES
 2.3.2 Based on time, Working Capital may be classified as

 Permanent or Fixed Working Capital

 Variable or Temporary Working Capital

PERMANENT OR FIXED WORKING CAPITAL

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. There is always a minimum level of current asset which is
continuously required by the enterprise to carry out its normal business
operations. For example — every firm must maintain a minimum level of raw
material, work-in-progress, finished goods, and cash balance. The minimum
level of current assets is called permanent or fixed working capital as this part
of capital is permanently blocked in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is
required to meet the seasonal demands and some special exigencies.
Variable working capital can be further divided into seasonal and special
working capital. Most of the enterprises must provide additional working capital
to meet the seasonal and special needs. The capital required to meet the
seasonal needs of the enterprises is called seasonal working capital. Special
working capital is that part of working capital which is required to meet special
exigencies such as launching of extensive marketing, campaigns for
conducting research etc.
2.4 WORKING CAPITAL MANAGEMENT
Decisions relating to working capital and short-term financing are referred to as
Working Capital Management. These involve managing the relationship between
a firm's short-term assets and its short-term liabilities. The goal of working capital
management is to ensure that the firm is able to continue its operations and that it
has sufficient cash flow to satisfy both maturing short-term debt and upcoming
operational expenses.

A managerial accounting strategy focusing on maintaining efficient levels of both

components of working capital, current assets, and current liabilities, in respect to
each other. Working capital management ensures a company has sufficient cash
flow to meet its short-term debt obligations and operating expenses.

2.4.1 MANAGEMENT
Management will use a combination of policies and techniques for the
management of working capital. The policies aim at managing the current assets
(generally cash and cash equivalents, inventories and debtors) and the short-
term financing, such that cash flows and returns are acceptable.

 Cash Management - Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.
 Inventory Management - Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials—and
minimizes reordering costs—and hence increases cash flow. Besides this,
the lead times in production should be lowered to reduce Work in Process
(WIP) and similarly, the Finished Goods should be kept on as low level as
possible to avoid over production.
 Debtors Management - Identify the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows and
the cash conversion cycle will be offset by increased revenue and hence
Return on Capital (or vice versa); see Discounts and allowances.
 Short-term Financing - Identify the appropriate source of financing,
given the cash conversion cycle: the inventory is ideally financed by credit
granted by the supplier; however, it may be necessary to utilize a bank
loan (or overdraft), or to "convert debtors to cash" through "factoring".
2.4.2 IMPORTANT FACTORS FOR OPTIMIZING
WORKING CAPITAL

1. Accounts Receivables Management

2. Inventory Management

3. Liquidity & Cash Management

Accounts Receivables Management

Debtor’s management means the process of decisions relating to the investment

in business debtors. In credit selling, it is certain that we have to pay the cost of
getting money from debtors and to take some risk f loss due to bad debts. To
minimize the loss due to not receiving money from debtors is the main aim of
debtor’s management.

Inventory Management

Inventory management refers to the process of ordering, storing and using a

company's inventory: raw materials, components and finished products.

A company's inventory is one of its most valuable assets. In retail, manufacturing,

food service and other inventory-intensive sectors, a company's inputs and
finished products are the core of its business, and a shortage of inventory when
and where it's needed can be extremely detrimental. At the same time, inventory
can be thought of as a liability (if not in an accounting sense). A large inventory
carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be
insured, and if it is not sold in time it may have to be disposed of at clearance
prices – or simply destroyed.

For these reasons, inventory management is important for businesses of any

size. Knowing when to restock certain items, what amounts to purchase or
produce, what price to pay – as well as when to sell and at what price – can
easily become complex decisions.
Liquidity & Cash Management

Cash and Liquidity Management refers to a broad area of finance involving the
collection, handling, and usage of cash. It involves assessing market liquidity,
cash flow, and investments

Cash management is a marketing term for certain services related to cash flow
offered primarily to larger business customers. It may be used to describe all
bank accounts (such as checking accounts) provided to businesses of a certain
size, but it is more often used to describe specific services such as cash
concentration, zero balance accounting, and clearing house facilities. Sometimes,
private banking customers are given cash management services.

Financial instruments involved in cash management include money market funds,

treasury bills, and certificates of deposit.

2.4.3 STEPS INVOLVED IN WORKING CAPITAL

MANAGEMENT

 Forecasting the Amount of Working Capital.

 Determining the sources of Working Capital.

2.4.4 OBJECTIVES OF WORKING CAPITAL MANAGEMENT

 Deciding Optimum Level of Investment in various Working Capital

Assets.

 Decide Appropriate Means of Short Term Financing.

 Decide Optimal Mix of Short Term and Long Term Capital.

 CHAPTER – 3
LITERATURE REVIEW
Literature Review is “a systematic, explicit, and reproducible method for
identifying, evaluating, and synthesizing the existing body of completed and
recorded work produced by researchers, scholars and practitioners.” The
following are the literature review by different authors and research scholars

HERZFELD B (1990), studied that “Cash is King” …. So, say the money
managers who share the responsibility of running this country’s businesses.
And with banks demanding more from their prospective borrowers, greater
emphasis has been placed on those accountable for so-called working capital
management. Working capital management refers to the management of
current or short-term assets and short-term liabilities. The purpose of that
function is to make the certain that the company has enough assets to operate
its business. Here are the things you should know about working capital
management.

MAYNARD E. REFUSE (1996), argued that attempts to improve working capital

by delaying payments to creditors is counter-productive to individual and to the
economy. Claims that are altering debtor and creditor levels for individual tiers
within a value system will rarely produce any net benefit. Proposes with stock
reduction generates system-wide financial improvement and other benefits.
Urges those organizations seeking concentrated working Capital reduction
strategies to focus on stock management strategies based on “lean supply chain”
techniques.

BREALEY, R. (1997), in a study on “working capital management concepts

worksheet university of phoenix”, Concept application of concept in the reference
to concept in reading cash conversion cycle, cash conversion is a process of
managing a company’s cash inflows and cash outflows. In the simulations, the
finance manager was responsible for balancing sale with collection or accounts
receivables delicate balance maintains the company’s balance sheet keeping in
the cash and loans in a situation of financial stability and keeping the money from
being tied up. Principles of corporate finance. Working capital management, New
York: McGraw-Hill.

THOMAS M KRUEGER (2005), studied distinct levels of WCM measures for

different industries, which tend to be stable over time. Many factors help to
explain this discovery. The improving economy during the period of the study
may have resulted in improved turnover in some industries, while slowing
turnover may have been a signal of trouble ahead. Our results should be
interpreted cautiously. Our study takes place over a short time frame during a
generally improving market. In addition, survey suffers from survivorship bias –
only the top firms within each industry are ranked each year and the composition
of these firms with the industry can change annually.

GASS D (2006), studied “Cash is the lifeblood of business” is an often-repeated

maximum amongst financial managers. Working capital management refers to
the management of current or short – term assets and short-term liabilities.
Components of short –term assets include inventories, loans and advances,
borrowings and provisions. The major emphasis is however, on short –term
assets, since short – term liabilities arise in the context of short – term assets. It
is important that companies minimize risk by prudent working capital
management.

McCLAREB (2007), “Working Capital Works” describes that cash is the lifeline of
a company. If the lifeline deteriorates, so does the company’s ability to fund
operations reinvest and meet capital requirements and payment. Understanding
a company’s cash flow health is essential to making investment decisions. A
good way to judge company’s cash flow prospects is to look at its working capital
management. Cash is king, especially at a time when fund raising is harder than
over. Letting it slip way is an oversight that investors should not forgive.
Analysing a company’s working capital can provide excellent insight into how well
a company handles its cash and whether it is likely to have any on hand to fund
growth and contribute to shareholder value.

SAMILCGLU F. AND DEMIRGUNES K (2008), studied that the effect of working

capital management on firm profitability. In accordance with this aim, to consider
statistically significant relationships between firm profitability and the components
of cash conversion cycle at length, a sample consisting of Istanbul Stock
Exchange (ISE) listed.

DUBEY R. (2008), studied the working Capital in a firm generally arises out of
four basic factors like sales volume, technological changes, seasonal changes,
cyclical changes, and policies of the Firm. The strength of the firm is dependent
on the working capital as discussed earlier but this working capital is itself
dependent on the level of sales volume of the firm. The firm requires current
assets to support and maintain operational or functional activities. By current
assets we mean the assets which can be converted readily into cash say within a
year such as receivables, inventories and liquid cash. If the level of sales is
stable and towards growth the level of cash, receivables and stock will also be on
the high.

HARDCASTLE J (2009), studied that Working Capital, sometimes called gross

working capital, simply refers to the firm’s total current assets (the short-term
ones), cash, marketable securities, accounts receivables, and inventory. While
long-term financial analysis primarily concerns strategic planning, working capital
management deals with day-to-day operations. By making sure that production
lines do not stop due to lack of raw material that inventories do not build up
because production continuous unchanged when sales dip, that customers pay
on time and that enough cash is on hand to make payments when they are due.
Obviously without good working capital management no firm can be efficient and
profitable.
 CHAPTER - 4
RESEARCH METHODOLOGY
4.1 RESEARCH METHODOLOGY
Research is a systematic investigation carried out for finding solutions to a
problem and deriving general principles.

Research Methods refer to all the techniques that have been used to conduct the
research. The science of methods is termed as RESEARCH METHODOLOGY. It
refers to the process of conducting the research. Research methodology not only
describes the steps involved in conducting the research, but also justifies the
choice of various methods, states the limitations of research and brings out the
presuppositions and consequences of conducting the research.

4.2 RESEARCH DESIGN

Research design is a conceptual structure within which research is conducted. It
is constituted of the blue print for collection, measurement and analysis of data.
Research design stands for planning of the methods to be adopted. For the
collection of relevant data and techniques to be used in their analysis keeping in
view the objectives of the research and the availability of the staff, time and
money.

“Exploratory study” was done for understanding the variable involved and to gain
insights of the problem and “Descriptive study” was done to know the details
status in the areas where research is being carried out.

4.3 OBJECTIVES OF THE STUDY

1. To study the Working Capital Management of Cosmo Ferrites Limited.

2. To make comparison between the working capital for the years 2014, 2015,
2016, 2017

3. To study the Cash Management, Net Working Capital and Inventory

Management.
4.4 SOURCES OF DATA COLLECTION
The data collected for the research can be Primary or Secondary in nature.

PRIMARY DATA are those which are collected for the first time. It is collected for
some special purpose and source of primary data can be external and internal.

SECONDARY DATA are those which have already been collected by someone
for some other purpose. Thus, data is collected from previous findings.

SECONDARY DATA
This report is basically based on SECONDARY DATA. It consists of valuable
cooperation and continuous support of the associates and staff members.

Thus, the data is collected from the Annual Reports, Financial Statements and
various books and documents of Cosmo Ferrites Limited, Jabli.

Mainly comprised of :

 Balance Sheet of Cosmo Ferrites Limited

 Books of Financial Statement Analysis

 Other Financial Accounts

Annual report for the year 2013-2014

Annual report for the year 2014-2015

Annual report for the year 2015-2016

Annual report for the year 2016-2017

SAMPLING DESIGN

A. SAMPLING UNIT
It includes the “COSMO FERRITES LIMITED, JABLI HIMACHAL
PRADESH”

B. SAMPLING METHOD
Statistical technique is used for the calculation of working capital.
Convenience Sampling is used for sample collection

C. SAMPLING SIZE
The present study deals with the collection from the Annual Financial
Reports of Cosmo Ferrites Limited for the period 2013-2014 to 2016-2017.

4.5 SCOPE OF THE STUDY

This project intends to study the Woking Capital Position of the Cosmo Ferrites
Limited. It helps in understanding the clear Woking Capital Management of the
concern. Also it helps in identifying the areas that could be improved. Further
suggestions are quoted which can be used for enhancing the financial position
and better utilization of its resources.

The study has been conducted for the years 2013-2014, 2014-2015, 2015-2016
and 2016-2017.

4.6 DATA ANALYSIS AND PRESENTATION TECHNIQUES

The study has used the following data analysis techniques:

 PERCENTAGES

 TABLES

 BAR GRAPHS

 RATIOS

 LINE GRAPHS
4.7 LIMITATIONS
 This study deals only with the data made available. Hence the results
cannot judge the actual position of the company.
 Some items of the information are not available in the published annual
reports, for analysis.
 The analysis made on the working capital management is for a period the
current assets and current liabilities will change for an analysis made at any
other time.
 As the information is collected from the secondary data so it is possible that
the data used may be biased.
 CHAPTER – 5
ANALYSIS AND
INTERPRETATION OF DATA
SYSTEM OF WORKING CAPITAL MANAGEMENT IN
COSMO FERRITES LIMITED
Based on research, the working capital are managed in the organisation in the
following manner:

5.1 NET WORKING CAPITAL

5.2 CASH MANAGEMENT ANALYSIS

5.3 DEBTORS MANAGEMENT ANALYSIS

5.1 NET WORKING CAPITAL

A measure of a company’s operating liquidity is expressed as CURRENT
ASSETS less CURRENT LIABILITIES. Company with Current Liabilities that
exceeds Current Assets are operating with a working capital deficiency may
restrict them from fulfilling short term obligations. Analysts track net working
capital over time to asses a unit’s operational efficiency.

Since working capital is equal to current assets minus liabilities, it can be either a
positive or a negative number. Positive working capital is always preferable
because it means a company has more money than it needs at a given moment.
However the net working capital figure changes over time, even a healthy
company may experience periods where its working capital is negative if it has
unexpected short-term expenses.

Conversely, a company that has consistently excessive working capital may not
be making the most of its assets. While positive working capital is always a good
thing, having a lot of cash on hand may mean the company is not investing in
extra funds in the most lucrative manner possible.

NET WORKING CAPITAL = CURRENT ASSETS - CURRENT

LIABILITIES
Following table shows the data related to NET WORKING CAPITAL of
COSMO FERRITES LIMITED, JABLI for the period 2014 to 2017

Table 5.1.1 – Showing statement of working capital

PARTICULARS as at as at

(Amount in Lacs) 31.03.2014 31.03.2015

CURRENT ASSETS

Inventories 808.46 806.85

Trade Receivables 725.95 745.48

Cash & Cash Equivalents 182.44 284.38

Short Term Loans & Advances 107.90 103.57

Other Current Assets 406.61 251.73

TOTAL 2,231.36 2,192.01

CURRENT LIABILITIES

Short-term Borrowings 1,186.82 1915.89

Trade Payables 542.03 662.56

Other Current Liabilities 594.64 467.98

Short Term Provisions 46.06 19.57

TOTAL 2,369.55 3,066.00

Table 5.1.1 – Showing statement of working capital

PARTICULARS as at as at
(Amount in Lacs) 31.03.2016 31.03.2017

CURRENT ASSETS
Inventories 967.34 1,113.94

Trade Receivables 1,171.33 1,104.61

Cash & Cash Equivalents 300.25 256.21

Short Term Loans & Advances 28.99 32.43

Other current Assets 184.67 267.72

TOTAL 2,652.58 2,774.91

CURRENT LIABILITIES

Short-term Borrowings 2,309.34 2,423.76

Trade Payables 680.26 912.31

Other Current Liabilities 589.56 642.34

Short Term Provisions 25.99 22.50

TOTAL 3,605.15 4,000.91

WORKING CAPITAL = CURRENT ASSETS – CURRENT
LIABILITIES
2014 = 2,231.36 – 2,369.55 = (138.19)

2015 = 2,192.01 – 3066 = (873.99)

2016 = 2,652.58 – 3605.15 = (952.57)

2017 = 2,774.91 – 4,000.91 = (1226)

From the above information it is clear that Cosmo Ferrites Ltd. is operating its
business in negative working capital and it is drastically increasing in past 4
years.

Negative Working Capital is when a company’s current liabilities exceed its

current assets. This means that the liabilities that need to be paid within one year
exceed the current assets that are monetizable over the same period.

A company actually prefers to see a working capital ratio of 1 to 1.5 times, which
means there is at least one dollar of current asssets for every one dollar of
current liabilities. This assures the company that it can generate sufficient cash
over the short term to cover supplier and payroll obligations.
 CURRENT ASSETS (IN LACS)
3000
2774.91
2652.58

2500
2231.46 2192.01

2000

1500

1000

500

0
2013-2014 2014-2015 2015-2016 2016-2017

YEARS

Fig.5.1.1 Graphical presentation of Current Assets

CURRENT LIABILITIES (IN LACS)

4500
4000.91
4000
3605.15
3500
3066
3000

2500 2369.55

2000

1500

1000

500

0
2013-2014 2014-2015 2015-2016 2016-2017

YEARS

Fig.5.1.2 Graphical presentation of Current liabilities

From the above chart, it is clearly visible that the current assets and current
liabilities are increasing drastically in the past four years. The current assets for
the year 2014-2015 have decreased. From the year 2015-2016 the current
assets are increasing so are the current liabilities.

There is an overall increase which is good for the business. The reason here is
that, continuous increase in current assets will automatically have an effect on its
current liabilities, which have to be paid at an appropriate time. The continuous
increase in the current assets of the company shows the positive aspect of the
company but on the other hand continuous increase in the current liabilities
shows the negative aspect of the company.

NET WORKING CAPITAL (IN LACS)

0
2013-2014 2014-2015 2015-2016 2016-2017
-200 -138.19

-400

-600

-800

-873.99
-1000 -952.57

-1200
-1226
-1400

NET WORKING CAPITAL (IN LACS)

Fig.5.1.3 Graphical presentation of Net Working Capital in COSMO FERRITES

LIMITED, JABLI.

INTERPRETATION
From the above chart, it is clearly visible that the working capital of Cosmo
Ferrites is negative as its current liabilities are more than its current assets. The
working capital in the year 2013-2014 was (138.19) which decreased in year
2014-2015 to (873.99), in 2015-2016 to (952.57) and further to (1226) in the year
2016-2017.
Negative working capital indicates that the company may not be able to meet its
short term obligations as its accounts payable are more than account receivable.

On the basis of Net Working Capital, WORKING CAPITAL TURNOVER RATIO is

calculated.

5.1 WORKING CAPITAL TURNOVER RATIO

The working capital turnover ratio is also referred to as net sales to working
capital. It indicates a company’s effectiveness in using its working capital.

Working Capital Turnover Ratio = NET SALES

WORKING CAPITAL

TABLE 5.1.2 Showing Working Capital Turnover Ratio of COSMO FERRITES

LTD.

Particulars 2013-2014 2014-2015 2015-2016 2016-2017

Sales (In Lacs) 5677.07 5409.25 5946.44 6609.85

Working Capital (138.19) (873.99) (952.57) (1226)

(In Lacs)

Working Capital (41.08) (6.189) (6.24) (5.391)

Turnover Ratio
 WORKING CAPITAL TURNOVER RATIO
0
2013-2014 2014-2015 2015-2016 2016-2017
-5

-10

-15

-20
WORKING CAPITAL
-25 TURNOVER RATIO

-30

-35

-40

-45

Fig 5.1.4 Graphical presentation of Working Capital Turnover Ratio

INTERPRETATION
From the above chart it is clear that the working capital turnover ratio is negative.
It indicates the company’s ineffectiveness in using its working capital. In the year
2013-2014 the ratio was (41.08) which increased to (6.189) in 2014-2015, further
decreased to (6.24) in 2015-2016 and then increased to (5.391) in 2016-2017.

5.2 CASH MANAGEMENT ANALYSIS

Management of cash is done through various tools:

1. CASH BUDGET

2. INFLOWS AND OUTFLOWS

3. OTHER CASH CONTROL TOOLS

5.2 CASH MANAGEMENT ANALYSIS

Management of cash is done through various aspects:

2.1 CURRENT ASSETS: CURRENT LIABILITY POSITION

2.2 LIQUID ASSETS: LIQUID LIABILITY POSITION

5.2.1 CURRENT ASSETS: CURRENT LIABILITY POSITION

The current ratio is an analysis which expresses the relationship between the
total current assets and total current liabilities. It is mainly used to give an idea of
a company's ability to pay back its liabilities with its assets. It can be used to
make a rough estimate of a company’s financial health. The current ratio can give
a sense of the efficiency of a company's operating cycle or its ability to turn its
product into cash.

CURRENT ANALYSIS = CURRENT ASSETS

CURRENT LIABILITIES

Current Assets includes those assets which can be convertible into cash within a
year.

Current Liabilities are those which are repayable within a year.

SIGNIFICANCE
According to the accounting principles, a current ratio of 2:1 is considered to be
an ideal ratio. It means that the current assets of the business should be at least
twice of its current liabilities. Higher the analysis indicates better the liquidity
position, and the firm will be able to pay its current liability more easily.
Table 5.2.1 showing current positions in the following years.

Particulars 2013-2014 2014-2015 2015-2016 2016-2017

(in lacs)
Current 2231.36 2192.01 2652.58 2774.91
Assets
Current 2369.55 3066 3605.15 4000.91
Liabilities
Current 0.9417 0.7149 0.7358 0.6936
Ratio

CURRENT RATIO
1
0.9
0.8
0.7
0.6
0.5
CURRENT RATIO
0.4
0.3
0.2
0.1
0
2013-2014 2014-2015 2015-2016 2016-2017

Fig. 5.2.1 Graphical presentation of Current Ratio

INTERPRETATION

The current ratio of Cosmo Ferrites is below 1 that means its current liabilities are
more than the current assets. Current Ratio below 1 indicates the that the company
is not in good financial health.In year 2013-2014 the ratio was 0.9417, which
decreased to 0.7149 in 2014-2015, further it increased to 0.7358 in 2015-2016 and
then decreased to 0.6936 in the year 2016-2017.
5.2.2 LIQUID ASSETS: CURRENT LIABILITIES POSITION
In finance, the Liquidity Position measures the ability of a company to use its
near cash or quick assets to extinguish or retire its current liabilities immediately.

LIQUIDITY ANALYSIS = LIQUID ASSETS

CURRENT LIABILITIES

Where, liquid assets= current assets – stock – prepaid expenses

SIGNIFICANCE
An ideal liquid analysis is said to be 1:1. If it is more than the ideal position it is
considered to be better. This position or analysis is a better test of short-term
financial position of the company than the current ratio. It only considers those
assets which can be easily converted into cash.

Table 5.2.2 showing liquidity analysis in the following years

Particulars 2013-2014 2014-2015 2015-2016 2016-2017

Current 2231.46 2192.01 2652.58 2774.91
Assets
Prepaid - - - -
expenses
Stock (808.46) (806.85) (967.34) (1113.94)
Total Liquid 1423 1385.16 1685.24 1660.97
Assets
Total Current 2369.55 3066 3605.15 4000.91
Liabilities
Liquidity 0.6005 0.4518 0.4675 0.4151
Ratio
 LIQUIDITY RATIO
0.7

0.6

0.5

0.4

LIQUIDITY RATIO
0.3

0.2

0.1

0
2013-2014 2914-2015 2015-2016 2016-2017

Fig 5.2.2 Graphical presentation of liquidity analysis

INTERPRETATION

The liduidity ratio under 1 indicates that a company’s liabilities are greater
than its assets and company would be unable to pay off its obligations at
some point. In the year 2013-2014 the liquidity ratio was 0.6005 which
decreased to 0.4518 in 2014-2015, further it increased to 0.4675 in 2015-2016
and again it decreased in year 2016-2017. Steps need to be taken to control
its liabilities.
 5.3 Inventory Management
Inventory management refers to the process of ordering, storing and using a
company's inventory: raw materials, components and finished products.

A company's inventory is one of its most valuable assets. In retail, manufacturing,

food service and other inventory-intensive sectors, a company's inputs and
finished products are the core of its business, and a shortage of inventory when
and where it's needed can be extremely detrimental. At the same time, inventory
can be thought of as a liability (if not in an accounting sense). A large inventory
carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be
insured, and if it is not sold in time it may have to be disposed of at clearance
prices – or simply destroyed.

For these reasons, inventory management is important for businesses of any

size. Knowing when to restock certain items, what amounts to purchase or
produce, what price to pay – as well as when to sell and at what price – can
easily become complex decisions.

Table 5.3.1 INVENTORY MANAGEMENT IN COSMO FERRITES LTD.

PARTICULARS 2013-14 2014-15 2015-16 2016-17

(Amount in lacs)
Raw material 199.91 72.76 120.57 159.86

Work in progress 367.53 468.68 476.39 571.43

Finished goods 79.36 103.26 150.46 95.05

Scrap - - 0.26 1.90

Stores and spares 161.66 162.20 219.66 285.70

TOTAL 808.46 806.85 967.34 1,113.94

 TOTAL INVENTORY
1200

1000

800

600
TOTAL INVENTORY

400

200

0
2013-2014 2014-2015 2015-2016 2016-2017

Fig 5.3.1 Graphical presentation of Total Inventory

INTERPRETATION
The level of inventory is increasing drastically expect in the year 2014-2015. The
company has taken effective measures thus the level of inventory is controlled in
the year 2016-2017 and also has seen an increase.

5.3.2 INVENTORY TURNOVER RATIO

The inventory turnover ratio is an efficiency ratio that shows how effectively
inventory is managed by comparing cost of goods sold with average inventory for
a period. In other words, it measures how many times a company sold its total
average inventory dollar amount during the year.

INVENTORY TURNOVER RATIO = SALES

AVERAGE INVENTORY
Table 5.3.2 showing inventory turnover ratio in following years

PARTICULARS 2013-2014 2014-2015 2015-2016 2016-2017

(in lacs)
SALES 5677.07 5409.25 5946.44 6609.85
AVERAGE 827.9 807.655 887.095 1040.64
INVENTORY
INVENTORY 6.857 6.697 6.703 6.352
TURNOVER
RATIO

INVENTORY TURNOVER RATIO

6.9

6.8

6.7

6.6

6.5
INVENTORY TURNOVER
6.4 RATIO
6.3

6.2

6.1

6
2013-2014 2014-2015 2015-2016 2016-2017

Fig 5.3.2 Graphical presentation of inventory turnover ratio

INTERPRETATION
This ratio indicates the effectiveness and efficiency of the inventory management.
The chart shows the changing ratios from the year 2013-2014 to 2016-2017. The
ratio is least in the year 2016-2017. The company should try to maintain the ratio.
 CHAPTER – 5
FINDINGS AND
RECOMMENDATIONS
 SUMMARY OF FINDINGS

 The Short term Borrowings of the company have increased from 1186.82
lakhs in the year 2013-2014 to 2423.76 lakhs in year 2016-2017. Also the
Current Liabilities have increased from 2369.55 to 4000.91

 The current assets have increased from the year 2015-2016 to 2,774.91
lakhs.

 The Working Capital of the company is Negative which means that the current
liabilities are more than the current assets. The negative working capital has
changed to 1226 in year 2016-2017 from 138.19 in year 2013-2014.

 The increase in current liabilities is more than the increase in current assets
from year 2013-2014 to 2016-2017. The current liabilities increased from
2369.55 to 4000.91 lakhs whereas current assets increased from 2231.46 to
2774.91 lakhs.

 The Current ratio and the liquidity ratio are below 1. This indicates the
company is not in a good financial position.

 The inventory has increased from 808.46 to 1113.94 in the span of four years.

SUGGESTIONS

 The company should focus on increasing its current assets and

decreasing its current liabilities as this will help in improving the
working capital of the company.
 The company should keep a alternative funding which will help in
improving the working capital as well as the financial position of the
company
 BIBLOGRAPHY
1. BOOKS
 CHANDRA PRASANNA: “Financial Management Theory and
Practices” (Tata McGraw-Hill Publications, 2001, New Delhi).

 GUPTA SHASHI K. AND SHARMA R.K: “Management Accounting

and Public Finances”, New Delhi, Kalyani Publications.

 JAIN AND NARANG: “Management Accounting and Cost

Accounting”, New Delhi, Kalyani Publications.

 PANDAY I.M: “Financial Management”, New Delhi, Vikas

Publications.

 KHAN M.Y AND JAIN P.K: “Financial Management”, (Tata

McGraw-Hill Publications, New Delhi).

 BALANCE SHEET OF COSMO FERRITES LIMITED, FOR THE

YEARS 2013-2014 TO 2016-2017.

2. INTERNET SOURCES
www.google.com

www.cosmoferrites.com

www.investopedia.com

www.wikipedia.org

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Brealey. R. (1997) “Working Capital Management, concepts work sheet

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Thomas M.Kruger, “An Analysis of Working Capital Management Results

Across Industries”, American Journal of Business (2005)

Gass D, “How to improve Working Capital Management” (2006)

McClare B, “Working Capital Works” (2007)

Samiloglu F, and Demirgunes K, “The effect of Working Capital

Management on firm Profitability: Evidence from Turkey” (2008)

Beneda, Nancy; Zhang Yllel, “Working Capital Management, Growth and

Performance of New Public Companies” Credit and Financial Management
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Dubey R, “Working Capital Management – An Efficient tool of

Organizational success” (2008)

Hardcastle, “Working Capital Management” (2009)