A Summer Training Report

On
WORKING CAPITAL
At MINDA INDUSTRIES Pvt. Ltd.

BY
AMAN KUMAR
170101040025

Minda Industries Private Limited

 A

Summer Training Project Report

On
“WORKING CAPITAL”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF

MASTERS OF BUSINESS ADMINISTRATION (FINANCE)

COMPANY NAME: UNO MINDA

TRAINING SUPERVISOR SUBMITTED BY

MR. DEEP CHAND ROHILLA AMAN KUMAR

ASST. MANAGER ROLL NO.: 170101040025

{ACCOUNTS & FINANCE} MBA-FINANCE

GURU JAMBHESHWAR UNIVERSITY OF SCIENCE AND TECHNOLOGY

HISAR

(SESSION 2017-2019)

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 DECLARATION

I Aman Kumar, Roll No. 170101040025 MBA (FINANCE) IIIrd Semester of the Haryana
School of Business hereby declare that the Sumer Training report entitled “A STUDY ON
WORKING CAPITAL MANAGEMENT” in MINDA INDUSTRIES PVT. LTD. is an
original work and the same has not been submitted to any other institute for the award of any
other degree.

Faculty’s Signature Candidate’s Signature

(Signature of Director/Principal of the Institute)

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 ACKNOWLEDGEMENT

I would like to express my gratitude to all those who have been instrumental in the preparation
of my project report.

I am thankful to the organization UNO MINDA, MANESAR for providing me the opportunity
to undertake this internship study and allowing me to carry out my project.

I am deeply grateful to my company guide and mentor, Mr DEEP CHAND ROHILLA, who
guided me to take this project and helped me bring it to conclusion. I am thankful to him for his
continuous support, advice and words of encouragement.

I am also grateful to Prof. N.S. Malik, the director of Haryana School of Business, for him
guidance and for giving me an opportunity to work.

Finally I would express my deep regards for all those who directly and indirectly helped me to
execute my project.

Aman Kumar

MBA FINANCE (F)

Haryana School of Business

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 1. INTRODUCTIONTO THE INDUSTRY .……………………………..… 07-10

1.1 OVERVIEW OF THE AUTOMOBILE INDUSTRY …….….…….…… 07

1.2 MARKET CAPITLIZATION……………..…………....……………….. 07

1.3 TOTAL CONTRIBUTION TO THE ECONOMY/ SALES…….……… 08

1.4 AUTOMOBILE PRODUCTION IN INDIA ……….…………………… 09

1.5 ROAD AHEAD …………………………………………………………. 10

2. INTRODUCTION TO THE COMPANY .……………………………..… 11-23

2.1 THE LOGO DECIPHERED……………………………….….…….…… 11

2.2 ABOUT THE COMPANY………………..…………....……………….. 12

2.3 OVERVIEW OF THE COMPANY AS A WHOLE…………….……… 13

2.4 TURNOVER OF THE ORGANISATION ……….……………… 14

2.5 VISION, MISSION & VALUES...………………………………………. 15

2.6 STRENGTHS OF THE ORGANISATION ……………………………... 16

2.7PRODUCTION OF THE ORGANISATION ….………………………... 17

2.8HIREARCHERI CHART ……………………...………………………... 23

3. RESEARCH METHODOLOGY ………………………………………….. 24-26

3.1 NEED OF THE STUDY ………………………………………………... 24

3.2 OBJECTIVE OF THE STUDY/ WORK ASSIGNED …………………..24

3.3 NATURE OF DATA ……………………………………………………. 25 .

3.4 RESEARCH DESIGN …….……………………………………………..25

3.5 SCOPE OF THE STUDY…......................................................................26

3.6 RESEARCH METHODS……...……………........................................... 26 .

3.7LIMITATION OF THE STUDY …………….......................................... 26

4. INTRODUCTION OF WORKING CAPITAL …………………………... 27-47

4.1 WHAT IS WORKING CAPITAL ……………………………………… 27

4.2NEED OF WORKING CAPITAL ……………………………………… 29

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 4.3 WORKING CAPITAL MANAGEMENT…...…………………………. 31

4.4CLASSIFICATION WORKING CAPITAL ………….………………… 34

4.5WORKING CAPITAL CYCLE …...…………………...………………..37

4.6INVENTORY MANAGEMENT ………………...….………………...... 39

4.7CASH MANAGEMENT …………………...………………..………….. 40

4.8RECEIVABLES MANAGEMENT…...……………….....…………….. 41

4.9MANAGING PAYABLES ……......…………………...………………..43

4.11FINANCING CURRENT ASSETS ……...………………....………….. 44

4.11 ADVANTAGE OF ADEQUATE WORKING CAPITAL..……….…... 45

4.12FACTORS AFFECCTING W.C. MGNMT…………...………………..47

5. ANALAYSIS OF WORKING CAPITAL ……….………………………... 50-57

5.1 WORKING CAPITAL POSITION ANALYSIS ..……………………… 50

5.2INVENTORY ANALYSIS ……………...……………………………… 52

5.3SUNDRY DEBTORS ANALYSIS ……...…...…………………………. 54

5.4CASH AND BANK BALANCE ANALYSIS ..………………………… 55

5.5CURRENT LIABILITIES ANALYSIS ……………...…….…………… 57

6. WORKING CAPITAL RATIO & IT’S ANALYSIS……………………... 59-67

6.1 WORKING CAPITAL RATIO ……………….....……………………… 59

6.2CURRENT RATIO ……………………...……………………………… 60

6.3QUICK RATIO …………………..……...…...…………………………. 62

6.4CURRENT ASSESTS TO FIXED ASSETS RATIO ……………...…… 63

6.5INVENTORY TURNOVER RATIO ………………...…….…………… 64

6.6RECEIVABLE RATIO …………..……...…...…………………………. 65

6.7PAYABLE RATIO ………………………………………………...…… 66

6.8POSITION OF OPERATING CYCLE……………...…….…………… 67

7. CONCLUSION ...………………………………………………………….… 69
8. BIBLOGRAPHY ……………………………………………………............. 70
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1. INTRODUCTION TO THE INDUSTRY

1.1 AUTOMOBILE INDUSTRY

The automobile industry is one of India’s most vibrant and growing industries. This industry
accounts for 22 per cent of the country's manufacturing gross domestic product (GDP). The auto
sector is one of the biggest job creators, both directly and indirectly. It is estimated that every job
created in an auto company leads to three to five indirect ancillary jobs.

India's domestic market and its growth potential have been a big attraction for many global
automakers. India is presently the world's third largest exporter of two-wheelers after China and
Japan. According to a report by Standard Chartered Bank, India is likely to overtake Thailand in
global auto-export market share by the year 2020.

The next few years are projected to show solid but cautious growth due to improved
affordability, rising incomes and untapped markets. With the government’s backing, and trends
in the international scenario such as the decline in prices of natural rubber, the Indian automobile
industry is slated to witness some major growth.

1.2 MARKET CAPITALIZATION

Segment-wise Market Share in 2015-16

4%

26% Two Wheelers

Three Wheelers
Passenger Wheelers
4% 66% Commercial Vehical

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1.3 TOTAL CONTRIBUTION TO THE ECONOMY/ SALES

The Indian Automobile Industry on a whole and contribution to GDP

This gives you an idea to the magnitude of a single industry being able to contribute as much as
10 per cent of the gross domestic product for a country like India.As of 2014, the Indian
automobile industry had contributed to almost 7 per cent of the country’s GDP During the time it
provided 22 per cent of India’s manufacturing GDP and provided around 18 per cent of excise
duties to the state exchequer. The Indian automobile industry has also significantly increased the
presence of the nation in international markets with a year-on-year increase in exports of
approximately 18 per cent.

While the above mentioned statistics have undoubtedly taken the country’s economy forward,
the Indian automobile industry has indeed taken its people forward as well by creating nearly 19
million jobs in the country through both direct as well as indirect employment. The Indian
automobile industry is responsible for employing 7 to 8 per cent of India’s total employed
population as of 2015. Automotive hubs across the country have given rise to ancillary industries
engaged in manufacturing components for automobiles and more. This has resulted in the
development of new urban settlements with civic amenities for healthcare and education, thereby
bettering life style as well.

The research and development sector in India has also been complimented well by the
automobile industry here through localization and indigenization of technology for the industry.
Multiple tie-ups and alliances with multinational companies to gain technical know-how has fast
tracked technological development and growth for India.

With a significant number of car makers already present in India and more of them looking to
enter the market in the future, the potential of the Indian automobile industry is immense in
terms of both revenue generation and employment. While the industry has gone through a
slowdown off late, what car makers are now looking forward to are reduction in duties and taxes
along with the incorporation of a centralized Goods and Service tax norm that will not only
streamline tax norms to make life easier for companies but also boost the industry as a whole.

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 GDP Contribution of Automobile Industry

15%

7%

7% 53%

18%

Service Agriculture Automotive Auto Components Other Industries

http://www.business-standard.com/ the-indian-automobile-industry-on-a-whole _1.html

1.4 AUTOMOBILE PRODUCTION IN INDIA (IN LAKHS)

The share of Automobile industry in the last decade in the Indian economy was around 5% of
GDP. The Indian Automobile industry has become the seventh largest in the world with an
annual production of over 2.6 million units in 2015.

Automobile Production In India (In Lakhs)

45
40
35
30
25
20
15
10
5
0
Two Wheelers Three wheelers Passenger Cars Commercial Vehicals

Series 1 Series 2

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1.5 ROAD AHEAD

The future of the auto industry depends on the positive sentiments and the demand for vehicles
in the market. With the festival season coming up, the Indian auto sector will see a rise in
demand which is expected to bring in major growth. An auto dealer survey by firm UBS
suggested that the Indian auto industry, riding on trends like the upcoming festival season and
decline in fuel price, will observe a 12 per cent y-o-y growth in FY16.

Also, keeping up with international trends, there is expected to be a surge in the number of
hybrid vehicles in the Indian auto sector in the years to come.

http://www.indianmirror.com/indian-industries/automobile.html

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2. INTRODUCTION TO THE COMPANY

2.1 THE LOGO DECIPHERED

The term UNO connotes leadership and stands for being the best (N. 1 as in Numero UNO). The
sans serif font of ‘UNO’ is timeless while being contemporary. Its slim contours & smooth
curves coupled with the sharp edges convey balance and precision and precision giving a sense
of sophistication in an understated manner. The UNO in reverse against blue is nicely balanced
and commands attention without shouting.

The 3 arrow mnemonic has been modified & Contemporized and is now and integral part of the
logo. In their current form, thee arrows signify: A forward looking approach, change &
evolution and the global thrust of the group (the arrows are actually down around a sphere, to
signify straddling the globe) with passion and energy (Red).

The new group logo in its entirely reflects a combination of stability with growth, of tradition
with forward thinking, of continuity with passion and energy, and of course, the global
orientation of the UNO MINDA, N K Minda Group.

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2.2 ABOUT THE COMPANY

Making its mark in the International Grid of Automobile Components manufacturing, UNO
MINDA steers ahead as a leading Tier 1 supplier of Proprietary Automotive Solutions to
Original Equipment Manufacturers (OEMs). Incepted way back in 1958 with a meagre start-up
capital and now notching up a group turnover beyond US$ 875 million, speaks volumes of the
conglomerate that it is today.

For nearly six decades, UNO MINDA has made significant contributions to the automotive
industry supply chain with innovative products, designed and engineered for efficiency with an
emphasis on enhanced comfort levels and fine tuned response.

UNO MINDA has 52 manufacturing plants in India, Indonesia, Vietnam, Spain, Morocco,
Mexico Colombia, design centers in Taiwan, Japan & Spain sales offices in USA, Europe,
Vietnam & Spain. It also has a strategic sourcing office in China.

With the human edge of a highly motivated workforce of over 15000 team members the Group
is headquartered in Manesar, Haryana, India. We have engineering, research and development
centers in Manesar, Pune & Sonepat.

The UNO MINDA strategic alignment ensures the maintenance of leadership in providing the
ideal product support for their customers. Drawing on the benefits of this long-term customer
support relation, UNO MINDA forges ahead as a Tier-1 supplier. We manufacture 2 Wheeler
Switches and Handle Bar Assemblies, Sensors, Actuators, Controllers 4 Wheeler Switches and
Heater Control Panels, Cigar Lighters, Automotive Lamps, Automotive Horns, Alternate Fuel
Systems , Automotive Batteries, Blow Molding Components, Seat Belts, Alloy Wheels, Wheel
Covers, Air Filtration Systems, Canisters, Die Casting Components, SRC, Steering Wheels,
Airbags, Fuel Caps, Body Sealing, Brake & Fuel Hoses, Car Infotainment Systems, Air Brakes,
Clutch Actuation Systems and Automatic Gear Shifters and Telematics & Connected Car
Solutions for OEMs.

Technology and innovation are two key pillars of UNO MINDA philosophy. Our underlying
vision is to create a culture that fosters great ideas that can be the basis for planning ingenious
products, successfully manufactured to deliver value to our customers.

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2.3 OVERVIEW OF THE COMPANY AS A WHOLE

UNO MINDA is the automobile manufacturing firm which has over60years of experience in the
auto mobile manufacturing sector.

To continually enhance stakeholders’ value throw global competitiveness while contributing to

the society.

Name of the company UNO MINDA, MANESAR

Year of Establishment 1958

Headquarters VILLAGE – NAWADA, FATEHPUR. P.O. –

SIKANDERPUR BADDA, IMT MANESAR
DISTT. – GURGAON. HARYANA, 122004
INDIA

Contact 0124-2290-693/428

Website www.unominda.com

Nature of Business Manufacturing

Services Presence in all automotive segments-4w, 2w,

off-road.

Number of Employees 15000+ as on dated 31st March, 2018

Number of Patents 122

Annual turnover Rs.56000mn as on dated 31st March, 2018

Number of clients More than 100 national and multinational

clients

Plants across India 58

Chairman & Managing Director Mr. Nirmal K, Minda

Director Name Mr. Anand Kumar Minda, Director

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2.4TURNOVER OF THE ORGANISATION

 TURNOVER???

Turnover is an accounting term that calculates how quickly a business collects cash from
accounts receivable or how fast the company sells its inventory. In the investment industry,
turnover represents the percentage of a portfolio that is sold in a particular month or year. A
quick turnover rate generates more commissions for trades placed by a broker.

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2.5VISION, MISSION & VALUES

 VISION

 Group to be Global Benchmark in Quality, Productivity, Cost, Delivery, Safety, Morale

(QPCDSM) and pioneer in technology.
 Group turnover – 10K crore by FY2020 ensuring Group Financial norms.
 International Business to be 25 % of turnover.

 MISSION

 To continually enhance stakeholders’ value through global competitiveness while

contributing to society

 VALUES

 Customer is supreme
 Live quality
 Encourage creativity and innovation to drive people process & products
 Respect for individual
 Respect for work-place ethics

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2.6STRENGTHSOF THE ORGANISATION

 ENTRENCHED EXPERIENCE

The company has been manufacturing auto components for than five decades. It has made a
name for itself as supplier of choice for all QEMs.

 LONGSTANDING RELATIONSHIPS

MIL has focused on building multi-year relationships with QEMs, business partners and
retailers, resulting in a preferred supplier status. We have been doing business with Maruti
Suzuki and Bajaj Auto for than two decades and Royal Enfield for more than five decades.

 WIDE PORTFOLIO

The Company offers a gamut of automotive components including switches, horns, lighting, fuel
cap, CNG kits, alloy wheel, blow molding products and aluminium die casting products among
others. With more than 10+ components in its products basket, the company has emerged as a
preferred supplier to existing and new product requirements of OEMs components needs.

 PERVASIVE PRESENCE IN AFTER MARKET

The company has a deep rooted distribution network proximate to key points of sales. More than
700 business partners and 10000 touch points ensure that its products reach the farthest corners
of India.

 STRONG FINANCIAL PROFILE

Turnover of the company has grown at 13% with EBITDA margin of 9.4% and margin
expansion of 250 basis points during the year under review. The company has for the first time
achieved PAT of more than Rs. 100 crore.

 STRATEGIC LOCATIONS

All the manufacturing units of the company are strategically in the vicinity of the major
automotive hubs in India.

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2.7 PRODUCTS OF THE ORGANISATION

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  PRODUCT-WISE PRODUCTION LINE:-

 MARKET SEGMENT OF MINDA INDUSTRIES

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 EVOLUTION OF PRODUCTS

 1995-2000
2.8 2W/4WSwitches
2.9 Lamps
 2001-2009
o Batteries
o CNG/LPG Kits
o Horns
o Blow Molding
o Sensors, Actuators & Controllers
o Seat Belts & Automatic Gear Shifters

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 2010-14
o Airbrakes
o Infotainment System
o Aluminum Die Casting
o Air Filtration Systems & Canisters
o Alloy Wheels
o Fuel Caps

 2015-16
o Hoses
o Telematics & Connected Car Solutions

 2017
o Electronic System Design &Manufacturing ( ESDM)
o Driver
o Assistance Products &Systems
o Speakers & Infotainment

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 CLIENTS OF THE ORGANISATION:-

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  LOCATIONS IN INDIA

Minda Industries Ltd. (Corporate Office)

Village - Nawada, Fatehpur

P.O. - SikanderPur Badda IMT Manesar
Distt. - Gurgaon
India

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 2.8HIREARCHERI CHART OF THE FINANCE DEPARTMENT

Mr. Arvind Kumar Agarwal

DGM-Finance

Mr. Rakesh Rustagi

Manager-Finance

Mr. Parmod Sharma Mr. Manish sharma Mr. Abhijit Sharma

DY Manager- Finance Asstt Manager- DY Manager-
Finance Finance

Mr. Deep Chand Rohilla Mr. Ankur Sharma Mr. Jitender Sharma
Asstt Manager- Finance Associate Associate

Mr. Dheeraj Kumar

Executive-Finance

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3. RESEARCH METHODOLOGY

Research is a common parlance refers to searching for knowledge. One can also define research
as a scientific search for pertinent information on a special topic. In fact research is an art of
scientific investigation.

3.1 NEED OF THE STUDY

Research in simple words can be defined as scientific and systematic search for pertinent
information on a particular topic or project. It is an endeavour to gain new knowledge. Thus it
is an original contribution to present stock of knowledge making or its enhancement.

Research methodology is the procedure for conducting the research. Research methodology
should be carefully planned as the accuracy, reliability and adequacy of results depend up on the
research methodology should followed. It gives the researcher a guideline by which he can
decide which techniques and procedures will be applicable to a given problem. More ever it also
helps in evaluation of the research by others also. So for the research to be purposeful and
effective the researcher should plan research methodology before proceeding to research study.

3.2 OBJECTIVE OF RESEARCH:

The Objective of research have been analysed are as follows:

1. Operating Cycle

2. Cash Management

3. Financing of Working capital

4. Inventory Management

3.3 NATURE OF DATA

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There are several ways of collecting the appropriate data which differ considerably in context of
money, cost, time and other sources at the disposable of the researcher.
There are two types of data:

 Primary data
 Secondary data

 Primary Data
Primary data are those which are collected afresh and for the first time, and thus happen to be
original in character. I have used
 Direct communication with respondent, and
 Observation

 Secondary Data
Secondary data are those which have already been collected by someone else and have already
been passed through statistical process.
In this project report, both types of data have been used. Mainly, secondary data is used such as:

 Annual reports of last two years of MINDA INDUSTRIES LTD. MANESAR

 Data provided by MINDA INDUSTRIES LTD. MANESAR

3.4 RESEARCH DESIGN

Research design is concerned with makings specific questions. Good research design should
make it possible to draw valid inferences from data in terms of generalization, association and
causality. There are many types of research designs but, my project involves Analytical &
Descriptive research design.

3.5 SCOPE OF THE STUDY

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  The study is extended to the finance department OF MINDA INDUSTRIES LTD.
 The study is limited based on data provided by the company’s financial statements. So
the limitations of the statements are equally applicable of this study.
 The study conducted on working capital management of MINDA INDUSTRIES
LTD.Covers all the financial area of working capital including how it invests their
fundsand how it analyses.

3.6 RESEARCH METHODS

Research methods may be understood as those methods/techniques that are used for conduction
of research. All those methods which are used by the researcher during the course of studying
his research problem are termed as research methods. Keeping in view, the research methods can
be put into following three groups:

 In the first group we include those methods which are concerned with the collection of
data. These methods will be used where the data already available are sufficient to arrive
at the required solution.
 The second group consists of those statistical techniques which are used to establish
relationships between the data and the unknown.
 The third group consists of those methods which are used to evaluate the accuracy of the
obtained results.

3.7 LIMITATIONS OF THE STUDY

While preparing this project there were some problems during survey and certain limitations that
came across are:

 This study was done with the purpose of learning only.

 The data used in this report are meant to be kept confidential
 The contents of this report are based on past 3 year’s data only.

4. INTRODUCTION TO WORKING CAPITAL

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 “Working Capital is the Life-Blood and Controlling Nerve Centre ofa business”

Management is an art of anticipating and preparing for risks, uncertainties and overcoming
obstacles. An essential precondition for sound and consistent assets management is establishing
the sound and consistent assets management policies covering fixed as well as current assets. In
modern financial management, efficient allocation of funds has a great scope, in finance and
profit planning, for the most effective utilization of enterprise resources, the fixed and current
assets have to be combined in optimum proportions.

Working capital in simple terms means the amount of funds that a company requires for
financing its day-to-day operations. Finance manager should develop sound techniques of
managing current assets.

4.1 WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash,
marketable securities. Net current assets or net working capital refers to the current assets less
current liabilities.

Symbolically, it means,
Net Current Assets = Current Assets Current Liabilities.

In accounting,” Working capital is the difference between the inflow and outflow of funds. In
other words, it is the net cash inflow. It is defined as the excess of current assets over current
liabilities and provisions. In other words, it is net current assets or net working capital.
Working capital represents the total of all current assets. In other words it is the Gross working
capital, it is also known as Circulating capital or Current capital for current assets are rotating in
their nature.A study of working capital is of major importance to internal and external analysis
because of its close relationship with the day-to-day operations of a business. Working Capital is
the portion of the assets of a business which are used on or related to current operations, and
represented at any

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The funds required and acquired by a business may be invested to two types of assets:
1. Fixed Assets.

2. Current Assets

Fixed assets arethose which yield the returns in the due course of time. The various decisions
like in which fixed assets funds should be invested and how much should be invested in the
fixed assets etc. are in the form of capital budgeting decisions. This can be said to be fixed
capital management.

Other types of assets are equally important i.e. CurrentAssets.

These types of assets are required to ensure smooth and fluent business operations and can be
said to be life blood of the business. There are two concepts of working capital — gross and net.
Gross working capital refers to gross current assets. Net working capital refers to the difference
between current assets and current liabilities. The term current assets refers to those assets held
by the business which can be converted into cash within a short period of time of say one year,
without reduction in value. The main types of current assets are stock, receivables and cash. The
term current liabilities refer to those liabilities, which are to be paid off during the course of
business, within a short period of time say one year. They are expected to be paid out of current
assets or earnings of the business. The current liabilities mainly consist of sundry creditors, bill
payable, bank overdraft or cash credit, outstanding expenses etc.

The working capital management precisely refers to management of current assets. A firm’s
working capital consists of its investment in current assets, which include short-term assets such
as:

 Cash and bank balance,

 Inventories,
 Receivables (including debtors and bills),
 Marketable securities.
 Working capital is commonly defined as the difference between current assets and
current liabilities.

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4.2 NEED FOR WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient working
capital, any business organization cannot run smoothly or successfully. In the business the
Working capital is comparable to the blood of the human body. Therefore the study of working
capital is of major importance to the internal and external analysis because of its close
relationship with the current day to day operations of a business. The inadequacy or
mismanagement of working capital is the leading cause of business failures.

The need of gross working capital or current assets cannot be overemphasized. The object of any
business is to earn profits. The main factor affecting the profits is the magnitude of sales of the
business. But the sales cannot be converted into cash immediately. There is a time lag between
the sale of goods and realization of cash. There is a need of working capital in the form of
current assets to fill up this time lag. Technically, this is called as operating cycle or working
capital cycle, which is the heart of need for working capital. This working capital cycle can be
described in the following words. If the company has a certain amount of cash, it will be
required for purchasing the raw material though some raw material may be available on credit
basis. Then the company has to spend some amount for labour and factory overheads to convert
the raw material in work in progress, and ultimately finished goods. These finished goods when
sold on credit basis get converted in the form of sundry debtors. Sundry debtors are converted in
cash only after the expiry of credit period. Thus, there is a cycle in which the originally available
cash is converted in the form of cash again but only after following the stages of raw material,
work in progress, finished goods and sundry debtors. Thus, there is a time gap for the original
cash to get converted in form of cash again. Working Capital needs of company arise to cover
the requirement of funds during this time gap, and the quantum of working capital needs varies
as per the length of this time gap.

Thus, some amount of funds is blocked in raw materials, work in progress, finished goods,
sundry debtors and day-to-day requirements. However some part of these current assets may be
financed by the current liabilities also. E.g. some raw material may be available on credit basis,
all the expenses need not be paid immediately, workers are also to be paid periodically etc. But

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still the amounts required to be invested in these current assets is always higher than the
funds.available from current liabilities. This is precise reason why the needs for working capital
arise. From the Financial management point of view, the nature of fixed assets and current assets
differ from each other--

1. The fixed assets are required to be retained in the business over a period of time and they yield
the returns over their life, whereas the current assets lose their identity over a short period of
time, say one year.

2. In the case of current assets, it is always necessary to strike a proper balance between the
liquidity and profitability principles, which is not the case with fixed assets. E.g. If the size of
current assets is large, it is always beneficial from the liquidity point of view as it ensures
smooth and fluent business operations. Sufficient raw material is always available to cater to the
production needs, sufficient finished goods are available to cater to any kind of demand of
customers, liberal credit period can be offered to the customers to improve the sales and
sufficient cash is available to pay off the creditors and so on.

However, if the investment in current assets is more than what is ideally required, it affects the
profitability, as it may not be able to yield sufficient rate of return on investment. On the other
hand, if the size of current assets is too small, it always involves the risk of frequent stock out,
inability of the company to pay its dues in time etc. As such, the investment in current assets
should be optimum. Hence, it is necessary to manage the individual components of current assets
in a proper way. Thus, working capital management refers to proper administration of all aspects
of current assets and current liabilities. Working Capital Management is concerned with the
problems arising out of the attempts to manage current assets, current liabilities and inter-
relationship between them. The intention is not to maximize the investment in working capital
nor is it to minimize the same. The intention is to have optimum investment in working capital.
In other words, it can be said that the aim of working capital management is to have minimum
investment in working capital without affecting the regular and smooth flow of operations. The
level of current assets to be maintained should be sufficient enough to cover its current liabilities
with a reasonable margin of safety. Moreover, the various sources available for financing
working capital requirements should be properly managed to ensure that they are obtained and
utilized in the best possible manner.

30 | P a g e
4.3 WORKING CAPITAL MANAGEMENT

To start any business, First of all we need finance and the success of that business entirely
depends on the proper management of day-to-day finance and the management of this short term
capital or finance of the business is called Working Capital Management.

Working Capital is the key difference between the long term financial management and short
term financial management in terms of the timing of cash. Working capital management is a
short term financial management. Working capital management is concerned with the problems
that arise in attempting to manage the current assets, the current liabilities & the inter
relationship that exists between them. The current assets refer to those assets which can be easily
converted into cash in ordinary course of business, without disrupting the operations of the firm.
Working capital management or short-term financial management is a significant facet of
financial management. It is important due to 2 reasons:

 Investment in current assets represents a substantial portion of total investment

 Investment in current assets and the level of current liabilities have to be geared quickly
to changes in sales.

Working capital involves activities such as arranging short-term finance, negotiating favorable
credit terms, controlling the movement of cash, administrating accounts receivables, and
monitoring the investment in inventories also take a great deal of time.

Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management is to
manage the current assets and current liabilities of a firm in such a way that a satisfactory level
of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations
are bad for any firm. There should be no shortage of funds and also no working capital should be
ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its
probability, liquidity and structural health of the organization. So working capital management is
three dimensional in nature as

31 | P a g e
1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.
2. It is concerned with the decision about the composition and level of current assets.
3. It is concerned with the decision about the composition and level of current liabilities.

 COMPOSITION OF WORKING CAPITAL

 Major Current Assets

1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goods
6) Temporary investment of surplus funds.
7) Prepaid expenses
8) Accrued incomes.
9) Marketable securities.

 Major Current Liabilities

1) Accrued or outstanding expenses.
2) Short term loans, advances and deposits.
3) Dividends payable.
4) Bank overdraft.
5) Provision for taxation , if it does not amt. to app. Of profit.
6) Bills payable.
7) Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. Both the concepts have their own merits.

32 | P a g e
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount of working capital at correct time.
2. Every management is more interested in total current assets with which it has to operate
then the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
4. This concept is also useful in determining the rate of return on investments in working
capital.

The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the
satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory
level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To
maintain the margin of safety current asset should be large enough to cover its current assets.

Main theme of the theory of working capital management is interaction between the current
assets & current liabilities.

33 | P a g e
4.4 CLASSIFICATION OF WORKING CAPITAL

Gross Working
Capital
On The Basis Of
Concept
Net Working
Capital

Kinds Of Regular Working

Working Capital Capital
Fixed Working
Capital
Reserve Working
Capital
On The Basis Of
Time
Seasonal
Working Capital
Variable
Working Capital
Special Working
Capital

Working capital may be classified in two ways:

 On the basis of concept.
 On the basis of time.
On the basis of concept working capital can be classified as gross working capital and net
working capital. On the basis of time, working capital may be classified as:
Ø Permanent or fixed working capital.
Ø Temporary or variable working capital

 PERMANENT OR FIXED WORKING CAPITAL

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

 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 further be

classified as seasonal working capital and special working capital. The capital required to meet
the seasonal need of the enterprise 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 for conducting research, etc.

The extra working capital needed to support the changing production and sales
activities, is called variable or functioning or temporary working capital.

Temporary working capital differs from permanent working capital in the sense that is required
for short periods and cannot be permanently employed gainfully in the business.

 ON THE BASIS OF TIME

35 | P a g e
On the basis of time working capital can be classified as gross working capital and net working
capital:

 Gross Working Capital

 Net Working Capital

Gross working capital: - It is referred as total current assets.

Focuses on,

 Optimum investment in current assets:

Excessive investments impairs firm s profitability, as idle investment earns nothing. Inadequate
working capital can threaten solvency of the firm because of its inability to meet its current
obligations. Therefore there should be adequate investment in current assets.
 Financing of current assets:
Whenever the need for working capital funds arises, agreement should be made quickly. If
surplus funds are available they should be invested in short term securities.

Net working capital (NWC) defined by 2 ways,

 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

If the working capital is efficiently managed then liquidity and profitability both will improve.
They are not components of working capital but outcome of working capital. Working capital is
basically related with the question of profitability versus liquidity & related aspects of risk.

4.5 WORKING CAPITAL CYCLE

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Working capital cycle indicates the length of time between firms’s paying for materials entering
into stock and receiving the cash from sale of finished goods. In a manufacturing firm, the
duration of time required to complete the sequence of events is called operating cycle.
In case of a manufacturing company, the operating cycle is the length of time necessary to
complete the following cycle of events –
1. Conversion of cash into raw materials
2. Conversion of raw materials into work-in-progress
3. Conversion of work-in-progress into finished goods
4. Conversion of finished goods into accounts receivables
5. Conversion of accounts receivable into cash
The above operating cycle is repeated again and again over the period depending upon the nature
of the business and type of product etc. the duration of the operating cycle for the purpose of
estimating working capital is equal to the sum of duration allowed by the suppliers.

Working capital cycle can be expressed as

R+W+F+D+C
Where,
R - Raw material storage period = avg. stock of raw material / avg. cost of production per day
W – Work in progress holding period = avg. work in progress inventory / avg. cost of production
per day
F – Finished goods storage period = avg. stock of finished goods / avg. cost of goods sold per
day
D – Debtors collection period = avg. book debts / avg. credit sales per day
C – Credit period availed = avg. trade creditors avg. credit purchases per day.

37 | P a g e
 RAW
CASH
MATERIAL

DEBTORS &
RECEIVABLES WORK IN
PROGRESS

SALES FINISH
GOODS

38 | P a g e
4.6 INVENTORY MANAGEMENT

 INVENTORIES

Inventories constitute the most important part of the current assets of large majority of
companies. On an average the inventories are approximately 60% of the current assets in public
limited companies in India. Because of the large size of inventories maintained by the firms, a
considerable amount of funds is committed to them. It is therefore, imperative to manage the
inventories efficiently and effectively in order to avoid unnecessary investment.

 NATURE OF INVENTORIES

Inventories are stock of the product of the company is manufacturing for sale and components
makeup of the product. The various forms of the inventories in the manufacturing companies
are:

 Raw Material: It is the basic input that is converted into the finished product through the
manufacturing process. Raw materials are those units which have been purchased and stored
for future production.
 Work-in-progress: Inventories are semi-manufactured products. They represent product that
need more work they become finished products for sale.
 Finished Goods: Inventories are those completely manufactured products which are ready
for sale. Stocks of raw materials and work-in-progress facilitate production, while stock of
finished goods is required for smooth marketing operations. Thus, inventories serve as a link
between the production and consumption of goods.

 INVENTORY MANAGEMENT TECHNIQUES

In managing inventories, the firm’s objective should be to be in consonance with the shareholder
wealth maximization principle. To achieve this, the firm should determine the optimum level of
inventory. Inefficient inventory control results in unbalanced inventory and inflexibility-the firm
may sometimes run out of stock and sometimes pile up unnecessary stocks.

 EOQ MODEL
 ABC ANALYSIS

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4.7 CASH MANAGEMENT

 SOURCES OF CASH:
Sources of additional working capital include the following:

 Existing cash reserves

 Profits (when you secure it as cash!)
 Payables (credit from suppliers)
 New equity or loans from shareholders
 Bank overdrafts or lines of credit.
 Long-term loans
If you have insufficient working capital and try to increase sales, you can easily over-stretch the
financial resources of the business. This is called overtrading.

 EARLY WARNING SIGNS INCLUDE:

 Pressure on existing cash

 Exceptional cash generating activities e.g. offering high discounts for early cash payment
 Bank overdraft exceeds authorized limit.
 Seeking greater overdrafts or lines of credit
 Part-paying suppliers or other creditors
 Paying bills in cash to secure additional supplies
 Management pre-occupation with surviving rather than managing
 Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of
a cheque).

40 | P a g e
4.8 RECEIVABLES MANAGEMENT

Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know.... who owes them money.... how much is owed.... how
long it is owing.... for what it is owed.

LATE PAYMENTS ERODE PROFITS AND CAN LEAD TO BAD DEBTS.

Slow payment has a crippling effect on business; in particular on small businesses whom can
least afford it. If you don't manage debtors, they will begin to manage your business as you
will gradually lose control due to reduced cash flow and, of course, you could experience an
increased incidence of bad debt.

The following measures will help manage debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the
priority it deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and customers.
4. Be professional when accepting new accounts, and especially largerones.
5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank
references, industry sources etc.
6. Establish credit limits for each customer and stick to them.
7. Continuously review these limits when you suspect tough times are coming or if
operating in a volatile sector.
8. Keep very close to your larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor your debtor balances and aging schedules, and don't let any debts get too old.

41 | P a g e
Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention. Look for the warning signs of a future bad debt. For example…..

1. Longer credit terms taken with approval, particularly for smaller orders.
2. Use of post-dated checks by debtors who normally settle within agreed terms.
3. Evidence of customers switching to additional suppliers for the same goods.
4. New customers who are reluctant to give credit references.
5. Receiving part payments from debtors.

Here are few ways in collecting money from debtors: -

 Develop appropriate procedures for handling late payments.

 Track and pursue late payers
 Get external help if you own efforts fail.
 Don’t feel guilty asking for money. Its yours and you are entitled to it.
 Make that call now. And keep asking until you get some satisfaction.
 In difficult circumstances, take what you can now and agree terms for the remainder, it
lessens the problem.
 When asking for your money, be hard on the issue – but soft on the person. Don’t give the
debtor any excuses for not paying.
 Make that your objective is to get the money, not to score points or get even.

42 | P a g e
4.9 MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed carefully to
enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity
problems.

Consider the following: -

 Who authorizes purchasing in your company - is it tightly managed or spread among a

number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities, which take account of stock holding and purchasing costs?
 Do you know the cost to the company of carrying stock?
 How many of your suppliers have a return policy?
 Are you in a position to pass on cost increases quickly through price increases to your
customers?
 If a supplier of goods or services lets you down can you charge back the cost of the delay?

There is an old adage in business that "ifyou can buy well then you can sell well".
Management of your creditors and suppliers is just as important as the management of your
debtors. It is important to look after your creditors- slow payment by you may create ill feeling
and can signal that your company is inefficient (or in trouble!).

Remember that a good supplier is someone who will work with you to enhance the future
viability and profitability of your company.

43 | P a g e
4.10 FINANCING CURRENT ASSETS

The firm has to decide about the sources of funds, which can be availed to make investment in
current assets.

 LONG TERM FINANCING

It includes ordinary share capital, preference share capital, and debentures, long term
borrowings from financial institutions and reserves and surplus.

 SHORT TERM FINANCING

It is for a period less than one year and includes working capital funds from banks, public
deposits, commercial paper etc.

Depending on the mix of short and long term financing, the company can follow any of the
following approaches.

 MATCHING APPROACH
In this, the firm follows a financial plan, which matches the expected life of assets with the
expected life of source of funds raised to finance assets. When the firm follows this approach,
long term financing will be used to finance fixed assets and permanent current assets and short
term financing to finance temporary or variable current assets.

 CONSERVATIVE APPROACH
In this, the firm finances its permanent assets and also a part of temporary current assets with
long term financing. In the periods when the firm has no need for temporary current assets, the
long-term funds can be invested in tradable securities to conserve liquidity. In this the firm has
less risk of facing the problem of shortage of funds.

 AGGRESSIVE APPROACH
In this, the firm uses more short term financing than warranted by the matching plan. Under an
aggressive plan, the firm finances a part of its current assets with short term financing.

44 | P a g e
4.11 IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING
CAPITAL

 Solvency of the business: Adequate working capital helps in maintaining the solvency of the
business by providing uninterrupted of 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 favorable terms.
 Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.
 Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw
material and continuous production.
 Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the
satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.
 Exploitation of Favorable Market Conditions: If a firm is having adequate working capital
then it can exploit the favorable market conditions such as purchasing its requirements in
bulk when the prices are lower and holdings its inventories for higher prices.
 Ability to Face Crises: A concern can face the situation during the depression.
 Quick And Regular Return On Investments: Sufficient working capital enables a concern to
pay quick and regular of dividends to its investors and gains confidence of the investors and
can raise more funds in future.
 High Morale: Adequate working capital brings an environment of securities, confidence,
high morale which results in overall efficiency in a business.

45 | P a g e
  EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have 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

Every business needs some amounts of working capital. The need for working capital arises due
to the time gap between 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 the purpose of raw material, components and spares.
· To pay wages and salaries
· To incur day-to-day expenses and overload costs such as office expenses.
· To meet the selling costs as packing, advertising, etc.
· To provide credit facilities to the customer.
· To maintain the inventories of the raw material, work-in-progress, stores and spares and
finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the size of
the company and ambitions of its promoters. Greater the size of the business unit, generally
larger will be the requirements of the working capital.

46 | P a g e
4.12 FACTORS AFFECTING WORKING CAPITAL MANAGEMENT

The amount of working capital required depends upon a number of factors which can be stated
as below

 NATURE OF BUSINESS:

Some businesses are such, due to their very nature, that their requirement of fixed capital is more
rather than working capital. These businesses sell services and not the commodities and not the
commodities and that too on cash basis. As such, no funds are blocked in piling inventories and
also no funds are blocked in receivables. E.g. Public utility services like railways, electricity
boards, infrastructure oriented projects etc. Their requirement of working capital is less. On the
other hand, there are some business like trading activity, where the requirement of fixed capital
is less but more money is blocked in inventories and debtors. Their requirement of the working
capital is more.

 LENGTH OF PRODUCTION CYCLE:

In some business like machine tool industry, the time gap between the acquisitions of raw
material till the end of final production of finished product itself is quite high. As such more
amounts may be blocked either in raw materials, or work in progress or finished goods or even
in debtors. Naturally, their needs of working capital are higher. On the other hand, if the
production cycle is shorter, the requirement of working capital is also less.

 SIZE AND GROWTH OF BUSINESS:

In very small companies the working capital requirements are quite high overheads, higher
buying and selling costs etc. As such, the medium sized companies positively have an edge over
the small companies. But if the business starts growing after a certain limit, the working capital
requirements may be adversely affected by the increasing size.

 BUSINESS I TRADE CYCLES:

If the company is operating in the period of boom, the working capital requirements may be
more as the company may like to buy more raw material, may increase the production and sales

47 | P a g e
to take the benefits of favourable markets, due to the increased sales, there may be more and
more amount of funds blocked in stock and debtors etc. Similarly, in case of depression also, the
working capital requirements may be high as the sales in terms of value and quantity may be
reducing, there may be unnecessary piling up of stocks without getting sold, the receivables may
not be recovered in time etc.

 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 wuill needs
lower amt. of working capital as compared to a firm having a low rate of turnover.

 CREDIT POLICY:

The firm’s credit policy directly affects the working capital requirement. If the firm
has liberal credit policy, hence the more credit period will be provided to the debtors so this
will lead to more working capital requirement. With the liberal credit policy
operating cycle length increases and vice versa.

 PRODUCTION POLICY:

If the policy is to keep production steady by accumulating inventories it will require higher
working capital.

 SEASONAL VARIATIONS:

In certain industries like raw material is not available throughout the year. They have to buy raw
material in bulk during the season to ensure an uninterrupted flow and process them during the
year. Generally, during the busy season, a firm requires larger working capital than in slack
season.

 EARNING CAPACITY AND DIVIDEND POLICY:

Some firms have more earning capacity than other due to quality of their products, monopoly
conditions, etc. Such firms may generate cash profits from operations and contribute to their

48 | P a g e
working capital. The dividend policy also affects the requirement of working capital. A firm
maintaining a steady high rate of cash dividend irrespective of its profits needs working capital
than the firm that retains larger part of its profits and does not pay so high rate of cash dividend.

 PRICE LEVEL CHANGES:

Changes in the price level also affect the working capital requirements. Generally rise in prices
leads to increase in working capital.

Others FACTORS:

 Operating efficiency.
 Management ability.
 Irregularities of supply.
 Import policy.
 Asset structure.
 Importance of labor.
 Banking facilities, etc

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5. ANALAYSIS OF WORKING CAPITAL

5.1 WORKING CAPITAL POSITION ANALYSIS OF MINDA IND. LTD.

 NET WORKING CAPITAL ( CURRENT ASSETS – CURRENT LIABILITIES)

(Rs.in crores)

YEAR 31.03.16 31.03.17 31.03.18

CURRENT ASSETS

INVENTORIES 140.59183.84251.33
SUNDRY DEBTORS 289.45363.91523.48
CASH AND BANK 28.02 56.66376.64
LOANS& ADVANCES 54.25 87.27 89.03
OTHER CURRENT ASSETS 4.68 8.3612.96
-------------- -------------- ---------------
TOTAL CURRENT ASSESTS 516.99 700.04 1253.44
-------------- -------------- ---------------

LESS:-

CURRENT LIABILITIES AND PROVISIONS

SHORT TERM BORROWING 111.55 184.06 261.61

SUNDRY CREDITORS 266.99 321.45 515.12
PROVISIONS 15.58 18.87 17.18
OTHER CURRENT LIABILITY 89.26 169.45 183.76
-------------- -------------- --------------
TOTAL CURRENT LIABILITIES 483.38 683.93 987.67
-------------- -------------- --------------
NET WORKING CAPITAL (33.31) (16.11) (265.77)

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 TABLE 5.1

NET WORKING CAPITAL

AMOUNT(IN CRORES)

300
265.77
250

200

150

100

50 33.31
16.11
0
2016 YEAR 2017 2018

 Interpretation

If we analysis the three years working capital position of the company, we find out that
company’s working capital for 2015-16 is less in comparison of 2018, A hike in the year 2018
working capital of the organisation is increase by 249.66.But it is good indicator for the company
working capital is increasing. From 31.03.2016 to 31.03.2018 company’s working capital has
increased by 249.66 cr.

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5.2 INVENTORY ANALYSIS

Inventory means stock of three things:-

1. Raw materials
2. Semi-finished goods.
3. Finished goods.

 POSITION OF INVENTORY IN MINDA INDUSTRIES LTD.

(Rs.in crores)

YEAR 31.03.1631.03.1731.03.18

Stores, Spare Parts etc. 12.83 14.5719.79

Stock In trade 19.91 27.68 27.26

Finished Goods 15.1628.5339.04

Raw Materials 70.13 87.64135.16

Material under process 18.16 20.4528.10

Loose tools4.36 4.94 1.98

--------------- ---------------- ---------------

140.55183.81 251.33

--------------- ---------------- ---------------

52 | P a g e
  Analysis through chart:

TABLE 5.2

Inventory Analysis
300

250

200

150

100

50

0
2016 2017 2018

 Interpretation:

By analysing the 3 years data, we are looking increasing pattern in inventories. We can see that
inventories are increased from 140.55million to 183.81 million in the year 2016 and in the year
2018 it is increased from 183.81million to 251.33million. By seeing this pattern we can say that
the company is managing the inventory according to the sale. 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 seasonal raw material of sugar in time.

53 | P a g e
5.3 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 are made.

POSITION OF MAWANA SUGARS LTD.

(Rs.in millions)
YEAR 31.03.1631.03.1731.03.18
Sundry debtors (more than 6 months)
- Good 3.31 5.006.67
- Doubtful 1.99 3.24 3.44
Other
- Good 286.13 358.91 516.81
Less:-
- Provision for doubtful debts (1.99) (3.24) (3.44)
------------- ------------- ------------
289.44 363.91 523.48
------------- -------------- ------------

 Analysis through chart:

TABLE 5.3

Sundry Debtors
600
AMOUNT ( IN crores)

523.48
500
363.91
400
289.44
300

200

100

0
2016 2017 2018
YEAR

54 | P a g e
  Interpretation

In the table and figure we see that there is rise in the debtors in the year 2017 and Increase in the
year 2018. A simple logic is that debtors increase only when sales increase and decrease if sales
decrease. In the year 2016, sales is increased by 5.99% and decreased by 8.97% in the year 2018.
We can say that it is a good sign for company. Company has increased when sales is increasing
with a great speed the profit also increases. Company increases the Debtors they can use the
money in many investment plans.

5.4CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset a vital current assets, it is an important component of
working capital. In a narrow sense, cash includes notes, bank draft, cheque etc. while in a
broader sense it includes near cash assets such as marketable securities and time deposits with
bank.

POSITION OF CASH AND BANK BALANCE IN MINDA INDUSTRIES LIMITED

(Rs.in crores)

YEAR 31.03.1631.03.1731.03.18

Cash balance in hand 0.330.620.42

Cheques draft in hand - 0.28 -
Bank balance-
- On current account 19.17 28.31337.38
Bank balance
- With Original Maturity1.97 4.31 23.88
------------- ------------- ------------
21.47 33.52 361.68
------------- ------------- ------------

55 | P a g e
  Analysis through chart:
TABLE 5.4

400

350

AMOUNT ( IN CRORES )
300

250

200

150

100

50

0
2016 YEAR 2017 2018

 Interpretation

If we analyse the above table and chart we find that it follows an increasing pattern. In the year
2015& 2016 it had maintained a low amount of cash and bank balance. In the year 2017, cash
and the bank balances has increased from 2147million to 3352million which is not a good sign
for the company because it shows that company is not using its cash for beneficial activities.
And in the year 2018, cash has increased from 3352million to 36138million but from the other
point of view, company will not face the problem of liquidity as company is maintaining the
cash balance.

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5.5CURRENT 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 with in one year.

POSITION OF OTHER CURRENT LIABILITIES IN MINDA INDUSTRIES LTD.

(Rs.in crores)

YEAR 31.03.1631.03.1731.03.18
Short term borrowing 111.15184.05 261.61
Sundry creditors 266.99 321.64 515.12
Provisions 15.5818.8717.19
Other current liability 89.26169.44 183.76
-------------- -------------- --------------
TOTAL CURRENT LIABILITIES 12023.09 11144.20 6833.18
-------------- -------------- --------------

 Analysis through chart:

TABLE 5.5

14000 12023.09 11144.2

12000 6833.18

10000

8000

6000

4000

2000

0
2016 2017 2018

East

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 Interpretation

If we analyse the above table then we can see that it follow a decreasing trend. The important
component of current liabilities is sundry creditors and other liabilities. In 2017 it decreased
from 12023.09 million to 11144.20 million and in 2018 it decreased from 11144.20 million
to 6833.18 million. This is liability for company so this should be less. When company has
minimum liabilities it creates a better goodwill in market. High current liabilities indicate
that company is using credit facilities by creditors.

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6. WORKING CAPITAL RATIO & IT’S ANALYSIS

6.1POSITION OF W. C. RATIO IN MINDA INDUSTRIES LTD.

FORMULA

INVENTORY + RECIVEABLE - PAYABLE

WORKING CAPITAL RATIO= -------------------------------------------------------------
(AS % OF SALES) SALES

YEAR 31.03.1631.03.1731.03.18

WORKING CAPITAL RATIO 7.3 9.117.85

 Analysis through chart:

TABLE 5.6

10
9.11
9
8 7.85
7.3
7
AS %

6
5
4
3
2
1
0
2016 2017 2018
YEAR

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  Interpretation

This ratio indicates whether the investments in current assets or net current assets (i.e., working
capital) have been properly utilized. In order words it shows the relationship between sales and
working capital. Higher the ratio lower is the investment in working capital and higher is the
profitability. But too high ratio indicates over trading. This ratio is an important indicator about
the working capital position. Now if we analyse the three years data, we find that it follows an
increasing trend which means that its investment in working capital is lower.

6.2 POSITION OF CURRENT RATIO IN MINDA INDUSTRY LIMITED

FORMULA

TOTAL CURRENT ASSETS

CURRENT RATIO= --------------------------------------------
TOTAL CURRENT LIABILITIES

YEAR 31.12.1631.03.1731.03.18
CURRENT RATIO 4.10 1.00 1.28

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  Analysis Through Chart:

TABLE 6.1

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2016 2017 2018

YAER

 Interpretation

This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1
but in most of company’s standard is taken according to Tandon Committee which is taken as
1.33:1. Now if we analyse the three years data it can be predicted that it holds a unstable
position all throughout period, it holds a good position.

6.3POSITION OF QUICK RATIO IN MINDA INDUSTRY LIMITED

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FORMULA

TOTAL CURRENT ASSETS - INVENTORIES

QUICK RATIO= -----------------------------------------------------------------
TOTAL CURRENT LIABILITIES

YEAR 31.03.1631.03.1731.03.18

QUICK RATIO 2.98 0.78 1.02

 Analysis through chart:

TABLE 6.2

3.5
3
2.5
2
1.5
1
0.5
0
2016 2017 2018

YEAR

 Interpretation

It is the ratio between quick liquid assets and current liabilities. The normal value for such ratio is taken
to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It indicates the
relationship between strictly liquid assets whose realizable value is almost certain on one hand and
strictly liquid liabilities on the other hand. Liquid assets comprise all current assets minus stock.

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6.4POSITION OF CURRENT ASSETS TO FIXED ASSETS RATIO IN MINDA
INDUSTRIES LIMITED

FORMULA

CURRENT ASSETS
CA TO FA RATIO = -------------------------------
FIXED ASSETS

YEAR 31.12.1631.03.1731.03.18

CA TO FA RATIO 0.93 1.25 1.45

 Analysis through chart:

TABLE 6.3

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016 2017 2018

YEAR

 Interpretation

Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current assets
policy and a lower CA/FA ratio means an aggressive current assets policy assuming other factors to be
constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity and lower risk; while an
aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor liquidity.

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6.5POSITION OF INVENTORY TURNOVER RATIO IN MINDA
INDUSTRIES LIMITED

FORMULA

AVERAGE STOCK
STOCK TURN OVER RATIO (IN DAYS)=--------------------------------------- * 365
COST OF GOODS SOLD

YEAR 31.12.1631.03.1731.03.18

INVENTORY TURNOVER RATIO 42 49 48

(In Days)

 Analysis through chart:

TABLE 6.4

50
48
46
DAYS

44
42
40
38
2016 2017 2018

YEAR

 Interpretation

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. If a firm maintains a minimum stock level in order to maximize sales by quick rotation of inventory
and the holding cost of inventory will be minimum. A low stock turn over ratio reveals undesirable
accumulation of obsolete stock.

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6.6POSITION OF RECEIVABLE RATIO IN MINDA INDUSTRIES LIMITED

FORMULA

DEBTORS
RECEIVABLE RATIO = ------------------ * 365
SALES

YEAR 31.12.1631.03.1731.03.18

RECEIVABLE RATIO (IN DAYS) 46 50 52

 Analysis through chart:

TABLE 6.5

53
52
51
50
49
DAYS

48
47
46
45
44
43
2016 2017 2018

YEAR

 Interpretation

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.

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6.7 POSITION OF PAYABLE RATIO IN MINDA INDUSTRIES LIMITED

FORMULA

CREDITORS
PAYABLE RATIO= ----------------------------- * 365
COST OF SALES

YEAR 31.12.1631.03.1731.03.18

PAYABLE RATIO (IN DAYS) 79 86 98

TABLE 6.6

120

100

80
DAYS

60

40

20

0
2016 2017 2018

YEAR

 Interpretation

As we can see that creditors turnover is in increasing trend. It is not good sign for company due to this
company’s goodwill will reduced, in year 2017 creditors turnover increased from 79 to 86, and in year
2018 it increased by 12 days.

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6.8 POSITION OF OPERATING CYCLE IN MAWANA SUGARS LIMITED

Formula = Inventory Conversion Period + Receivable Conversion Period – Deferral

Period

Calculation of Operating Cycle at MINDA :- ( All Figures in Days)

Particulars 2015-16 2016-17 (15months) 2017-18

ICP 42 49 48

RCP 46 50 52

Gross Operating 88 99 100

Cycle

DP 79 86 98

Net OP 9 13 2

 Analysis through chart:

TABLE 6.7

14
12
10
Days

8
6
4
2
0
2015-16 2016-17 2017-18

YEAR

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  Interpretation

Operating cycle is the number of days a company takes in realizing its inventories in cash. It
equals the time taken in selling inventories plus the time taken in recovering cash from trade
receivables. It is called operating cycle because this process of producing/purchasing
inventories, selling them, recovering cash from customers, using that cash to purchase/produce
inventories and so on is repeated as long as the company is in operations.

Operating cycle is a measure of the operating efficiency and working capital management of a
company. A short operating cycle is good as it tells that the company's cash is tied up for a
shorter period.

Another useful measure used to assess the operating efficiency of a company is the cash cycle
(also called the cash conversion cycle).

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 CONCLUSION

MINDA INDUSTRIES LTD. has opted for a moderate overall working capital policy. This
suggests that it is risk averse. It wants a reasonable profit with a reasonable amount of risk. If it
goes in for an aggressive policy the profits generated could be high but accompanied with the
high level of profits will come high level of risk, which they feel is not appropriate. Since with
this policy the profits being generated are substantially high a change in the working capital
policy is not called for.

On analyzing the operating cycle it has been found that the operating cycle has decreased by
approx. 13% as that of previous year. In year 2017 it was 209 days while in 2016 it was 128
days. The operating cycle can be reduced to a greater degree by trying to get a reduction in the
raw material conversion period.

Since MINDA INDUSTRIES LTD. produces only on orders therefore the inventory
requirements for the following months can be accurately forecasted. Since, the raw material, it
should be stored for following months by analyzing the benefit of storing it, the storage cost
associated with it, scrap prices, its availability and also further requirements of the company as
per its orders. Every month if forecast is made accordingly and order is placed, it would help in
bringing down the time required in the raw material storage period.

Company doing well by efficiently employing funding of creditors.

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  BIBLIOGRAPHY

COMPANY REPORTS

 Annual reports of MINDA INDUSTRIES

2016-17

2017-18

BOOKS REFERRED

 Khan, M.Y. 2011, Financial Management, Tata McGraw-Hill, New Delhi.

 IM Pandey., 2010, Financial Management, New Delhi, 11th edition.
 2. Kothari, C.R.,1985, Research Methodology- Methods and Techniques, New
Delhi,Wiley Eastern Limited.

WEBLIOGRAPHY

 http://unominda.com/
 http://en.wikipedia.org/wiki/auto_mobile-industries
 http://www.investopedia.edu.co.in/
 http://en.wikipedia.org/wiki/Working_capital

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