WORKING CAPITAL MANAGEMENT

OF

S.A.V. ACHARYA INSTITUTE OF MANAGEMENT STUDIES

SHELU, KARJAT RAIGAD- 410101

2014-16

A STUDY ON

“WORKING CAPITAL MANAGEMENT IN SATHE SYNTHETICS”

SUBMITTED BY: PALLAVI GOPAL NHAYADE

CLASS: MMS FOURTH SEMESTER

ROLL NUMBER: 23

SUBMITTED TO: PROF. NARANDRA JHA

 DECLARATION

I, Pallavi Gopal Nhayade Hereby Declare That This Report Titled

“WORKING CAPITAL MANAGEMENT IN Sathe Synthetics’’In The
Partial Fulfillment Of The Requirement Of The Award For Master In
Management Studies To The College “S.A.V. Acharya Institute Of
Management Studies” Is My Original Work And Not Submitted For Award
Of Any Degree Or Diploma Fellowship Or For Similar Title Or Prizes.

I Further Certify That I Have No Objection And Grant The Right To S.A.V.
Acharya Institute Of Management Studies, To Publish Any Chapter / Report
If They Deem Fit In Journals / Magazines And Newspapers Etc. Without My
Permission.

Place: Shelu Name: Pallavi Gopal Nhayade

Date: Class: Mms, Sem-Iv

Roll No: 23
 CERTIFICATE

This is to certify that the dissertation submission in partial

fulfillment for the award of master of management studies of S. A.
V. Acharya institute of management studies is a result of the
bonafide research work carried out by pallavi gopal nhayade under
the supervision and guidance of prof. Dr.satyanarayan (director).
No part of this report has been submitted for award of any other
similar titles or prizes. The work has also not been published in any
journals/magazines.

______________________ _______________________

Prof. Narandra jha (prof.dr.satyanarayan )

director
 ACKNOWLEDGEMENT

I would like to give special acknowledgement to Prof. Dr.Satyanarayan

Director of S.A.V. Acharya Institute of Management Studies for his consistent
support and motivation.

I am grateful to PROF. NARANDRA JHA project guide, S.A.V. Acharya

Institute Of Management Studies for their technical expertise, advice and
excellent guidance. They not only gave my report a scrupulous critical
reading, but added many examples and ideas to improve it.

I am indebted to my other faculty members who gave time and again reviewed
portions of this report and provide many valuable comments.

I would like to express my appreciation towards my friends for their

encouragement and support throughout this report.

Date: Signature PALLAVI

GOPAL NHAYADE
 TABLE OF CONTENTS

1. EXECUTIVE SUMMARY
2. INDUSTRY PROFILE
3. ABOUT THE COMPANY
a. Company profile
b. Mission & Vision
c. Company Leadership
d. Company Products
e. SCOT Analysis of Sathe synthetics

4. OBJECTIVES OF THE STUDY

5. REVIEW OF LITERATURE
6. RESEARCH METHODOLOGY
7. WORKING CAPITAL MANAGEMENT
a. Introduction
b. Working Capital Analysis
c. Nature & importance of working capital
d. The importance of Good Working Capital
e. Working Capital Cycle

8. OPERATING CYCLE OF SATHE SYNTHETICS

a. Gross operating cycle
b. Net operating cycle

9. SCHEDULE CHANGE IN WORKING CAPITAL & ANALYSIS

10. WORKING CAPITAL RATIOS OF SATHE SYNTHETICS
a. Receivable Ratio
b. Payable Ratio
c. Inventory Ratio
d. Current Ratio
 e. Quick Ratio
f. Working capital turnover ratio

11. ANALYSIS OF THE STUDY

a. Analysis of various components
b. Inventory
c. Sundry Debtors
d. Cash & Bank Balance
e. Current Liability
f. Provision Analysis
12. CONCLUSION
13. SUGGESSATIONS & RECOMMENDATIONS
14. BIBLIOGRAPHY & REFRENCES
15. ANNEXURES
 Executive Summary

The project on Working Capital Management has been a very good experience. Every

manufacturing company faces the problem of Working Capital Management in their day-to-day

processes. An organization’s cost reduced and the profits increased only if it is able to manage its

Working Capital efficiently. At the same time, the company can provide customer satisfaction

and hence can improve their overall productivity and profitability.

This project is a sincere effort to study and analyze the Working Capital Management of

Sathe Synthetics, GZB. The project focused on making a financial overview of the company by

conducting a Working Capital analysis of SATHE group for the years 2005 to 2009 and Ratios &

various components of working capital & format emphasizing on Working Capital.

The internship is a bridge between the institute and the organization. This made me to be

involved in a project that helped me to employ my theoretical knowledge about the myriad and

fascinating facets of finance. Moreover, in the process I could contribute substantially to the

organization’s growth. The experience that I gathered over the past two months has certainly

provided the orientation, which I believe will help me in shouldering any responsibility in future.
 INDUSTRY PROFILE
HISTORY OF THE INDIAN TEXTILE INDUSTRY:
The human need is to eat well for to be alive and shelter to protect them from discomforts of
nature and a place to live in. Human beings also need something to cover their body to protect
from diverse climates and to add the appearance. Earlier there was a time when the human being
known nothing about the cloth to wear. The human beings first use plant barks, leaves and
animal skin to wrap around them. Then as the development of brain took place, they started to
explore other possibilities and invent more in this area. There is constant search for clothing and
it led to the knowledge of sources from vegetation i.e. Cotton and from animals i.e. wool, which
could be knitted and woven to manufacture clothes to wear.

The commercial development of man-made fiber began late in the 19th Century, experienced
much growth during the 1940’s, expanded rapidly after world War – II and in the 1970’s was
still the subject of extensive Research and Development.

The spinning and weaving both are very common and attached with each other in all parts of the
world. We talk of the ancient times, when maximum work like weaving of the clothes was done
manually, but all the things were being done for the right perspectives. From time to time in this
world development had taken place, which has been found to be a continuous process. Similarly
considering the developments in the Spinning and Weaving lot of improvements has come-up.
Because earlier too was the Cotton crop was grown by the farmers, but its end use was not done
in an effective way, which seems good. So much thick fiber was produced and accordingly its
impact for the fabric preparation.
APPARATUS USED FOR SPINNING & WEAVING DURING PRE-INDEPENDENCE

Before Independence we talk of the political leaders like Mahatma Gandhi, who had always
insisted to use Khadi Clothes and even self-spinning and weaving. It is also called as self-
dependence for all needs. Such a good initiatives had come-up at India level amongst the
followers of the Leader – Mahatma Gandhi. On the other side too such initiatives had been
proved very good and had attracted many other western countries to follow such practices and
show their excited ness. Though in case we talk of the English rule before the Independence i.e.
1947, it was not appreciated by the English Rulers, but after the freedom these leaders had got
very good appreciation particularly for the self spinning and weaving and in an overall manner
this sector of Spinning and Weaving was industrialized even after the independence too on the
basis of Indian cotton growers.

It is needless to mention here that throughout India, cotton grower’s belts are available and after
independence, even English people take their raw material from here and had established
themselves with the Spinning and weaving industries. Overall In India no such preferences for
the Spinning and Weaving industries were made, however the Library research reveals that the
first Cotton mill had been established in India during 1854 named as Bombay Spinning and
Weaving company. Though the Cotton industry had progressed a lot, but in case we say that
India alone is heading this world, it is wrong. Though in India Textile Machine manufacturers
are there and one or two decades ago they were the market leaders, but with the help of the other
parts/people of world i.e. Germany, Switzerland etc., India had made a very good recognition in
the yarn market.

Because Indian Industrial Organizations have also initiated towards the most modernized
machinery produced by Schlafhorsts – Germany, Luwa – Humidification systems, Switzerland.
This is just the example of the development, that in India too the most modern machinery is
being installed. However, it is an evident that the Indian yarn is always running on the
development trend since its Inception of first unit in Bombay, but its position in the international
market has not appeared so good. Because many other countries like China as Cotton Textiles
has went ahead. Though till today India has achieved a lot in the Textile Industry and almost
700 Textile units are working successfully, because India is having at present more than 20
Million spindles and a weaving capacity of more than 2.5 Lac looms and the total output value of
the same is around Rs.1500 Cores, employing more than 10 Lac of workers directly. The
invention and production of manmade thirty three fibers that is synthetic fibers like Nylon,
Acrylic fibers, Polyester Fiber, Viscose, S.Sament yarns, Mélange yarn, etc., which ultimately
had given a good blow to grow for the Cotton Textile Industry and know occupy a major part of
consumer acceptance. About 50 countries have been importing such material from India and the
description of the Spinning and weaving industry had remained incomplete without referring to
the woolen industry.
 COMPANY PROFILE

Sathe Synthetics

Introduction

Company was started in 1995 as Production capacity of 40 tons per month of p.p. multifilament
yarn in various deniers of FDY ranging from 210 deniers to 1200 deniers in all colors
& naturals. The company is the largest P.P. Yarn manufacturer in the country.

Our Mission- We work with a mission to become world leader in narrow fabrics and
webbings products by successfully adopting latest manufacturing techniques and offering
innovative range of products that are used for various applications.

The company Sathe Synthetics (Prop. Rakesh fuel PVT. LTD) divided in two units, situated in
Ghaziabad and other one is in Sikandrabad. The company is governed and controlled by three
brothers and partners named as-
Mr. Ravi Mohan – DIRECTOR GENERAL, HEAD OF TECHNICAL & MAINTENANCE
DEPARTMENT

Mr. Rajeev Mohan – FINANCE DECISION MAKER, HEAD OF SALES AND

MARKETING

Mr. Rakesh Mohan – DIRECTOR, NEW OPPORTUNITIES FOR COMPANY

NAME OF AUTHORITY DESIGNATION

MR. ARUN SINGH GENERAL MANAGER

MR. SUBODH KR. TEOTIA PERSONNEL MANAGER

MR. ASHOK AGARWAL STORE MANAGER

MR. HARISH GUPTA HEAD MARKETING (PURCHASE)

MR. ASHA RAM ACCOUNTS HEAD

PRODUCT RANGE: - Sathe Synthetics
Flat & Twisted

Range FD Uses - For FDY Use of Crimp Yarn

CRIMP
Swing Thread
FDY 210 Deniers YARN 110/1 Belt Undergarments
FDY 330 Deniers YARN 110/2 Lasses Socks
FDY 440 Deniers YARN 120/1 Tape Lasses
FDY 600 Deniers YARN 120/2 Filter cloth Tie
FDY 840 Deniers YARN 130/1 Fabrics And many more
things
FDY 1000 Deniers YARN 130/2 Housosry
FDY 1200 Deniers And many more
things

PRESENT CAPACITIES

Presently the group has following production capacity and product range at its different
manufacturing facilities.
Location Installed Production Product Range
Capacity Capacity

(spindles)

Sathe synthetics, Ghaziabad 10500 10Tons / Day POLYPROPYLENE

MULTIS.SAMENT
YARN

UNI-2, Sikandrabad 8000 6.5 Tons/Day POLYPROPYLENE

MULTIS.SAMENT
YARN, &

NON-WOVEN
FABRICS
USTERIZED CERTIFICATION
The unit had been awarded USTER certificate by Uster technologies AG CH-8610 Uster/
Switzerland on April 10, 2007. Sathe synthetics, Ghaziabad / India fulfill all conditions for using
the brand USTERIZED and will be checked regularly at once per year basis.

PRODUCTION
The unit is producing different types of yarn both for Domestic consumption and Export
purpose. The production department is headed by General Manager (G.M.). The SATHE
SYNTHETICS has two units. The unit- I is concerned with the production of
POLYPROPYLENE MULTIFILAMENT YARN. The unit-II expansion is concerned with
production of POLYPROPYLENE MULTIFILAMENT YARN & NON WOVEN FABRICS.
Production capacity of unit –I is 10 ton per day and unit-II is 6.5 tons per day.

MARKETING
For Marketing of different product, the unit is having a modern marketing department headed by
experienced team which covers all the activities for conversion of finished goods into cash. It
keeps vigil on the market feed-back on the level competition, market, trend, changing customer
needs and modifications. The marketing department deals with domestic sales, while export
department of the group manages export sales. The SATHE SYNTHETICS, Having the export
and domestic ratio is 34:66. The unit is having different channels for distribution of its products.

1. Selling agents at Ghaziabad, Delhi, Mumbai and Lucknow.

2. Branches at Delhi and Utter Pradesh.
3. Direct Dispatches are also made by the units.

ORGNISATION STRUCTURE
A chart showing the organizational structure of SATHE SYNTHETICS, Ghaziabad is given on
the next page. It shows the various hierarchical levels of the organization. It is a department line
organization which is divided into various department headed by their respective department
heads. All departments operate under the ultimate control of Chief Executive Sh. Rakesh Mohan.
The orders flow directly from unit head to different departmental heads down the line to
respective department subordinates.
 Manufacturing Process Flow Chart of S.S
100% COTTON CARDED/COMBED YARN

GREY CHIPS
GREY-CHIPS EXTRUDER MASTER-BATCH
PP*/PE*/NYLON
PPP*P*/PE*/NYLON (COLOURED CHIPS)
POLYMER-MENT

SCREEN-S.STER

METERING-S.STER

SPINNERETTE DIE-PLATE

MULTIFILAMENT YARN

QUENCHING (FAST COLLING)

SPIN FINISH APPLICATION

TAKE UP/WINDER FDY/HE/POY

D-TEX M/C

TWISTING

TWISTING PACKING

DESPATCH
MANUFACTURING PROCESS IN SATHE SYNTHETICS , GHAZIABAD
Poy Spinning
Polyester Polypropylene chips are fed in the feeding hopper with the help of electric hoist
and are conveyed from feeding hopper to DPG from where they are further conveyed to the
Storage Silos with the help of compressed air. From the Silos, the chips enter the blender for
proper blending to avoid variation.

Control Room

The chips, after blending, are stored in a Wet Chips Hopper.

The level of chips in this hopper is automatically controlled from where these are
transferred to the drying system through rotary air lock. Rotary air lock does not allow the air to
leak during the chips entry from WCH to drying system. Dryer system dries the chips with the
help of hot air to control the moisture level of the chips to make it suitable for spinning. From the
dryer, chips enter the Dry Chips Hopper before feeding to the Extruder.

Production Lines

From the Dry Chips Hopper, chips are conveyed to the extruder where chips are melted
and mixed to give homogenous molten polymer with the help of electrical heaters. The same is
thereafter filtered through continuous polymer filter.
After filtration, the melt is distributed to 4 nos. of spinning beams via manifold. The temperature
of the spinning beams and manifold is maintained by special type of heat transfer media. Melt is
purified by means of metallic and sand filters before being extruded to filament through
spinnerets.
The extruder has a capacity to melt and deliver 800 kgs of chips/hr. at high pressure up to
250 bars. Molten polymer in spinning beam is extruded through the spinnerets via polymer
pump. The speed of polymer pump is controlled by production computers to ensure uniform flow
of melt to produce quality of yarn. The speed of polymer pump may be changed to produce
different kind of deniers.

Quality Control
 Polymer melt passing through the spinnerattes comes out in the form of yarn at a
temperature of 280-290 ° C. The yarn is then cooled to solidify in the cooling chamber and after
the cooling, finish oil is applied to yarn to lubricate the same for further processing. The yarn is,
thereafter, taken on the winder for winding on paper tubes. The speed of the winder is controlled
by the computers and can be varied as per the process requirement to produce different kind of
deniers. The POY thus produced is checked on automatic machines called Tensorapid and Uster
Tester-3 for checking of thickness and uniformity properties.

Packaging

Twisting
POY is there after transported from the POY department to texturising section. It is then
taken on creel and fed to the texturising machines and heaters. After the necessary heat setting
and cooling, the texturised yarn is collected on paper tubes and thereafter, packed in corrugated
boxes and sent to the market.
 FINAL PRODUCT OF SATHE SYNTHETICS

Sathe Synthetics

Address:
D-27, Industrial Area, Kavi Nagar
Ghaziabad-201001, (U.P.)
Phone: 91-120-2700336, 2700386
Fax: 91-120-2703172
E-mail: sathesynthetics@indiatimes.com
Contact Person: Mr. L.C. Sharma
SWOT ANALYSIS OF SATHE SYNTHETICS
STRENGTHS
Experienced promoters with over 40 years of experience in the industry
Successfully implemented various expansion schemes in the past with in-house expertise
Consistently achieved capacity utilization over 90% in respect of POY in the past.
Products are well accepted in the market
With the implementation of the proposed project, the company will reap the benefits of
economies of scale due to optimum utilization of the existing facilities.
Satisfactory organizational set-up with experienced and well-qualified employees.
Strong marketing network with low selling and distribution costs

CHALLENGES
The prices of raw materials and finished goods move in tandem with international prices,
which, in turn, have positive correlation with the prices of petrochemical products.
A major portion of the manufacturing capacity originates from second hand equipment.
S.S adopts the technology of spinning POY from polyester chips which are an intermediate
and may put S.S at a comparatively disadvantages position due to relatively higher cost vis-à-vis
the other players who manufacture POY directly from PTA/DMT/MEG. Company is taking
planning to putting up its own captive poly- condensation facility.

OPPORTUNITIES
With no major capacity increase being created in the recent past / being planned in the near
future, the existing players are well positioned to take advantage of the emerging scenario where
demand is expected to exceed supply.
Potential growth in exports of POY / PFY. With quantitative restrictions on textile exports
being dismantled under the aegis of World Trade Organization (WTO) from 2005, it is expected
that low cost producers like India will benefit.
With tariffs proposed to come down in India over a period of time, it is expected that raw
material costs will be comparable to those prevailing in the international markets.
Potential growth in domestic demand for POY due to increase in share of non-cotton fabric.
THREATS
Likely expansion by large players like Reliance Industries, Indo Rama Synthetics, Century
Enka Ltd., etc.
India has concluded / is in the process of concluding Free Trade Agreements (FTA) with a
number of countries like Sri Lanka, Thailand, China, etc. This will lead to lower tariffs all round
and may affect Indian textile units, including S.S.
Post WTO, when India would be exposed to international competition. S.S’s position is
expected to be vulnerable vis-à-vis those companies with global size and modern facilities.
OUTLINE OF THE STUDY

The management of working capital is very important. It involves the study of day-to-day affairs
of the company. The motive behind the study is to develop an understanding about the working
capital management in the running business organization and to help the company in developing
the efficient working capital management. Therefore, it helps in future planning and control
decisions.

OBJECTIVES OF THE STUDY

The objectives of the study are as follows:

 To analyze the working capital management of the company.

 To determine the gross and net operating cycle of the unit.
 To know the future need of working capital in the running organization.
 To render recommendations for the effective management of working capital.

SCOPE OF THE STUDY

The study is conducted at “SATHE SYNTHETICS, Ghaziabad” for 6 weeks duration. The study
of W.C. management is purely based on secondary data and all the information is available
within the company itself in the form of records. To get proper understanding of this concept, I
have done the study of the balance sheets, profit and loss A/C’s, cash accounts, trial balance, and
cost sheets. I have also conducted the interviews with employees of accounts and finance
department and stores department. So, scope of the study is limited up to the availability of
official records and information provided by the employees. The study is supposed to be related
to the period of last five years.
 REVIEW OF LITERATURE

1- The research done by Pass C.L., Pike R.H., “An overview of working capital management
and corporate financing”,(1984) describes that over the past 40 years major theoretical
developments have occurred in the areas of longer-term investment and financial decision
making. Many of these new concepts and the related techniques are now being employed
successfully in industrial practice. By contrast, far less attention has been paid to the area of
short-term finance, in particular that of working capital management. Such neglect might be
acceptable were working capital considerations of relatively little importance to the firm, but
effective working capital management has a crucial role to play in enhancing the profitability
and growth of the firm. Indeed, experience shows that inadequate planning and control of
working capital is one of the more common causes of business failure.

2- The research done by Herrfeldt B., “How to Understand Working Capital Management”
describes 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. In essence, the purpose of that function is to make
certain that the company has enough assets to operate its business. Here are things you
should know about working capital management.
3- The research done by, Samiloglu F. and Demirgunes K., “The Effect of Working Capital
Management on Firm Profitability: Evidence from Turkey” (2008) describes 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
manufacturing firms for the period of 1998-2007 has been analysed under a multiple
regression model. Empirical findings of the study show that accounts receivables period,
inventory period and leverage affect firm profitability negatively; while growth (in sales)
affects firm profitability positively.
4- The research done by, Appuhami, Ranjith B A, “The Impact of Firms' Capital Expenditure
on Working Capital Management: An Empirical Study across Industries in Thailand” ,
International Management Review,(2014), The purpose of this research is to investigate the
impact of firms' capital expenditure on their working capital management. The author used
the data colleted from listed companies in the Thailand Stock Exchange. The study used
Shulman and Cox's (1985) Net Liquidity Balance and Working Capital Requirement as a
proxy for working capital measurement and developed multiple regression models. The
empirical research found that firms' capital expenditure has a significant impact on working
capital management. The study also found that the firms' operating cash flow, which was
recognized as a control variable, has a significant relationship with working capital
management.
5- The research done by, Hardcastle J., “Working Capital Management”,(2007) describes 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 receivable, 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 materials, that inventories do not build up because production
continues 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.
6- The research done by, Thachappilly G., “Working Capital Management Manages Flow of
Funds”,(2015) describes that Working capital is the cash needed to carry on operations
during the cash conversion cycle, i.e. the days from paying for raw materials to collecting
cash from customers. Raw materials and operating supplies must be bought and stored to
ensure uninterrupted production. Wages, salaries, utility charges and other incidentals must
be paid for converting the materials into finished products. Customers must be allowed a
credit period that is standard in the business. Only at the end of this cycle does cash flow in
again.The research done by, Beneda, Nancy; Zhang, Yilei, “Working Capital Management,
Growth and Performance of New Public Companies”.
7- The research done by, Dubey R.,“Working Capital Management-an Effective Tool for
Organisational Success” (2014) describes that The working capital in a firm generally arises
out of four basic factors like sales volume,technological changes,seasonal , cyclical changes
and policies of the firm.The strenghth of the firm is dependent on the working capital as
discussed earlier but this working capital is inteslf 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.
8- The research done by, McClure B., “Working Capital Works” describes that Cash is the
lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund
operations, reinvest and meet capital requirements and payments. Understanding a company's
cash flow health is essential to making investment decisions. A good way to judge a
company's cash flow prospects is to look at its working capital management (WCM). Cash is
king, especially at a time when fund raising is harder than ever. Letting it slip away is an
oversight that investors should not forgive. Analyzing 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. The research done by,
Gass D., “How To Improve Working Capital Management” (2012) "Cash is the lifeblood of
business" is an often repeated maxim 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, debtors,
investments and cash and bank balances. Short-term liabilities include creditors, trade
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.
9- The research done by, Maynard E. Rafuse, “ Working capital management: an urgent need to
refocus” Management Decision, (1996) Argues that attempts to improve working capital by
delaying payment to creditors is counter-productive to individuals and to the economy as a
whole. Claims that altering debtor and creditor levels for individual tiers within a value
system will rarely produce any net benefit .Proposes that stock reduction generates system-
wide financial improvements and other important benefits .Urges those organizations seeking
concentrated working capital reduction strategies to focus on stock management strategies
based on “lean supply-chain” techniques.
10- Impact of Working Capital Management Policies on Corporate Performance—An
Empirical Study
Sushma Vishnani, Bhupesh Kr. Shah (2013)
It is felt that there is the need to study the role of working capital management policies on
profitability of a company. Conventionally, it has been seen that if a company desires to
take a greater risk for bigger profits and losses, it reduces the size of its working capital in
relation to its sales. If it is interested in improving its liquidity, it increases the level of its
working capital.
However, this policy is likely to result in a reduction of the sales volume, therefore of
profitability. Hence, a company should strike a balance between liquidity and profitability. In
this paper an effort has been made to make an empirical study of Indian Consumer
Electronics Industry for assessing the impact of working capital policies & practices on
profitability during the period 1994–95 to 2010–11. The impact of working capital policies
on profitability has been examined by computing coefficient of correlation and regression
analysis between profitability ratio and some key working capital policy indicator ratios.

11- Working Capital and Financial Management Practices in the Small Firm Sector
Michael J. Peel, Nicholas Wilson (2014)
MICHAEL J. PEEL IS A LECTURER IN accountancy and finance at Cardiff Business
School, University of Wales and Nicholas Wilson is Professor of Credit Management at the
University of Bradford, England. Very little research has been conducted on the capital
budgeting and working capital practices of small firms. The purpose of this paper is to present
the results of a preliminary study on the working capital and financial management practices of a
sample of small firms located in the north of England. In general, the results of the survey
indicated that a relatively high proportion of small firms in the sample claimed to use
quantitative capital budgeting and working capital techniques and to review various aspects of
their companies' working capital. In addition, the firms which claimed to use the more
sophisticated discounted cash flow capital budgeting techniques, or which had been active in
terms of reducing stock levels or the debtors' credit period, on average tended to be more active
in respect of working capital management practices. It hoped that the issues raised would
stimulate further theoretical and empirical contributions on this neglected and important area of
small business research.
 RESEARCH METHODOLOGY

The term research refers to the systematic method consisting of enunciating the problem ,
formulating a hypothesis collecting the data , analyzing the facts and reaching the certain
conclusions either in the form of solution towards the concern problem or in certain
generalization for some theoretical formulation .

Research Methodology is a way to solve systematically the research problem .It may be
understood as a science of studying how research is done scientifically.

Time Period of the study:

The present study was undertaken during Six weeks from 14th June - 26th July.

Research Design:

Descriptive research procedure is used for describing the recent situations in the organization and
analytical research to analyze the results by using research tools.
Descriptive Research:

Descriptive research, also known as statistical research, describes data and characteristics
about the population or phenomenon being studied. Descriptive research answers the
questions who, what, where, when and how...

Although the data description is factual, accurate and systematic, the research cannot describe
what caused a situation. Thus, Descriptive research cannot be used to create a causal
relationship, where one variable affects another. In other words, descriptive research can be said
to have a low requirement for internal validity.

In short descriptive research deals with everything that can be counted and studied. But there
are always restrictions to that. Your research must have an impact to the lives of the people
around you. For example,finding the most frequent disease that affects the children of a town.
The reader of the research will know what to do to prevent that disease thus, more people will
live a healthy life.

Data Source & Collection Methods:

There are two types for collecting data

1. Primary data
2. Secondary data

Secondary Data:

Secondary data are those which have already been collected by someone else and
which have already been passed through the statistical process. The Secondary data consist of
reality available compendices already complied statistical statements. Secondary data consists of
not only published records and reports but also unpublished records.

Here we done the analysis on basis of secondary data, which included-

 Balance sheet of company

 Profit and loss A/C of Sathe Synthetics
 Cost sheets, & Trail balance of five years
Purpose:

The purpose of this paper is to properly analysis of the working capital management of
Sathe synthetics, Ghaziabad over the period 2011-2015.

Tools used:

I used the different tools to analyze the working capital management of Sathe Synthetics -

 Analysis through Working capital ratios

 Analysis through Schedule change in working capital
 Analysis through Gross operating cycle & Net operating cycle
 Analysis through Various components of working capital
LIMITATIONS OF THE STUDY

 As central purchase office, purchase raw material and central marketing yarn make sales.
Information that is so more detailed cannot be received about these.
 Cash from debtors a collected by the corporate office through commission agents. So
efforts for collection of debtors cannot be clearly known from SATHE SYNTHETICS,
Ghaziabad.
 Investment of funds are also made by corporate office, so it becomes difficult to know
that how much investment is made in different ways for continuous availability of funds.
THEORETICAL BACKGROUND

OF WORKING CAPITAL MANAGEMENT

MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT

The management of working capital is concerned with two problems that arise in
attempting to manage the current assets, current liabilities and the inter relationship that asserts
between them.

The basic goal is working capital management is to manage current assets and current
liabilities of a firm in such a way that a satisfactory of optimum level of working capital is
maintained i.e. it is neither inadequate nor excessive. This is so because both inadequate as well
as excessive working capital position is bad for business.

MAJOR DECISIONS IN WORKING CAPITAL MANAGEMENT

There are two major decisions management relating to working capital management:-

1. What should be ratio of current assets to sales?

2. What should be the appropriate mix of short term financing and long term financing
for financing these current assets?
1. Current assets in relation to sales:-

If the firm can forecast accurately the factors, which effect the working capital, the
investment in current assets, can be designed uniquely. When uncertainty characteristics the
above factors, as it usually does the investment in current assets cannot be specified uniquely. In
case of uncertainty, the outlay on current assets should consist of base component meant to meet
normal requirement and a safety component meant to cope with unusual requirement. The safety
component depends upon low conservative or aggressive in the current assets policy of a firm. If
the firm purchases a very conservative current asset policy it would carry a high level of current
assets in relation to sales. If a firm adopts a moderate current assets policy it would carry
moderate level of current assets in relation to sales, finally is a firm follows a highly aggressive
current assets policy, it would carry a low level of current assets in relation to sales.
 SATHE SYNTHETICS is following current assets policy showing moderate level of
current assets in relation to sales as is evident from ratio analysis.

2. Determining a Short Term and Long Term Financing Mix for Financing of current
assets:-

There are three approaches in this regard, which are discussed below:

HEDGING APPROACH: -

This approach is also called matching approach. In this approach there is a

proper matching of expected life of asset with the duration of fund. Usually, according to this
approach, long-term sources are used for financing permanent current assets and fixed assets &
short-term sources are used for financing temporary current assets:

Temporary current assets

Short term financing

A
term financing
S

S Permanent current assets

Long-term financing
ASSETS Time
E

S
CONSERVATIVE APPROACH: -

In this approach there is more reliance on long-term financing in comparison to short-

term financing. Even some part of the temporary current comparison to finance from long-term
sources because long-term sources are less risky in comparison to short-term sources.

Temporary Current Assets

A
Short-term financing
S

S
Permanent Current Assets Long-term financing
Fixed Assets Time

AGGRESSIVE APPROACH

In this approach there is more reliance on short term financing and even a part of
permanent current assets is financed from short-term finance.

Temporary current assets Short term financing

A

E
Permanent current assets Long term financing
T

S
Fixed Assets

Time
In SATHE SYNTHETICS, the current assets are financed from short term sources as well as
long term sources, so they follow conservative approach.

WORKING CAPITAL ANALYSIS

1. OPERATING CYCLE ANALYSIS

Operating cycle refers to the time period which starts from the raw material purchases
and ends with realization of receivable. So it is total time gap between raw material purchases to
total debtors’ collection. This is also known as working capital cycle. Operating cycle is
therefore expressed in terms of months or weeks or days. The higher the operating cycle period,
higher the working capital requirement. It comprises of raw material conversion period, WIP
conversion period, FG conversion period and debtors’ conversion period and creditors period.
The basic reason for calculating operating cycle is to find out the means for reducing the duration
of operating cycle because if duration of operating cycle will be less than working capital
requirement will be less.

OC = R + W + F + D – C
Where,

R = raw material conversion period W = work in process period

F = finished goods conversion period D = debtor collection period

C = creditors payment period

(1) Raw Material Conversion Period (RMCP)

= Average Raw Material Stock

Average Raw Materials consumed during the year

PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05

Average raw 33065118 33352213.5 20819151 13076062.5 9471720.12
material stock
Raw material 314166.03 213093.45 107464.04 218371.65 121729.46
consumed
during the year
RMCP 105.25 156.52 193.73 59.88 77.80

250

193.73
200
156.52
150
105.25
RMCP
100 77.8
59.88
50

0
2015 2014 2013 2012 2011

(2) Work in Progress Conversion Period (WIPCP)

 = Average stock in progress

Average Cost of Production

PARTICULARS 2015 2014 2013 2012 2011

Average stock in 7834151.50 8313099.5 5586013 4818821.5 3634639.5
progress
Avg. Cost of 190952.86 211273.02 194248.64 180015.22 136824.55
production
WICP 41.03 37.93 28.75 26.77 26.56

45 41.03
40 37.93
35
28.75
30 26.77 26.56
25
20 WICP
15
10
5
0
2015 2014 2013 2012 2011

(3) Finished Goods Conversion Period (FGCP)

= Average finished goods inventory

XX 360
360
Average Cost of goods sold

PARTICULARS 2015 2014 2013 2012 2011

Average 14911159 13149905.5 5004497 6396225 5858384.5
finished goods
inventory
Cost of goods 1955523.98 1648540.72 1398222.17 1260173 989215.18
sold
FGCP 7.63 7.98 3.58 5.08 5.92

9
7.98
8 7.63
7
5.92
6 5.08
5
4 3.58 FGCP
3
2
1
0
2015 2014 2013 2012 2011

(4) Debtors’ Conversion Period (DCP)

= Days in year company operating

Debtors’ turnover

PARTICULARS 2015 2014 2013 2012 2011

Days in year 360 360 360 360 360

company
operating

Debtors’ turnover 21.66 22.89 18.41 15.82 18.38

DCP 16.62 15.72 19.55 22.76 19.59

 25 22.76
19.55 19.59
20
16.62
15.72
15

DCP
10

0
2015 2014 2013 2012 2011

(5) Credit Conversion Period (CCP)

= Days in year company operating

Creditors’ turnover X

PARTICULARS 2015 2014 2013 2012 2011

Days in year 360 360 360 3 360 360

company 6
operating
0

Creditors’ 27.15 26.02 39.50 22.77 23.30

turnover

Avg. consumption 13.26 13.84 9.11 15.81 16.14

period OR CCP
 18 16.14
15.81
16
13.26 13.84
14
12
10 9.11
8 CCP
6
4
2
0
2015 2014 2013 2012 2011

GROSS OPERATING CYCLE FOR SATHE SYNTHETICS:

YEAR RMCP WICP FGCP DCP GOC

2015 105.25 41.03 7.63 16.62 170.53

2014 156.52 37.93 7.98 15.72 217.84

2013 193.73 28.75 3.58 19.55 245.61

2012 59.88 26.77 5.08 22.76 114.49

2011 77.80 26.56 5.92 19.59 129.87

300
245.61
250
217.84
200 170.53
150 129.87
114.49 GOC
100

50

0
2015 2014 2013 2012 2011

NET OPERATING CYCLE: -

YEAR GOC CCP OR APP NOC

2015 170.53 13.26 157.27

2014 217.84 13.84 204.31

2013 245.61 9.11 236.5

2012 114.49 15.81 98.68

2011 129.87 16.14 113.73

250 236.5
204.31
200
157.27
150
113.73
98.68 NOC
100

50

0
2015 2014 2013 2012 2011

ANALYSIS

It claimed that gross operating cycle of SATHE SYNTHETICS is increasing in year 2004-05 and
in the year 2005-06 it decreasing up to certain extent. In year 2004-05, it is 129.87 days then it
decreased to 114.49 days in year 2005-06 due to contraction in raw material. In 2006-07, it is on
the highest point of 245.61 days. The main reason of increasing gross operating cycle in 2006-07
is due to more availability of raw material in the stores. In year 2006-07 the company purchased
a bulk of raw material due to market variations the GOC is increased. However, when we came
to year 2007-08 the GOC for S.S has shown a significant decrement of 204.31 days from the
year 2006-07 to 245.61. When in next year 2008-09, it came out to be 170.53 days. The GOP for
satisfactory as it Varies as the market requirements and changes in form of meet the customer’s
requirements largely.
But when we came to the NOC of Sathe Synthetics it we can see that Creditor’s payment period
OR Average payment period of S.S is on a average of 15 days in each (5) five years so does not
make more effect on GOC. Therefore, it is somehow near of the GOC.

That is why the company’s NOC 113.73, 98.68, 236.5, 204.31, and 157.27 in the years 2011,
2012, 2013, 2014 and 2015. Therefore, we can say that there is a significant change in the NOC
of the Sathe Synthetics.

1. RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the

process of establishing and interpreting various ratios for helping in making decisions. It only
means of better understanding of financial strengths and weaknesses of a firm. The main
emphasis has been on calculating the ratios related to a working capital management.

LIQUIDITY RATIOS: -These are the ratios which measures the short term solvency or
financial position of a firm. In other words, it refers to the ability of a concern to meet its current
obligations as and when these become due. To measure the liquidity of a firm, the following
ratios can be calculated.

CURRENT RATIO: – It may be defined as the relationship between current assets and current
liabilities. This ratio is also known as working capital ratio and measures the ability of the firm to
meet current liabilities. High current ratio indicates firm is liquid and has the ability to pay its
current obligations in time as and when they become due.

A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is
considered to be satisfactory.

Current Ratio = Current Assets

Current Liabilities
YEAR CURRENT CURRENT CURRENT
ASSETS LIABILITIES RATIO

2015 115612673.56 18528617.22 6.24

2014 141934492.00 35172584.20 4.04

2013 97761075.20 12343214.74 7.92

2012 72335450.22 13758132.09 5.26

2011 72171734.06 21676428.69 3.33

9
7.92
8
7 6.24
6 5.26
5
4.04
4 3.33 CR
3
2
1
0
2015 2014 2013 2012 2011

ANALYSIS

The current ratio of the Sathe synthetics is above the standard and it guarantees the payment of
dues in time. The current ratio of the company has been considerably high because they had
made over investment in inventories, which is the main reason for the high ratio of current assets.
Inventories are high because of seasonal availability of raw material. The overall position of
current ratio for Sathe synthetics is satisfactory.

The current ratio of dye house has shown a remarkable increment from 3.33 in 2011-12 to 5.26
in 2012-13 and then to 7.92 in 2013-14. Initially in 2014-15, the ratio was not satisfactory but it
is quite satisfactory for the years after 2014-15 and especially for the year 2012-11.
LIQUID RATIO –This ratio is also known as quick ratio or acid test ratio. It is a more rigorous
test of liquidity than the current ratio. It is based on those current assets which are highly liquid.
Inventory and prepaid expenses are excluded because they are deemed to be least liquid
component of current assets. A high quick ratio is the indication that the firm is liquid and has
the ability to meet its current liabilities in time and on the other hand low ratio represents
liquidity position is not good.

Quick Ratio = Quick or Liquid Assets

Current Liabilities

Quick Assets = Current Assets – Inventory – Prepaid Expenses

YEAR LIQUID ASSETS CURRENT LIQUID RATIO

LIABILITIES

2015 71845029.56 18528617.22 3.88

2014 74081279.00 35172584.20 2.11

2013 56583851.20 12343124.74 4.58

2012 50693352.22 13758132.09 3.68

2011 45231614.06 21676428.69 2.09

5 4.58
4.5
3.88
4 3.68
3.5
3
2.5 2.11 2.09
LR
2
1.5
1
0.5
0
2015 2014 2013 2012 2011
Analysis

According to rule of thumb, it should be 1:1. For Sathe synthetics, the liquid ratio present a
uneven change over the past four years. It was 2.09 in 2004-05 and increased to 4.58 in 2006-07
and then to 2.11 in 2007-08. The decrement in the ratio is not satisfactory, however the ratio 2.11
in 2007-08 is more than the rule of thumb but it should be quite more than the rule of thumb.

WORKING CAPITAL TURNOVER RATIO – Working capital turnover ratio indicates the
velocity of the utilization of net working capital. This ratio measures the efficiency with which
the working capital is being used by a firm.

Working Capital Turnover Ratio = COGS OR Sales

Net Working Capital

YEAR SALES NET WORKING WCTR

CAPITAL

2015 703988634.61 97084056.34 7.25

2014 593474659.66 106761907.80 5.56

2013 503359979.46 85417950.46 5.89

2012 453662278.70 453662278.70 7.74

2011 356117465.20 50495305.37 7.05

9
7.74
8 7.25 7.05
7
5.89
6 5.56
5
4 WCTR
3
2
1
0
2015 2014 2013 2012 2011
ANALYSIS

This ratio indicates the number of times the working capital is turned over in the course of a
year. A high working capital ratio indicates the effective utilization of working capital and less
working capital ratio indicates less utilization. For Sathe synthetics, the ratio is quite same for the
past five years. It is 7.05 in 2010-2011, 7.74 in years 2011-2012 and in2012-2013 there was a
slight change came over here and the ratio decreased to 5.89. And in the next year in 2013-14 the
ratio stand at 5.56 For Sathe synthetics, the ratio is increasing once more in the very next year in
2014-2015, It shows increment to 7.25. the ratio of the company is satisfactory.

STOCK TURNOVER RATIO

This ratio tells the story by which stock is converted into sales. A high stock turnover ratio
reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned
over or sold during the year.

STOCK OR INVENTORY TURNOVER RATIO = COGS OR SALES

AVERAGE STOCK

YEAR SALES AVERAGE STR or ITR

STOCK

2015 703988634.61 55810428.5 12.61

2014 593474659.66 23981268.5 24.75

2013 503359979.46 31409661 16.03

2012 453662278.70 24291109 18.68

2011 356117465.20 18964744.11 18.78

 30
24.75
25

20 18.68 18.78
16.03
15 12.61
STR
10

0
2015 2014 2013 2012 2011

ANALYSIS: -

By analyzing the five-year data it seen, that it follows an uneven trend. We see that from the year
2011 to 2012 & 2012 to 2013, it moves on a slow pace means, the ratio is increased in very
nominal figures i.e. (.10) times and (2) times, which has been rectified in the year 2014.
In 2014 there is a huge increase in inventory due to this ratio the company maintains is very high
in 2014 and the company is required to take measures to lower down this ratio as it affects the
working capital cycle of company and the flow of cash in the company. In 2015, we saw
company take measure to lower down its ratio which is good for company because a low stock
turnover ratio reveals undesirable accumulation of obsolete stock.

DEBTORS’ TURNOVER RATIO: -

DEBTORS’ TURNOVER RATIO = CREDIT SALES

AVERAGE DEBTORS’

YEAR CREDIT SALES AVERAGE DTR

DEBTORS’

2015 703988634.61 32503373 21.66

2014 593474659.66 25923481.52 22.89

2013 503359979.46 27348823.87 18.41

2012 453662278.70 28677098.13 15.82

2011 356117465.20 19374123.96 18.38

25 22.89
21.66
20 18.41 18.38
15.82
15

DTR
10

0
2015 2014 2013 2012 2011

ANALYSIS

Generally a low debtor’s turnover ratio implies that it considered congenial for the business as it
implies better cash flow. The ratio indicates the time at which the debts are collected on an
average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter
collection period which indicates prompt payment made by the customer.
Now if we analyze the five year data we can say that it holds a good position while receiving
its money from its debtors. The ratios are in variation trend, which implies that recovery
position is good and company should maintain these positions.

CREDITORS’ TURNOVER RATIO: -

Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally a low creditor’s turnover ratio implies favorable since the firm
enjoys lengthy credit period.
CREDITORS’ TURNOVER RATIO = NET CREDIT PURCHASE

AVERAGE CREDITORS’

YEAR CREDIT AVERAGE CTR

PURCHASE CREDITORS’

2015 567750535.58 20914713.21 27.15

2014 505412322.46 19426820.02 26.02

2013 421557817.32 10672311.95 39.50

2012 358037616.35 15724391.01 22.77

45
39.5
40
35
30 27.15 26.02
25 22.77 23.3

20 CTR
15
10
5
0
2015 2014 2013 2012 2011

2011 300672597.42 12906200.48 23.30

ANALYSIS

Actually, this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally, a low creditor’s turnover ratio implies favorable since the firm
enjoys lengthy credit period.
Now if we analyze the three years data we find that in the year 2013 the ratio was very high
which means that its position of creditors that year was not good only in the year 2013, when we
turn
PARTICULARS 2011-12 2012-13 INCREASE DECREASE ahead
the
other
years
credit
or’s
turno
ver
ratio
is in
pretty
good
positi
on.
In the
all
four years it has followed, a decreasing trend, which is very good, sign for the company.
Therefore, we can say it enjoys a very good credit facility from the suppliers.

ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

CURRENT
ASSETS:

Inventories 21642098.00 41177224.00 19535126

S. debtors 30359548.69 22158429.16 8201119.53

Cash & Bank 3407307.32 2297697.88 1109609.44

Balances

Loans & 16926496.21 32127724.16 15201227.95

Advances

Total current 72335450.22 97761075.20

assets (A)

CURRENT
LIABILITIES:

S. creditors 11585162.05 9759461.84 1825700.21

Provisions 2072970.04 2483662.90 410692.86

Security deposits 100000 100000 ----- ------

& Retention
money

Total current 13758132.09 12343124.74

liabilities (B)

Working capital 58577318.13 85417950.46 36562054.16 9721421.83

(A-B)

Net increase in 26840632.33 26840632.33

working capital

85417950.46 85417950.46 36562054.16 36562054.16

ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

PARTICULARS 2013-14 2014-15 INCREASE DECREASE

CURRENT
ASSETS:

Inventories 67853213 43767644 24085569

S. debtors 27508864 37497882 9989018

Cash & Bank 3665403.60 6891449.29 3226045.69

Balances

Loans & 42907011.40 27455698.27 15451313.13

Advances

Total current 141934492.00 115612673.56

assets (A)

CURRENT
LIABILITIES:

S. creditors 29094178.20 12735248.22 16358929.98

Advance from 2439050 722054 1716996

customers

Provisions 3539356.00 4971315.00 1431959

Security deposits 100000.00 100000 ----- -----

& Retention
money

Total current 35172584.20 18528617.22

liabilities (B)

Working capital 106761907.8 97084056.34 31290989.67 40968841.13

(A-B)

Net Decrease in 9677851.46 9677851.46

working capital

106761907.8 106761907.8 40968841.13 40968841.13

FOR YEARS 2012 AND 2013:

As we have a look on the schedule of changes in working capital for the Sathe synthetics over
the years 2011-12 and 2012-13, we find that, among current assets, inventories, loans and
advances have shown increment from year 2011-12 to year 2012-13. The sundry debtors and
cash & bank balances have decreased in the same years. Among the current liabilities, the sundry
creditors and other liabilities have decreased and provisions were increased. Therefore, the
overall net working capital has increased.

FOR YEARS 2013-14 AND 2014-15:

Among the current assets, debtors and cash & bank balances have increased and inventories and
loans & advances have shown decrement. The total current assets have increased. Among the
current liabilities, sundry creditors and other liabilities have decreased which made a positive
effect on networking capital and it increases, on the other hand, the provision increased which
not directly but overall made a good effect on company. Therefore, the net working capital has
also increased.
ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

INVENTORY ANALYSIS

Inventory is total amount of goods and materials. Inventory means stock of three:-
1. Raw materials
2. Semi finished goods.
3. Finished goods.
Position of inventory in Sathe synthetics: -

PARTICULARS 2015 2014 2013 2012 2011

Raw material 28833211 37297025 29407402 12230900 13921225
W.I.P 5912280 9756023 6270176 4901850 4735793
Finished goods 9022153 20800165 5499646 4509348 8283102
TOTAL 43767644 67853213 41177224 21642098 26940120

80000000
70000000
60000000
50000000
40000000
STOCK
30000000
20000000
10000000
0
2015 2014 2013 2012 2011

INTERPRETATION:

By analyzing the 5 years data we see that the inventories are increased/decreased year by year.
We can look increasing pattern in inventories. We can see that inventories are grown in 06-07
and 07-08 respectively from previous year in figures it increases up to19535126 in2007 and
inyear2008 it increases to 26675989 in comparison of 2007. By this growth we can say that the
company is growing. A company uses inventory when they have demand in market and Sathe
Synthetics is having a demand in industry market. That is biggest reason for increase in
Inventories. From other point of view we can say that the liquidity of firm is blocked in
inventories but to stock is very good due to uncertainty of availability of raw material in time.

SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under
Current assets. Debtors will arise only when credit sales made.
Position of Sundry Debtors in Sathe synthetics

PARTICULARS 2015 2014 2013 2012 2011

DEBTS O/S 0.00 203547.00 118028.00 85124.00 262290.00
FOR A PERIOD
OF SIX
MONTHS
OTHER 37497882.00 27305317.00 22040401.16 30274424.69 26732357.57
DEBTS
TOTAL 37497882.00 27508864.00 22158429.16 30359548.69 26994647.57

40000000
35000000
30000000
25000000
20000000
DEBTORS
15000000
10000000
5000000
0
2015 2014 2013 2012 2011

INTERPRETATION
In the table and figure, we see that there are continuous variations in the debtors of Sathe
Synthetics in five (5) successive years. A simple logic is that debtors increase only when sales
increase and if sales increases it is good sign for growth. We can see that in the year 2012-13 the
Debtors are at minimum level. Moreover, in next two years in 2014 & 2015 the debtors are
continuously increasing.
We can say that it is a good sign as well as negative also. Company policy of debtors is very
good but a risk of bad debts is always present in high debtors. When sales are increasing with a
great speed the profit also increases. If company decreases the Debtors, they can use the money
in many investment plans. So, this variation is good from the firm prospect
CASH AND BANK BALANCE ANALYSIS

Cash called the liquid asset and vital current assets; it is an important component of
Working capital. In a narrow sense, cash includes notes, bank draft, cheque etc.
Position of Cash and Bank Balance in Sathe synthetics: -

PARTICULARS 2015 2014 2013 2014 2013

Cash & Bank 6891449.29 3665403.60 2297697.88 3407307.32 6617777.19
TOTAL 6891449.29 3665403.60 2297697.88 3407307.32 6617777.19

8000000
7000000
6000000
5000000
4000000
CASH & BANK
3000000
2000000
1000000
0
2015 2014 2013 2012 2011

INTERPRETATION

If we analyze the above table and chart we find that it follows an increasing trend. In the year
2011, it had maintained a huge amount of cash and bank balance which has decreases in the year
2012, 2013 and 2014. Although company’s cash position in the year2012, 2013 & 2014 was not
sound so, this is not a very good sign for company. The analysis shows that the fix deposits of
company are rapidly fallen in the year as 42.3% in 2012- 13 respectively from year 2011 that is
why company is have minimum balance in 2013 in comparison of all. Through analysis, we got
that company is utilizing the fixed cash for exploding the Projects that is good for growth.

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees
For a specific period of time and in return they will be liable to make timely repayment of that
Amount in addition to interest on that loan.

PARTICULARS 2015 2014 2013 2012 2011

LOANS & 27455698.27 42907011.40 32127724.16 16926496.21 11619189.30
ADVANCES
TOTAL 27455698.27 42907011.40 32127724.16 16926496.21 11619189.30
 50000000
45000000
40000000
35000000
30000000
25000000 LOANS &…
20000000
15000000
10000000
5000000
0
2015 2014 2013 2012 2011

INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is a
Good sign for the company. We can see that the increase of loans and advances are increases
year by year except the year 2015. In the year 2014 there is more than Rs 4 crore given as loan,
due to this a lot of amount was blocked. But it used for expansion of business.
The increasing pattern shows that company is giving advances for the expansion of plants and
Machinery which is good sign for better production. Although company’s cash is blocked but
This is good that company is doing modernization of plan competitors in market.

CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
Liabilities that has to be paid by the firm within one year.

CREDITORS: -

PARTICULARS 2015 2014 2013 2012 2011

SUNDRY 12735248.22 29094178.20 9759461.84 11585162.05 19863619.97
CREDITORS
TOTAL 12735248.22 29094178.20 9759461.84 11585162.05 19863619.97
 30000000
25000000
20000000
15000000 CREDITORS
10000000
5000000
0
2015 2014 2013 2012 2011

INTERPRETATION
If we analyze the above table then we can see that it follow an uneven trend in the sundry
creditors and other liabilities. In 2006 it decreased by 75% and in 2007 it further decreased by
more then100%. In 07-08 it was increased because of growth in other liabilities. This is done
because in the year2008 company purchased a bulk of raw material due to market variations.
When company has minimum liabilities it creates a better goodwill in market. High current
liabilities indicate that company is using credit facilities by creditors.

PROVISIONS ANALYSIS

Position of Other Provisions in Sathe synthetics

PARTICULARS 2015 2014 2013 2012 2011

PROVISIONS 4971315.00 3539356.00 2483662.90 2072970.04 1812808.72
TOTAL 4971315.00 3539356.00 2483662.90 2072970.04 1812808.72
 6000000

5000000

4000000

3000000
PROVISIONS
2000000

1000000

0
2015 2014 2013 2012 2011

INTERPRETATION
From the above table we can see that provision shows a growing trend and the huge amount is
Being kept in these provisions. Though the profits of the company are increased, income tax is
Also increased. Therefore, there is a great need of maintaining proper provisions, which is good
that company is creating in time. The provisions are increasing as the tax increases. Although
company is paying more income tax that is why because company also earning more. This is
good sign for Company.
 By conducting the study about working capital management, I found out that working
capital management of SATHE SYNTHETICS is good. SATHE SYNTHETICS has
sufficient funds to meet its current obligation every time, which is due to sufficient
profits and efficient management of SATHE SYNTHETICS.
 Raw material for all the units of SATHE SYNTHETICS purchased by corporate office in
bulk, which is a major problem for the company as it increases the inventory cost.
 Company is cash rich but as there are expansion and diversification plans under the
pipeline, company is not utilizing these funds. For meeting the working capital needs and
capacity expansion needs, it has borrowed from banks.
 Lack of advertisement can be considered to be a weak point for the Sathe Synthetics.
 The amount of stock is increasing per year, which is a good sign, as it would help them in
the tough competition coming ahead.
 Firm profitability can be increase by shortening accounts receivables and inventory
periods.
 SUGGESTIONS

 Management should make the proper use of inventory control techniques like fixation of
minimum, maximum and ordering levels for all the items for less blockage of money.
 The company should also adopt proper inventory control like ABC analysis etc. This
inventory system can make the inventory management more result oriented. The EOQ
should also follow in stores.
 The company should train its work force properly, which would enable the company to
utilize its resources properly and in the interim help in minimizing wastage, and hence
result in the expansion of its market share.
 Due to competition, prices are market driven and for earning more margin company
should give the more concentration on cost reduction by improving its efficiency.
 The investments of surplus funds made by the corporate office and the units are not
generally involved while taking decisions with regard to structure of investment of
surplus funds. The corporate office should involve the units to better ascertain the future
requirements of funds and accordingly the investments made in different securities.
 The company is losing its overseas customers due to decrease in exports so; the sufficient
amount of exports should the maintained.
 Company’s Average debtor collection period of company is 19 days. Therefore, it would
be the one of the positive point for company and company should maintain it for future.
Measures to Improve Working Capital Management at SATHE SYNTHETICS:

 The essence of effective working capital management is proper cash flow forecasting.
This should take into account the impact of unforeseen events, market cycles, loss of a
prime customer and actions by competitors. So, the effect of unforeseen demands of
working capital should be factored by company. This was one of its reasons for the
variation of its revised working capital projection from the earlier projection.

 It pays to have contingency plans to tide over unexpected events. While market-leaders
can manage uncertainty better, even other companies must have risk-management
procedures. These must be based on objective and realistic view of the role of working
capital.

 Addressing the issue of working capital on a corporate-wide basis has certain

advantages. Cash generated at one location can well be utilized at another. For this to
happen, information access, efficient banking channels, good linkages between
production and billing, internal systems to move cash and good treasury practices should
be in place.

 An innovative approach, combining operational and financial skills and an all-

encompassing view of the company’s operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by having
the right set of executives who are responsible for setting targets and performance levels.
They could be then held accountable for delivering, encouraged to be enterprising and to
act as change agents.
 Effective dispute management procedures in relation to customers will go along way in
freeing up cash otherwise locked in due to disputes. It will also improve customer service
and free up time for legitimate activities like sales, order entry and cash collection.
Overall, efficiency will increase due to reduced operating costs.

 Working capital management is an important yardstick to measure a company operational

and financial efficiency. This aspect must form part of the strategic and operational
thinking. Efforts should constantly be made to improve the working capital position. This
will yield greater efficiencies and improve customer satisfaction.
 WEBSITES:-

 Lazaridis, Ioannis and Tryfonidis, Dimitrios, Relationship between Working Capital

Management and Profitability of Listed Companies in the Athens Stock Exchange.
Journal of Financial Management and Analysis, Vol. 19, No. 1, January-June 2006.
Available at SSRN:
http://ssrn.com/abstract=931591

 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=931591&rec=1&
srcabs=966188

 http://www.emeraldinsight.com/Insight/ViewContentServlet?contentType=Article&S.Se
name=/published/emeraldfulltextarticle/pdf/2910030202.pdf
 BOOKS AND JOURNALS

 Anand, M. 2001. “Working Capital performance of corporate India: An empirical

survey”, Management & Accounting Research, Vol. 4(4), pp. 35-65

 Berryman, J. 1983. “Small Business Failure and Bankruptcy: A survey of the Literature”,
European Small Business Journal, 1(4), pp47-59

 Bhattacharya, H. 2001. Working Capital Management: Strategies and Techniques,

Prentice Hall, New Delhi.

 Grablowsky, B. J. 1976. “Mismanagement of Accounts Receivable by Small Business”,

Journal of Small Business, 14, pp.23-28

 Grablowsky, B. J. 1984. “Financial Management of Inventory”, Journal of Small

Business Management, July, pp. 59-65

 Shields, Patricia and Hassan Tajalli. 2006. Intermediate Theory: The Successful Student
Scholarship. Journal of Public Affairs Education. Vol. 12, No. 3. Pp. 313-334.
 ANNEXURES

BALANCE SHEET AS AT
PARTICULARS 2014-15 2013-14 2012-13 2011-12 2010-11
SOURCES OF
FUNDS
SHRI GANESH JI 52.25 52.25 52.25 52.25 52.25
SHRI LAXMI JI 51.00 51.00 51.00 51.00 51.00
SHARE CAPITAL 19901000.00 19901000.00 19901000.00 19901000.00 19901000.00
RESERVE AND 345519604.82 29625127.98 15253853.53 21829192.29 20785949.94
SURPLUS
LOAN FUNDS
SECURED LOANS 72686105.58 88539002.13 94535519.74 55323395.23 54399581.72
DEFERED TAX 3383097.00 3449412.00 3080483.00 662332.00 ---------
LIABILITY
UNSECURED 43486673.00 46947616.00 28872233.00 15703501.00 14408414.70
LOANS
TOTAL 173976583.65 188462261.36 171643192.52 113419523.77 109495049.61
APPLICATION OF
FUNDS
FIXED ASSETS
A: GROSS BLOCK 178453951.93 172240571.18 164888412.68 126570061.76 123370584.96
B: less 101561424.62 90540217.62 78663170.62 71729938.62 64380715.62
DEPRICIATION
C: NET BLOCK 76892527.31 81700353.56 86225242.06 54840123.14 58989869.34
D:CURRENT
ASSETS
INVENTORY 43767644.00 67853213.00 41177224.00 21642098.00 26940120.00
SUNDRY DEBTORS 37497882.00 27508864.00 24338099.04 30359548.69 26994647.57
CASH IN HAND & 6891449.29 3665403.60 2297697.88 3407307.32 6617777.19
BANK
LOANS AND 27455698.27 42907011.40 32127724.16 16926496.21 11619189.30
ADVANCES
E:CURRENT
LIABILITIES
SUNDRY 12735248.22 29094178.20 9759461.84 11585162.05 19863619.97
CREDITORS
ADVANCE FROM 822054.00 2539050.00 100000.00 100000.00 --------------
CUSTOMERS/DLR’S
PROVISIONS 4971315.00 3539356.00 2483662.90 2072970.04 1812808.72
(D-E)NET 97084056.34 106761907.80 85417950.46 58577318.13 50495305.37
CURRENT ASSETS
MISCELLANEOUS --------- --------- -------- 2082.50 9874.90
EXPENSES
TOTAL 173976583.65 188462261.36 171643192.52 113419523.77 10945049.61
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
PARTICULARS 2014-15 2013-14 2012-13 2011-12 2010-11
(A) INCOME
1: NET SALES 703988634. 593474659. 503359979. 453662278. 356117465.
61 66 46 70 20
2: OTHER INCOME 436106.42 3913796.87 172310.00 13234.00 33965.73
TOTAL 704424741. 597388456. 503532289. 453675512. 356151430.
03 53 46 70 93
(B) EXPENSES
1:RAW 591836104. 478736333. 402022691. 36335638.3 284721845.
MATERIAL,FINISH 58 46 32 5 65
ED GOODS &
WORK IN
PROGRESS
2:MANUFACTURIN 68743029.0 76058287.2 69929616.6 64805480.3 49256838.9
G EXPENSES 5 4 4 7 5
3:SALARY & 4115744.00 3845617.00 3348712.00 3336648.00 2678327.00
OTHER
EMP.BENEFITS
4: 3232698.41 3229712.90 3352674.68 2742302.31 2066811.17
ADMINISTRATIVE
EXPENSES
5: SELLING 4646428.28 4114634.84 3276473.48 3183784.89 1610635.56
EXPENSES
6: FINANCIAL 13455947.3 13038713.2 7292587.41 6731948.84 4803871.78
EXPENSES 6 8
7: OTHER 446187.51 324537.36 731402.50 38487.59 42963.40
EXPENSES
8:DEPRICIATION 11021207.0 11877047.0 6933232.00 7349223.00 10608658.7
0 0 2
TOTAL 697497346. 591224883. 496887390. 451523513. 355789952.
19 08 03 35 72

PROFIT BEFORE 6927394.84 6163573.45 6644899.43 2151999.35 361478.70

TAX
DEFERRED TAX -66315.00 368929.00 2418151.00 662332.00
PROVISION FOR 99521.00 90342.00 56529.41 0.00
FBT
PROVISION FOR 1999712.00 1333028.00 745557.78 446425.00 58160.00
TAXATION
PROFIT AFTER 4894476.84 4371274.45 3424661.24 1043242.35 303318.70
TAX
PROFIT AS PER 18406627.9 14035353.5 10610692.2 9567449.94
LAST YEAR 8 3 9
BALANCE SHEET
CARRIED TO 23301104.8 18406627.9 14035353.5 10610692.2 303318.70
CURRENT YEAR 2 8 3 9
BALANCE SHEET