Sabir Auto Parts Working Capital

Working Capital Management
1.1 INTRODUCTION
Finance is one the basic foundations of all kinds of economic activities. It is

the master key, which provides access to all the sources for being employed in
manufacturing. Hence it is rightly said that finance is lifeblood of any enterprise,
besides being the scarcest elements, it is also the most indispensable requirement.
Without finance neither any business can be started nor successfully run. Provision of
sufficient funds at the required time is the key to success of concern. As matter of fact
finance may be said to be the circulatory system of economic body, making possible
the needed co-operation among many units of the activity.
FINANCIAL MANAGEMENT:
Financial management emerged as a distinct field of study at the turn of this

Century. Many eminent persons defined it in the following ways.
DEFINITIONS:
According to GUTHMANN AND DOUGHAL: “Business finance can broadly

be defined as the activity concerned with planning, rising, controlling and
administering of funds used in the business.”
According to BONNEVILE AND DEWEY: “Financing consists in the rising,

providing and managing of all the money, capital or funds of any kind to be used in
connection with the business.”
According to Prof. EZRA SOLOMAN: “Financial management is concerned

with the efficient use of any important economic resource, namely capital funds.”
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FINANCIAL FUNCTIONS:
The finance functions of raising funds, investing them in assets and

distributing returns earned from assets to shareholders are respectively known as
financing, investment and dividend decisions. While performing these functions, a
firm attempts to balance cash inflows and outflows. This is called as liquidity
decision.
The finance functions can be divided into four broad categories.
1. Investment or long-term asset mix decision
1. Financing or capital mix decision
2. Dividend or profit allocation decision

3. Liquidity or short-term asset mix decision
INVESTMENT DECISION:
Investment or capital budgeting involves the decisions of allocation of cash or

commitment of funds to long-term assets, which would yield benefits in future. It
involves measurement of future profitability, which involves risk, because of
uncertain future. Investment proposal should therefore be evaluated in terms of both
expected return and risk. Other major aspect of investment decision is the
measurement of standard or hurdle rate against which the expected return of new
investment can be compared.
FINANCING DECISIONS:
Financing decision is the second important function to be performed by the fir.

Broadly, he must decide when, where, and how to acquire funds to meet the firms
investment needs. He has to determine the proportion of debt and equity. This mix of
debt and equity is known as the firms ‘capital structure’. The financial manager must
strive to obtain the least financing mix or the ‘optimum capital structure’ where the
market value of share is maximized.
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DIVIDEND DECISIONS:
It is the third major financial decision. The financial manager decides whether
the firm should distribute all profits, or return them, or distribute a portion and return
the balance. The optimum dividend policy should be determined where is maximizes
the markets value of the share.
LIQUIDITY DECISIONS:
Current assets management, which affects firm’s liquidity, is yet another

finance function in addition to the management of long-term assets. Current assets
should be managed effectively safeguarding the firm against the dangers of liquidity
and insolvency.
Investment in current assets affects the profitability, liquidity, and risk. A

conflict exists between profitability and liquidity while managing current assets. If the
firm doesn’t invest sufficient funds in current assets it may. Become illiquid. But it
could loose profitability, as idle CA would not earn anything. Thus a proper takeoff
must be achieved between profitability and liquidity. In order to ensure that neither
insufficient nor unnecessary funds are invested in current assets.
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GOALS OF FINANCIAL MANAGEMENT:
 Maximize the value of the firm to its equity shareholders. This means that
the Goals of the firm should be to maximize the market value of its
equity shares (Which represent the value of the firm to its equity
shareholders)
 Maximization of profit.
 Maximization of earnings per share.
 Maximization of return on equity (defined as equity earnings/net worth).
 Maintenance of liquid assets in the firm.
 Ensuring maximum operational efficiency through planning,

directing and Controlling of the utilization of the funds i.e., through the
effective employment of funds.
 Enforcing financial discipline in the use of financial resources
through the coordination of the operation of the various divisions in the
organization.
 Building up of adequate reserves for financing growth and
expansion.
 Ensuring a fair return to the shareholders on their investment.
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1.2 INDUSTRY PROFILE
The present automobiles are most sophisticated combining luxury, safety

economy in utilizing the energy resource with great speed and least environment
pollution using various fields of science like aerodynamics, mechanical expertise and
electrical engineering. Every day improvement in the existing models holding the
price line in reasonable range involving high economy in fuel consumption and
building light cost comfortable body health become necessity. Present day consumer
satisfaction involves great skill in marketing, advertising and positioning the product
line whim and Cashion advance with increased performance and reduce size.
Business minded man started selling them to top society.
The automobile components and ancillary industry in India has made big strides
in last couple of years following the introduction of the manufacturing programe for
the main products with the launching of a major modernization scheme by the
manufacturers, substantial progress has been made towards indigenization of the auto
components and spare parts.
In the process the company has developed various models of Asia’s biggest
two wheelers manufacturers like M/A BAJAJ AUTO LTD; M/a HERO MOTORS
LTD and m/s ENFIELD INDIA LTD; etc from a turnover of approximately Rs 190
lakhs in the year 1993-94 company achieve Rs 843 lakhs in turnover in the year 1996-
97 besides serving the OEMS in the company, is sill in the overseas market with a
good market. ACMA
The Automotive Component Manufacturers Association of India (ACMA) is the nodal
agency for the Indian Auto Component Industry.
It's active involvement in trade promotion, technology up-gradation, quality
enhanAUTOPARTS and collection and dissemination of information has made it a
vital catalyst for this industry's development. It's other activities include participation
in international trade fairs, sending trade delegations overseas and bringing out
publications on various subjects related to the automotive industry.
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ACMA is represented on a number of panels, committees and councils of the

Government of India through which it helps in the formulation of policies pertaining
to the Indian automotive industry.
For exchange of information and especially for co-operation in trade matters,
ACMA has signed Memoranda of Understanding with its counterparts in USA,
Canada, UK, France, Italy, Spain, Japan, South Korea, Malaysia, Uzbekistan,
Pakistan, Australia, Egypt, Iran, Tunisia, South Africa. Thailand & Scandinavia.
ACMA represents over 479 companies, whose production forms a majority of the
total auto component output in the organised sector. In the domestic market, they
supply components to vehicle manufacturers, Tier-1 suppliers, to state transport
undertakings, defence establishments, railways and even to the replaAUTOPARTS
market. A variety of components are being exported to OEMs and aftermarkets
worldwide.
The industry has been exporting around 15% of its output and growing at the rate of
30%. In the year 2003-04, industry has exported US$ 1 billion versus US$ 760
million in year 2002-2003. Principal export items include replaAUTOPARTS parts,
tractor parts, motorcycle parts, piston rings, gaskets, engine valves, fuel pump
nozzles, fuel injection parts, filter & filter elements, radiators, gears, leaf springs,
brake assemblies & bearings, clutch facings, head lamps, auto bulbs & halogen bulbs,
spark plugs and body parts.
Society of Indian Automobile Manufacturers (SIAM) is the apex Industry
body representing 38 leading vehicle and vehicular engine manufacturers in India.
SIAM is an important channel of communication for the Automobile Industry with the
Government, National and International organisations. The Society works closely
withy all the concerned stake holders and actively participates in formulation of rules,
regulations and policies related to the Automobile Industry.
SIAM provides a window to the Indian Automobile industry and aims to
enhance exchanges and communication, expand economics, trade and technical
cooperation between the Automotive Industry and its international counterparts.
With its regular and continuous interaction with international bodies and organizations
it aims to facilitate up gradation of technical capabilities of the Indian Industry to
match the best practice worldwide.
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SIAM also interacts with worldwide experts to assess the global trends and
developments shaping the Automotive Industry. It has been actively pursuing issues
like Frontier Technologies viz. Telematics: Promotion of Alternative Fuels including
Hydrogen Energy for automotive use through cell vehicles and Harmonisation of
Safety and Emission Standards etc.
Dissemination of information is an integral part of SIAM'S activities, which it
does through various publications, reports, seminars and conferences.
SIAM organizes the biennial Auto Expo series of trade fairs in co-operation with
Confederation of Indian Industry (CII) and Automotive Component Manufacturers
Association of India (ACMA).
SIAM has been striving to keep pace with the socio-economic and
technological changes shaping the Automobile Industry and endeavour to be a catalyst
in the development of a stronger Automobile Industry in India.
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1.3 COMPANY PROFILE
M/S SIBAR AUTO PARTS LTD, was originally incorporated as private Ltd
company by name M/S SIBAR AUTO PARTS (PVT) limited located at industrial
Estate Tirupathi. It was converted into public ltd company in the year 1994. The
company is presently engaged in manufacturing and marketing of aluminum hard
chrome plated cylinder kits mainly for the two wheelers up to engine capacity 150CC.
The company had started on aluminum foundry with a small capital of Rs 3.00
lakhs to manufacturer aluminum alloy castings. The castings were supplied to reputed
establishments TVS, SHKNEY PARIS ROHME limited etc., in year 1987 the
company expanded it is active to achieve the original conceived idea of
manufacturing aluminum hard chrome plated cylinders blocks four two wheelers
applications the entire technology development was started by in house R$D skills
and in the course of time the technology was developed with the in house R$D
network, the quality of the product was found very good land it was accepted in the
European market immediately. The company was reached about 272 lakhs worth of
exports and the company also received MERIT AWARD FROM EXPORT
PROMOTION COUNCIL (EPC) for the excellence in exports during the year 1994-
95 and in the same year the company had come with in a public issue and it was over
subscribed by 18 times which only shows the company credibility among the started
developing the cylinders for domestic ORIGINAL EQUIPMENT (OE) manufacture.
In the process the company has developed various models of Asia’s biggest
two wheelers manufacturers like M/A BAJAJ AUTO LTD; M/a HERO MOTORS
LTD and m/s ENFIELD INDIA LTD; etc from a turnover of approximately Rs 190
lakhs in the year 1993-94 company achieve Rs 843 lakhs in turnover in the year 1996-
97 besides serving the OEMS in the company, is sill in the overseas market with a
good market.
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LOCATION
The registered office and plant was located at Industrial Estate, Renigunta
Road, Tirupati, Chittoor Dist., in Andhra Pradesh.
PROMOTERS
The Promoter and Managing Director of this company is Mr. P.VEERA

NARAYANA, who is having very good experience in automobile Engineering and
Tool Designing. He had been associated with leading Two-wheeler manufacturers in
India, where the company’s had collaboration from Europe.
MANAGEMENT
The management of board of directors. It comprises of Executive Directors
and Non Executive Directors. The managing Director and Vice chairman of company
is Mr. P. Veera Narayana and board of directors consists of 10 members including
APIDC nominee.
FINANCE
The company had started an Aluminum Foundry with a small capital of Rs.3
Lakhs to manufacture Aluminum Alloy castings. The sources of finance are from
financial institutions and banks, mainly from Industrial Development Bank of India,
Chennai and Central Bank of Hyderabad Stock Exchange Ltd., Hyderabad and the
Stock Exchange Mumbai.
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RAW MATERIALS
Most of the raw materials to manufacture cylinder blocks are available from
Hyderabad, Chennai and Calcutta. The following are some of the raw materials used
for the production;
 Aluminum Alloy
 Caustic Soda
 Shell Sand
 LDO oil
 Chronic Acid
 Diamond Honing sticks
 Nickel Carbonate
MARKETING AND DISTRIBUTION

In the year 1994, the company had become Public Limited and expands the
capacity. Since then, the company has started developing the cylinder blocks for
domestic Original Equipment (OE) manufacturers. In the process, the company has
developed various models for Asia’s biggest Two Wheeler manufacturers like M/S
BAJAJ AUTO LIMITED, M/S HERO MOTORS AND M/S. ENFIELD INDIA LTD.
The company is having marketing network in France, Italy, Netherlands,

Denmark, Mauritius, etc. The company recently entered into a Memorandum of
Understanding (MOU) with M/S. Me CULLOCHITALIAN S.R. LITALY, a group
company of a well known MNC, M/S. ELECTROLUX and with this the company is
entering into the OE market outside India and this also demonstrates the company’s
technical capability in meeting International quality standards.
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ABOUT THE PRODUCT
In India automobiles engine cylinders are predominately of cast iron or of

aluminum with cast iron sleeves whereas world wide there is a growing shift to
aluminum alloy cylinders and engine blocks.
Aluminum cylinders with hard chrome plating reduce Engine weight

significantly. Also the wear and tetar the piston bore is Reduced drastically because
cylinders have about 900 vickers hardness, consequently giving better mileage and
fuel efficiency.
Unlike aluminum with cast iron sleeves hard chrome plated Aluminum
Cylinders are of dissipation very close clearance is possible between bore and piston
four optimal engine power out put with out fear of seizure at higher temperature.
Aluminum chromo plated cylinders also consume less oil and cast iron cylinders and
hence and less polluting and cheaper to maintain.
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PRODUCT ADVANTAGES
 The life of the aluminum cylinder block is much longer than conventional
cast-iron cylinder blocks. This is due to higher hardness in Aluminum
cylinder block, because the Bore is plated with Hard chrome nickel. Since the
hardness is much higher and the wear pattern of the bore is much also less.
 Since the Aluminum is a light metal, the fuel efficiency is also better.
 Since both piston and Cylinder Block are of the same material, the expansion
is uniform, which will be an added advantage.
 Since the Bore is finished with Nickel, the ratio of oil is used, may also be
comparatively less. This helps to maintain very low emission.
 Since the wear pattern of the cylinder bore is very less, the cost of
maintenance is very negligible.
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ORGANIZATION CHART
Vice Chairman
&
Managing Director
General General Manager

Technical Manager Commercial&
Director R&D-Plating
Manager R&D- Finance

Works Manager Manager Foundry Manager Tool Room Controller Manager marketing
Plating
Purchase
Manager
Personal
Manager
Accounts
Manager
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1.4 PRODUCT PROFILE
In India automobile engine cylinders are predominantly of cast iron or of

aluminum with cast iron sleeves whereas world wide there is a growing shift to
aluminum allay cylinders and engine blocks.
Aluminum cylinders with hard chrome plating reduce engine weight

significantly. Also the wear and tear the piston bore is reduced drastically because
cylinders have about 900 Vickers hardness, consequently giving better mileage and
fuel efficiency.
Unlike aluminum with cast iron sleeves hard chrome plated aluminum
cylinders are of uniform material and provides excellent heat dissipation. Further
very close clearance is possible between bore and piston for optimal engine power out
put without fear of seizure at higher temperature. Aluminum chrome plated cylinders
also consume less oil than cast iron cylinders and hence are less polluting and cheaper
to maintain.
PROMOTERS:
The founder of this company is Mr. P.V.NARAYANA who is now as vice

chairman and managing director. He completed his company diploma in Mechanical
Engineering and completed his Training tool and Die making from NTTF, Dharwada.
After attaining 8 years of experience in reputed companies like M/s Suvega Moped
Ltd, M/s HERO Megistic Ltd, And And etc and setup this unit.
Now this company is also supported with to young men who are the son’s of
vice chairman and managing director. Mr.Madhu Pratap, now as the director-
Technical completed his graduation in Mechanical Engineering, and Post graduation
in Industrial.
Engineering and Management. Mr.Ravichandra, now as Executive director,

completed his graduation in chemical Engineering.
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TECHNOLOGY:
The company started hard-chrome plating technology with in house research

and development efforts. The company also developed NI-SI plating. In 1998 the
company had entered technical collaboration with Italian company to refine its
technology. Ours is the first company in India to this technology.
MANUFACTURING PROCESS:
The manufacturing process broadly consists of shell molding, die casting

machining heat treatment, chrome platting, inspecting, packing and dispatch. The
sand shell core and first made using shell core shooting machine, having a capacity of
making 500nos. Modules/shift. The shells are then housed in the dies. Aluminum
LM-19 grade alloy, melted in bate-out titling furnace, are then transferred to an
electrical holding furnace, where the melt is and treated with necessary chemicals.
The molten metal held in the holding furnace for around 4 hrs is cast is then used for
making casting by using permanent would gravity dies or low pressure die- casting.
After atmospheric cooling (times 3 hours) the casting is sawed. Fettling of the
casting is then done to remove the flashes. The casting is then heat treated in a pit –
furnace (temp 510 c for 3 ½ hours) quenched in the water (temp 60 c ) and aged for 2
hours in oven at 200 c _250 c for stabilization of the micro structural properties of the
casting. The rough casting is then machine and made ready for hard chrome platting.
The casting is then degreased using tri-chloreothylene and then chromo- plated. The
hard chrome plated cylinder are further machine is sophisticated machine and tested
with measuring instruments. These operations are very critical and having very close
tolerance those are subsequently sent to AC room plated kit there in Ac room and
bore measurement is recorded are a temperature of 20c.
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ADVANTAGES OF SIBER ALUMINUM HARD CHROME

CYLINDERS:
1. The life of the aluminum cylinder block is much longer than conventional
cast iron cylinder blocks. This is due to higher hardness in aluminum
cylinder block because the bore is plated with hard chrome/nickel. Since
the hardness much higher, the wear pattern of the bore is also much less.
2. Since the aluminum is a light metal, the fuel efficiency is also better.
3. Since both piton and cylinder block are of the same material, the
expansion is uniform, with will be an added advantage.
4. Since the bore is finished with nickel, the ratio if oil is use may also be
comparatively less. This helps to maintain very low emission.
5. Since the wear pattern of the cylinder bore is very less, the cost of
maintains is very negligible.
6. Better “eye-appeal”.
7. There is no need to see bore up to 60,000 kms.
8. Replacing rings easy at nominal cost.
9. 60% reduction in engine weight.
10. More economical.
11. None to beat price.
12. Ready availability of spares with leading two wheeler dealer through our
distributor.
CUSTOMER:
Automotive item O.E.M Customer for casting:
1. M/S greaves cotton ltd-RANIPET.

2. M/S Greaves cotton ltd- AURANGABAD.
3. M/S Same Deutz- FAHRINDIA (P) LTD RANIPET
4. ALKRAFT THERMOTECHNOLOGIES PVT.LTD. CHENNAI (Is 9001-
2000 certified unit)
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Auto Motive Item O.E.M (INDIA) Customer For Cylinder Blocks:
1. M/S BAJAJ AUTO LTD. PUNE.

2. M/S HERO MOTORS LTD- GAZIABAD.
Auto Motive Item O.E.M (Exports) Customer for Cylinder Blocks:
1. M/S Electrolux, Meculloch- TALIANA, ITALY,

2. We have replacement market in EUROPE and we supply to ITALY,
NETHERLANDS, and DENMARK etc.
Electrical Transmission Line Item and other are casting Customer:
1. M/S GR power switches Gear Limited HYDERABED. (ISI 9001 certified

unit)
2. M/S KLEMMEN engineering corporation CHENNAI.
3. M/S SEIMENS LIMITED (Hyderabad works) Hyderabad (under process)
ACHEVEMENTS
 The Company always maintained status of single source supplier with

all its customers. Its customers by serving then quality products
delivery scheduled without interception of their production.
 The company was success full in giving satisfied results of VRDE
 (Vehicle Research Development Estate) for their simulation air crafts
engines both hard chrome and NI-SI PLATING.
 The company also satisfied NAL (National aeronautical Ltd)
Bangalore by giving them NI-SI plating on propeller shaft ring.
 The company was awarded Merit of Excellence in Exports from
Promotion Council in India.
 The company has been awarded ISO 9001-2000 quality management
system (Under clause 7 permissible exclusion: 7.3).
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2. REVIEW OF LITERATURE
Involves the relationship between a firm’s short-term assets and its short-term
liabilities. The goal of working capital management is to ensure that a firm is able to
continue its operations and that it has sufficient ability to satisfy both maturing short-
term debt and upcoming operational expenses. The management of working capital
involves managing inventories, accounts receivable and payable, and cash.
DEFINITION OF WORKING CAPITAL:
According to M Y Khan & P. K. Jain “Working capital refers to manage the

firm current assets & current liabilities in such a way that a satisfactory level of
working capital is maintained.
According to the Cubing working capital is am amount of fun is

necessary to cover the cost of operating the enterprise.
Working capital management is concerned with the problem is that arise in

attempting to manage the current assets and the current liabilities and their inter
relationships their arise between them. Current assets refers to those assets which to
the ordinary course of business can be or will be turned into cash within one year
without undergoing a diminution in value and without disrupting the operations of the
firm. The major current assets are cash marketable securities accounts receivables and
their inception to be paid in the ordinary course of business with in a year out of
Current Assets or earnings of the concern. The basic Current Liabilities are Bills
Payables, Bank Overdrafts and outstanding expenses.
Working capital management is concerned with the problem is that arise in

attempting to manage the current assets and the current liabilities and their inter
relationships their arise between them. Current assets refers to those assets which to
the ordinary course of business can be or will be turned into cash within one year
without undergoing a diminution in value and without disrupting the operations of the
firm. The major current assets are cash marketable securities accounts receivables and
their inception to be paid in the ordinary course of business with in a year out of
Current Assets or earnings of the concern. The basic Current Liabilities are Bills
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Payables, Bank Overdrafts and outstanding expenses. The goal of working capital
management is to manage the firms Current Assets. And Current Liabilities in such a
way that a satisfactory level of working capital is maintained. Thus the current assets
should be large enough to cover its current Liabilities in order to ensure a reasonable
margin of safety. Each of the current assets must be efficiently in order to maintain
the liquidity of the short term be managed efficiently in order to maintain the liquidity
of the short term sources of financing must be continuously managed to ensure that
they are obtained and used in a best possible way.
Therefore interaction between current assets and current assets liabilities in

the main theme of working capital Management. Profits are earned with to help of
assets, which are partly fixed, and patty Current Working capital some times referred
to as “CIRCULATING CAPITAL”.
“WORKING CAPITAL” is also called as “CIRCULATING CAPITAL”.
CONCEPTS OF WORKING CAPITAL:
Working capital can be defined through its two concepts, namely:
(a) Gross working capital
(b) Net working capital.
Gross working capital
Gross working capital refers to the firm’s investment in current assets.

Current assets are the assets which can be converted into cash within an accounting
year and include cash, short term securities, debtors, (accounts receivable or book
debts) bills receivable and stock (inventory).
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Net Working Capital
Net working capital refers to the difference between current assets and current
liabilities are those claims of outsiders which are expected to mature for payment
within an accounting year and include creditors (accounts payable), bills payable, and
outstanding expenses. Net working capital can be positive or negative.
A positive net working capital will arise when current assets exceed current
liabilities. A negative net working capital occurs when current liabilities are in excess
of current assets.
The term gross working capital given broader meaning by defining it as total
current asset whereas the net working capital can be defined in two ways: The most
common definition of working capital is the difference between current assets and
current liabilities. Therefore
WORKING CAPITAL = CURRENT ASSETS -- CURRENT LIABILITIES
It could be defined as that portion of firm’s current asset, which is financed

with long term funds.
OPERATING CYCLE CONCEPT:
Investment in working capital is influenced by four key events in the Production and
sales cycle of the firm:
A. Purchase of raw materials
B. Payment of raw materials
C. Sale of finished goods
D. Collection of cash for sales
The firm begins with the purchase of raw material, which are paid for after a
delay, which represents the account payable period. The firm converts the raw
materials into finished goods and then sells the same. The time lag between the
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purchase of raw materials and sale of finished goods is the “Inventory period”. The
period that comes between the date of sales and the date of collection of receivable is
the accounts payable period (debt period). The time that comes between the purchase
of raw materials and the collection of cash for sales is referred to as the operating
cycle, whereas, the time length between the payment of raw materials purchases and
the collection of cash for sales is referred to as the cash cycle.
The operating cycle is the sum of the inventory period and the account
receivable period where as the cash cycle is equal to the operating cycle less the
account payable period. From the financial statements of the firm, we can estimate
the inventory period, the account receivable and the account payable period.
A new concept which is gaining more & more importance in recent years
in the ‘operating cycle concept’ of working capital. The operating cycle refers to the
average time elapses betwee1n the acquisition of raw materials and the final cash
realization.
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The Operating cycle of working capital:
Cash
Purchase of Raw
Collection of Receivables
Materials
Raw
Account material
s inventory
Finished Work in
Goods process
Issue of raw
Sales
Material to products
The operating cycle begins with arrival of the stock and ends when the cash
is received. The cash cycle begins when the cash in paid for materials and ends when
the cash is collected from receivables.
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COMPONENTS OF WORKING CAPITAL:
A. Current assets:
Current assets are those assets which are convertible into cash within a
period of one year and are those which are required to meet the day to day operation
of the business. The working capital management, to be more precise the
management of current assets. The current assets are cash or near cash resources.
These include.
a) Cash and bank balances
b) Temporary investments
c) Short- term advances
d) Prepaid expense
e) Receivables
f) Inventory of raw materials, stores and spares
g) Inventory of work - in - progress
h) Inventory of finished goods
B. Current Liabilities:
Current liabilities are those claims of outsider, which are expected to mature
for payment within an accounting year. These include.
a) Creditors for goods purchased
b) Outstanding expenses
c) Short - term borrowings
d) Advances received against sales
e) Taxes and dividends payable
f) Other liabilities maturing within a year
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TYPES OF WORKING CAPITAL:
1) Permanent or Fixed Working Capital:
The need for current assets arises because of the operating cycle. The
operating cycle is a continuous process and therefore, the need for the current assets
is felt constantly. But the magnitude of current assets needed is not always the same,
it increases over time. However there is always a minimum level of current assets,
which is continuously required by the firm to carry on its business operations. This
minimum level of current assets is referred to as permanent or fixed working capital.
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Amount of working capital (Rs)
Temporary
Working capital
Time
2) Variable (Or) Temporary Working Capital:
Depending upon the changes in production and sales, the need for
working capital over and above permanent working capital, will have to be
maintained to support the peak proceeds of sale and investment in receive May also
increase during such periods. On the other had, investment in Raw material, working
in progress and finished goods will fall if the market is Slack.
The extra working capital needed to support the changing production And
sales activities is called fluctuating, or variable or temporary working capital. The
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firm to meet liquidity measurement that will last only temporarily creates Temporary
working capital.
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Amount of working capital (Rs)
Temporary or
fluctuating
Permanent
Time
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Balanced Working Capital Position:
The firm should maintain a sound working capital position. It should have
adequate working capital to run its business operations. Both excessive as well as
inadequate working capital positions are dangerous from the firm’s point of view.
Excessive working capital means holding costs and idle funds which earn no profits
for the firm. Paucity of working capital not only impairs the firm’s profitability but
also results in production interruptions and inefficiencies and sales disruptions.
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The Dangers of Excessive Working Capital
1. It results in unnecessary accumulation of inventories thus chances of

inventory mishandling waste theft and losses increase.
2. It is an indication of defective credit policy and slack collection period.
Consequently higher incidence of bad debts results, which adversely effect
degenerated in to management co placement, which degenerated in to
managerial inefficient.
3. Excessive working capital makes management complacent, which
degenerates in to managerial in efficiency.
Inadequate working capital:
1. It stages growth and become difficult for the firm to undertake profitable
projects for non – availability of working capital funds.
2. It becomes difficult to implement operating plans and achieve the firms
profit target.
3. Operating inefficiencies creep in when it becomes difficult even to meet
day – to – day commitments.
4. Fixed assets are not efficiently utilized for the lack of working capital
funds thus the firm’s profitability would deteriorate.
5. Paucity of working capital funds renders the firm unable to avail attractive
credit opportunities etc.
6. The firm losses its reputation when it is not in position to honor its short –
term obligation as results the firm faces tight credit terms.
7. Thus, enlightened management should there fore maintains a right amount
of working capital on a continuous basis which help to develop the
organization effectively and efficiently.
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Role of Financial Manager In Working Capital Management:
1. Working capital management requires must of the finance manager time as

it represent a large position of investment is assets.
2. Working capital management requires much of the finance management
time as it represent larger position of investment in assets.
3. Action should be taken to curtail unnecessary investment in current assets.
4. All precaution should be taken for the effective and efficient management
of working capital.
5. Larger firms have to manage their current assets and current liabilities
very carefully and should see that the work should be done properly in
order to achieve predetermined organizational goals.
Changes in Working Capital
The changes in working capital occur for the following basic reasons
1. Changes in level of sales and operating expenses
2. Policy changes.
3. Changes in technology.
1. Changes in Sales and Operating Expenses:
The first factor causing a change in the working capital requirement is a

change in the sales and operating expenses. The changes in this factor may occur due
to top three reasons first there may be a long run trend of changes for instance. The
price of raw materials any oil may constantly rise necessitating the holding of a large
inventory. The secular trends would mainly affect the need for permanent current
assets. In the second place cyclical changes in the economy leading to ups and
downs in business activities will influence level of working capital. The third source
of changes is seasonality in sales activity.
30
The changes in sales always and operating expenses may either in the form of
an increase or decrease an increase in the volume of sales is bound to be
accompanying by higher levels of cash in inventory and receivables. The decline in
sales will have exactly the opposite effect a decline in the need for working capital.
Changes in the operating expenses rise or fall will have a similar effect on the level of
working capital.
2. Policy Changes:
The second major cause of changes in the level of working capital is policy
changes initiated by the management there is wide choice in the matter of current
assets policy. The term current assets and sales value, a following a conservative
policy in this Respect having a very level of current assets in relation to sales may
deliberately opt for a less conservations policy and vice versa these conscious
managerial decisions will certainly have an impact on the level of working capital.
3. Technological Changes:
Finally another factor that can change in the level of working capital is
technology changes if a new process emerges as results of technological
development, which shortens the operating cycle it will reduce the need for working
capital.
FACTORS INFLUENCE IN WORKING CAPITAL

REQUIREMENT:
(1) Nature of Business:
The working capital requirement of a firm is closely related to the nature

of its businesses a service firm like an electricity undertaking or a transport
corporation which a short operating cycle and which sells predominantly on cash
bases has most requirement on the other hand a manufacturing concern like a
machine tool unit which has long operating cycle and sells largely on credit has a
very substantial working capital requirement.
31
(2) Seasonality of Operations:
Firms which have marked seasonality in their operations usually have

fluctuating working capital requirement. For during the summer months and drops
sharply during the winter period. The working capital need for such a firm likely to
increase considerably in summer months and decrease significantly during the winter
period. On the other hand a firm manufacturing a product laps which have fairly
even round the year trends to have stable working capital need.
Change in Price:
The increase shifts in price level makes the functions of financial manager
difficult. He should anticipate the effect of rising price level will require a firm to
maintain higher amount of working capital same level of current assets will need
increased investment when prices are increasing.
Credit Policy:
The level of working capital is also influenced by credit policy which

relates to sales and purchase. If influences the working capital in two ways
(1) Through credit terms granted by the firm to its customers buyers of goods.
(2) Credit terms available to the firm from it’s of creditors.
Level of Production:
The quantum of working capital is also determined by production level. In

case of seasonal products the demand for product is seasonal i.e. they will be
purchased during certain months of the year. For this purpose it has to serve its needs
either by confirming their production only to periods when goods are purchased.
32
Profit Level:
The level of profits earned differs from an enterprise to enterprise. In general

the nature of the products hold on the market quality of management and monopoly
power would by an large determined the profit earned by a firm.
Production Policy:
A firm marked by pronounced seasonal fluctuations in its sales may pursue a

production policy which may reduce the sharp variance in working capital
requirement for example a manufacturer of ceiling fans may maintain a steady
production through out the year rather then intensity the production activity peak
business season.
Market Conditions:
The degree of competition prevailing in the market place gas an important

bearing on working capital needs when promptly serve customers who may be
inclined to attract customer in a who may be inclined to wait because other
manufacturers are ready to be offered to attract customer in a highly competition
market. Thus working capital needs tends to be high because of greater investment in
finished goods inventory and accounts receivables.
Conditions of Supply:
The inventory of raw materials spears and stores depend on the conditions of
supply. If the supply is prompt and adequate the firm can manage with small
inventory however if the supply is unpredictable and scant them the firm to ensure
continuity of production would have to acquire stocks as and when they are available
and carry large inventory on an average. A similar policy may have to be followed
when the raw material is available only seasonally and production operations are
carried out around the year.
33
Sales Growth:
The working capital of the firm increase as it sales growth. It is difficult to

determine the relationship between volume of sales and working capital needs. It is
necessary to make advance planning of working capital for a growing from on a
continuous basis. The firm has to make use of its external swell as internal sourced to
meet increasing needs of funds.
PROBLEMS OF WORKING CAPITAL MANAGEMENT
The firm should maintain a sound working position. It should have adequate
working capital to run its business operations excessive as well as inadequate
working positions are dangerous from the firm’s point of view.
Cash Management
Cash is one of the current assets of a business. It is needed at all times to keep
the business going. An organization concern should always keep sufficient cash for
meeting its obligations. Any shortage of cash will hamper the operations of a concern
and any excess of it will be unproductive. Cash is the most unproductive of all the
assets. While fixed assets and current assets will help the organizations in increasing
its earning capacity, cash in hand will not add anything to the concern. It is in this
context that cash management has assumed much importance.
Nature of Cash
For some persons, cash means only money in the form of currency (cash in
hand). For other persons, cash means both (cash in hand and cash at bank). Some
even include near assets in it. They take marketable securities and time deposits in
bank too as part of cash. These are the securities, which can easily be converted into
cash. Their viewpoints reflect the degree of freedom of the persons using the cash.
Cash itself does not produce goods or services. It is used as a medium to acquire
assets. It is the other assets, which are used in manufacturing goods or providing
34
services. The idle cash can be deposited in bank to earn interest, which are sold to
acquire cash.
OBJECTIVES OF CASH MANAGEMENT
1. Meeting the Payments Schedule:
A Basic objective of cash management is to meet the payment schedule i.e. to

have sufficient cash to meet the cash disbursement needs of an organization.
2. Minimizing Funds Committed to Cash Balances:
The aim of cash management should be to have optimal amount of cash

balances.
The firm should evolve strategies regarding the following four facets of cash
management:
1) Cash planning
2) Managing the cash flows
3) Optimum cash level
4) Investing surplus cash.
1) Cash Planning:
Cash inflows and outflows should be planned to project cash surplus or

deficit for each period of the planning period. Cash budget should be prepared for this
purpose.
2) Managing the Cash Flows:
The flow of cash should be properly managed. The cash inflows should be
accelerated while, as far as possible, the cash outflows should be decelerated.
3) Optimum Cash Level:
35
The firm should decide about the appropriate level of cash balances. The cost
of excess cash and danger of cash deficiency should be matched to determine the
optimum level of cash balances.
4) Investing Surplus Cash:
The surplus cash balances should be properly invested to earn profits. The
firm should decide about the division of such cash balance between alternative short-
term investment opportunities such as bank deposits, marketable securities, or inter-
corporate lending.
MOTIVES FOR HOLDING CASH:
There are four primary motives for maintaining cash balances, which are as
follows:
1. Transaction Motive:
This refers to the holding of cash, to meet the routine cash requirements of the
organizations so as to make purchases, paying wages, for operating expenses, paying
tax etc and also to meet anticipated obligations.
2. Precautionary Motive:
It implies the need to hold cash to meet unpredictable obligations.
3. Speculative Motive:
It indicates the desire of an organization to take advantage or opportunities,

which present themselves at unexpected moments.
4. Compensation Motive:
The compensating motive means keeping the bank balances sufficient to earn a
return equal to the cost of free service provided by the banks.
36
PROMPT PAYMENT BY CUSTOMERS:
In order to accelerate cash inflows, the collections from the customers should
be prompt; this will be possible by prompt billing. Another technique is the practice
of offering trade discounts.
DECENTRALIZED COLLECTIONS:
Concentration banking: the use of decentralized collection centers to speed up

the collection of receivables helps in cash reducing needs of an organization.
Lock-box system:
Organizations hire a post office at important collection centers. The customers

are required to remit payments to the lock box. The banks of the organization, at the
respective places are authorized to open the box and pick up the cheques several
times a day and deposit them in the organization accounts. After crediting the
accounts of the organization the banks send a deposit slip along with the list of the
payments and other enclosures by way of proof and recording of collection.
METHODS OF SLOWING CASH OUTFLOWS:
1) Paying on last day.
2) Payments through drafts.
3) Centralization of payments.
INVESTEMENTS OF SURPLUS FUNDS:
There are sometimes, surplus funds with the companies that are required after
sometime. These funds can be employed in liquid and risk free securities to earn
some income. Some of these methods are discussed.
37
38
RECIEVABLES MANAGEMENT:
Receivables result from credit sales. A concern is required to allow credit sales in
order to expand its sales volume, the pressure of competition and the force of
customer persuade them to sell on credit. The increase in sales is essential to increase
profitability and will not proportionately increases production costs.
Thus receivables constitute a significant portion of current assets of an

organization. But for investment in receivable, an organization has to incure certain
costs. Further, there is a risk of bad debts also. It is therefore, very necessary to have a
proper control and management of receivables.
MEANING OF RECIEVABLES:
The term receivables a re defined as “debt or amounts owned to the

organization by the customers as a result of sale of goods or services in the ordinary
course of the business. Receivables are also known as accounts receivables (or sundry
debtors as they are referred to in India) trade receivables, customer receivables or
book debts, when a organization makes sale of goods or services and does not receive
payment, the organization grants trade credit and creates accounts receivable which
would be collected in the future allowing the customers a reasonable period of” time
to pay. Receivables management is also called trade credit management.
COSTS OF MAINTAINING RECEIVABLES:
The major category of costs associated with extension of credit is:
 Collection costs
 Capital costs
 Delinquency costs
 Default costs
39
DIMENSIONS OI-RECEIVABLE MANAGEMENT:
The three crucial decision areas in receivables management are:
 Credit policies
 Credit terms
 Collection policies
CREDIT POLICY:
The credit policy of an organization provides the framework to determine
(a) Whether or not to extend credit to a customer
(b) How much credit to extend.
The credit policy decision of an organization has two broad dimensions.
Credit standards and Credit analysis:
1) Credit standards (or) Quality of trade accounts:
The term credit standards represent the basic criteria for the extension of credit
to the customers. The quantitative bases of establishing credit standards are factors
such as credit rating, credit references, average payments period and certain financial
ratio.
2) Credit analysis:
Credit analysis is to develop procedures for evaluating credit applicants. The

basic step involved in the credit investigation process is:
Obtaining credit information:
The first step in credit analysis is obtaining credit information on which to base
the evaluation of a customer. The sources of information are:
40
External Sources
Usually, organizations require their customers to fill various forms and

documents giving details about financial operations. They are also required to furnish
trade references. This type of information is obtained from internal sources of credit
information. Another internal source is derived from the records of the organizations
contemplating an extension of credit, which might have enjoyed credit facility in the
past to know, the behavior of the applicants in terms of payment.
1. Financial Statements:
Throw light on an applicant’s financial stability, liquidity profitability and debt

capacity.
2. Trade references:
These refer to the collection of information from organization with which the
applicant has dealings and on the basis of their experience would vouch for the
applicant.
Finally, specialist credit bureau reports from organizations specializing in

supplying credit information can also be utilized.
INVENTORY MANAGEMENT
Every enterprise needs inventory for smooth running of its activities. It

serves as a link between production and distribution process. There is generally, a
time lag between the recognition of a need and its fulfillment. The greater the time
lag the higher is the requirement for inventory.
Because of the large size of inventories maintained by organizations, a

considerable amount of fund is required to be committed to them. Thus it is essential
to have proper control and management of inventories. The purpose of inventory
management is to ensure availability of materials in sufficient quantity as and when
required and also to minimize investment in inventories.
41
The dictionary meaning of inventory is “Stock of Goods or a list of goods”. In

accounting language it may mean stock of finished goods only.
NATURE OF INVENTORIES:
Inventories are stock of the product a company is manufacturing for sale

and components that make up the product. The various forms in which inventories
exist in a manufacturing company are: raw materials, work-in-process and finished
goods.
 Raw materials
 Work-in-process
 Finished goods
1) Raw materials:
Raw materials are those basic inputs that are converted into finished
product through the manufacturing process. Raw materials inventories are those units
which have been purchased and stored for future productions.
2) Work - in - process:
Inventories are semi-manufactured products. They represent products

that need more work before they become finished products for sale.
3) Finished goods:
Inventories are those completely manufactured products which are ready

for sale. Stocks of raw materials and work-in-process 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.
42
MOTIVES OF HOLDING INVENTORIES:
1. The transaction motive emphasizes the need to maintain inventories to

facilitate smooth production and sales operations.
2. The precautionary motive necessitates holding of inventories to guard
against the risk of unpredictable changes.
3. The speculative motive which induces to keep inventories for taking
advantage of price fluctuations, saving in re-ordering costs and quality
discounts etc.
RISKS OF HOLDING INVENTORIES:
1. Risk of price decline
2. Risk of Obsolescence
3. Risk of deterioration in quality.
BENEFITS OF HOLDING INVENTORIES:
1. Benefits in purchasing:
An organization can purchase larger quantities than is warranted by usage in

production or the sales level. This will enable is to avail of discounts that are
available on bulk purchases. Moreover, it will lower the ordering costs.
2. Benefits of services production:
The inventory helps an organization to co-ordinate its services production

scheduling so as to avoid disruptions the accompanying expense
43
OBJECTIVES OF INVENTORIES MANAGEMENT:
 To minimize the organizations investment in inventory.

 To avoid both over stocking and under stocking of inventory.
 Suitable quality standards will ensure proper quality of stocks.
The price analysis, the cost analysis and value analysis will ensure
payment of proper prices.
 To facilitate furnishing of data for short-term and long-term
planning and control of inventory.
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:
Effective inventory management requires an effective control system for

inventories. A proper inventory control not only helps in solving the acute problem of
liquidity but also increase profits and causes substantial reduction in the working
capital of the concern.
The following are the important tools and techniques of inventories

management and control.
 Determination of stock levels

 Determination of Safety stocks
 Selecting a proper system of ordering for inventory.
 Determination of EOQ
 ABC analysis
 VED (vital. Essential and Desirable analysis)
 Inventory turnover ratio
 Aging schedule of inventories.
44
45
RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as

“The indicated quotient of two mathematical expressions” and as “The relationship
between two (or) more things”.
In financial analysis, a ratio is used as a benchmark for evaluating the financial

position and performance of a firm the absolute accounting figures reported in the
financial statements do not provide a meaningful understanding of the performance
and financial position of a firm an accounting figure convey meaning when it is
related to some other relevant information.
Ratios may be classified into the four important categories.
 Liquidity ratios
 Leverage ratios
 Activity ratios
 Profitability ratios
1. LIQUIDITY RATIOS
Liquidity ratios measure the firm’s ability to meet current obligations.
1. CURRENT RATIOS
The current ratio is calculated by dividing current assets by current

liabilities.
Current Assets
Current Ratio =
Current Liabilities
Where,
 Current assets include cash and bank balances marketable securities,

debtors and inventories and also prepaid expenses etc.
 Current liabilities include creditors, bills payable, accrued expenses,
short term bank loan, income tax liability etc.
46
2. QUICK RATIO
Quick ratio establishes a relationship between quick, or liquid, assets and
current liabilities.
Current Assets – Inventories & Loans & Advances

Quick Ratio =
Current Liabilities
Where,
Liquid assets include cash, debtors, and bills receivable and marketable
securities3. Absolute quick (cash) ratio
Since cash is the most liquid asset, a financial analyst may examine cash
ratio and its equivalent to current liabilities. Trade investment (or) marketable
securities is equivalent of cash.
Cash + Marketable Securities

Cash Ratio =
Current Liabilities
47
B) LEVERAGE RATIOS
Leverage ratios may be calculated from the balance sheet items to

determine the proportion of debt in total financing. Leverage ratios are also computed
from the profit and loss items by determining the extent to which operating profits are
sufficient to cover the fixed charges.
1. TOTAL DEBT RATIO
Several debt ratios may be used to analyze the long-term solvency of a firm,
the firm may be interested in knowing the proportion of the interest bearing debt (also
Called funded debt) in the capital structure. It may compute debt ratio by dividing
total debt by capital employed (or) net assets.
Total Debt
Total Debt Ratio =
Total Debt + Net Worth
Where,
Total debt = secured+ unsecured loans
Capital employed = Total debt + shareholders funds.
48
2. DEBT-EQUITY RATIO
This relationship describing the lender’s contribution for each rupee of the
owner’s contribution is called debt-equity ratio is directly computed by dividing total
debt by net worth.
Total Debt
Where, Debt Equity Ratio =
Net Worth
Total debt = secured + unsecured loans
Net worth = share capital + reserves and surplus
3. INTEREST COVERAGE RATIO
Debt ratios described above are static in nature, and fail to indicate the
firm’s ability to meet interest (and other fixed-charges) obligations. The interest
coverage ratio (or) the times – interest – earned is used to test the firms debt –
servicing capacity. The interest coverage ratio is computed by dividing earnings
before interest and taxes by interest charges.
EBIT
Interest Coverage Ratio =
Interest
49
C) ACTIVITY RATIOS
Activity ratios involve a relationship between sales and assets, a proper

balance between sales and assets, generally reflects that assets are managed well.
Several activity ratios can be calculated to judge the effectiveness of asset utilization.
1. INVENTORY TURN OVER RATIO
Inventory turnover ratio indicates the efficiency of the firm in producing and
selling its product. It is calculated by dividing the cost of goods sold by the average
inventory.
Cost of goods sold

Inventory Turnover Ratio =
Average Inventory
Where,
Cost of goods= raw material, wrapping and packing materials consumed
Purchased of finished goods + manufacturing expenses.
2. WORKING CAPITAL TURNOVER RATIO
A firm may also like to relate net current assets (or net working capital
gap) to sales. It may thus compute net working capital turnover by dividing sales by
net working capital.
Sales
Net Current Assets Turnover =
Net Working Capital
50
3. DEBTORS TURNOVER RATIO
A firm sells goods for cash and credit. Credit is used as a marketing tool by a
no. of companies. When a firm extends credits to its customers, debtors (accounts
receivable) are created in the firm’s accounts. Debtors are expected to be converted
into cash over a short period.
Debtor’s turnover is found out by dividing credit sales by average debtors.
Credit Sales/ Sales

Debtor Turnover =
Average Debtors
Debtor’s turnover indicates the no. of times debtors turn over each year.
4. CREDITORS TURN OVER RATIO
This ratio gives the average credit period enjoyed from the creditors and is by
dividing credit purchases by average accounts payable (creditors +bills payable).
Credit Purchases
Creditors Turnover =
Average Creditors
Where,
Purchases = Raw Materials, wrapping and packing materials consumed purchase of

finished goods.
Note: Here, credit purchases are not available. Therefore we consider the
total purchase for calculation.
51
5. FIXED ASSETS TURNOVER RATIO
Fixed assets are used in the business for producing goods to be sold. The
effective utilization of fixed assets will result in increased production and reduced
cost. It also ensures whether investment. In the assets have been judicious (or) not.
Sales
Fixed Assets Turnover Ratio=
Fixed Assets
C) PROFITABILITY RATIOS
The profitability ratios are calculated to measure the operating efficiency

of the company. Besides management of the company, creditors and owners are also
interested in the profitability of the firm creditors want to get interest and payment of
principal regularly owners want to get a required rate of return on their investment.
1) GROSS PROFIT RATIO
The first profitability ratio in relation to sales is the gross profit margin. It is
calculated by dividing the gross profit by sales.
Gross profit
Gross profit Ratio = X 100
Sales
Where,
Gross profit = sales – (Raw material, wrapping and packing material consumed +
purchase of finished goods + manufacturing expenses).
52
2) NET PROFIT RATIO
Net profit is obtained when operating expenses, interest and taxes are
subtracted from the gross profit. The net profit margin ratio is measured by dividing
profit after tax by sales.
Net profit
Net profit Ratio = X 100
Sales
Where,
Net profit = PBIDT
3) Return on investment (ROI)
The term investment may refer to total assets (or) Net assets. The funds
employed in net assets in known as capital employed. Alternatively, capital employed
is equal to net worth plus total debt.
PBIDT
ROI = X 100
Capital Employed
Where,
Capital Employed = share capital + Reserves and Surplus + secured loans +
Unsecured loans.
53
4. Return on equity (ROE)
A return on share holder’s equity is calculated to see the profitability of owner’s

investment. The return on shareholders equity is net profit after taxes divided by
shareholder’s equity.
PAT
ROE = X 100
Equity
Where,
Equity = share capital + reserve and surplus
54
3. RESEARCH METHODOLOGY
3.1 NEED FOR THE STUDY
 Management of working capital is an important function of finance

department of a corporate organization.
 While managing current assets two important factors that are considered is
liquidity and profitability.
 The excess working capital results in deterioration in profits and inadequate
working capital results in liquidity risk.
 So this study is undertaken to know to what extend the successful in trade-off
liquidity and profitability.
55
3.2 SCOPE OF THE STUDY
 Scope of the study in SIBAR AUTO PARTS LTD. covers all main
areas to estimate the working capital and working capital ratios
statement of changes in working capital.
 The scope of the study is how the firm was investing current assets for
running the day-to-day operations.
56
3.3 OBJECTIVES OF THE STUDY
This study is mainly focused to examine the short-term financial viability of

SIBAR AUTO PARTS LTD s stated below:
 To study the financial soundness of the company.

 To analyze the working capital of SIBAR AUTO PARTS
LTD.
 To study schedule of change in working capital.
 To estimate working capital requirements.
 To examine the existing system and give suggestion for better
management of working capital.
57
3.4 RESEARCH DESIGN
SOURCE OF DATA
The required for this study would be collected through two sources.
They are two types of method:-
DATA SOURCE
PRIMARY DATA SECONDARY DATA
1. Primary Data:
The primary data comprises information obtained by the candidate during

discussions with Heads of Departments and from the meeting with officials and staff.
2. Secondary Data:
The secondary data has been collected from information through Annual
Reports, Public Report, Bulleting and other Printed Materials supplied by the
Company.
In the present study ¼th of the total information of time is from primary data
and the rest is from the secondary data.
58
3.5 LIMITATIONS OF THE STUDY
 It is based on the data supplied by the factory personnel.

 It is based on consultation, decisions of all concerned officials.
 Since only 5 years take into account while analyzing working capital of
company (i.e.2015-2020) analyzing and interpretation on the basis of
published annual report of SIBAR AUTO PARTS LTD.
 Due to limitations of time, it was unable to go for a depth study into the
subject.
4. DATA ANALYSIS & INTERPRETATIONS
59
STATEMENT OF CHANGE IN WORKING CAPITAL FOR THE YEAR

2015-2016
PARTICULAR 2015 2016 Effect on working capital
Increase Decrease
CURRENT ASSETS
Cash 1,88,392 1,81,082 ..…. 7,310
Bank 2,32,964 2,43,499 23,10,334 .…..
Inventory 1,88,18,413 1,78,14,891 …… 10,03,522
Sundry debtor 1,08,76,025 1,04,73,775 ..…. 4,02,250
Loan and Advance 1,40,45,650 1,29,40,994 ..…. 11,04,656
CURRENT LIABILITY
4,41,61,444 4,16,54,241
Provision
Sundry creditor
2,07,11,592 2,82,74,379
Other liability .….. 75,62,787
1,09,78,377 1,04,80,302
4,98,075 . …..
20,92,858 20,92,858
. .…. ……
Working capital (C.A-C.L) 3,37,82,827 4,08,47,539
1,03,78,617 8,06,702
Net decrease in working
capital 95,71,915
95,71,915
10,378,617 10,378,617 1,00,80,525 1,00,80,525
INTERPRETATION:
From the analysis it can be inferred that there was increase in as bank and
decrease in current liabilities as provision and other liabilities and decrease in cash,
inventories, loan and advance, increase in current liabilities as sundry creditors result
net decrease in working capital. When comparing 2015 to 2016 there was a decrease
in working capital by Rs 95, 71,915.
STATEMENT OF CHANGE IN WORKING CAPITAL FOR THE

YEAR 2016-2017
60
Increase Decrease
CURRENT ASSETS 1,81,08

Cash 2 1,82,440 1,358 ……
Bank 2,43,499 3,84,687 1,41,188 ……
Inventory 1,78,14,891 1,49,39,986 .…… 28,74,905
Sundry debtor 1,04,73,775 1,19,84,999 15,11,224 ……
Loan and Advance 1,29,40,994 1,25,26,386 …….. 4,14,608
4,16,54,241 4,00,18,498
CURRENT LIABILITY 2,82,74,379 2,83,34,101 ……. 59,722

Provision 1,04,80,302 1,06,39,580 ……. 1,59,278
Sundry creditor 20,92,858 18,68,607 2,24,251 ..…..
Other liability
4,08,47,539 4,08,42,288
Total
8,06,702 -8,23,790
Working capital (C.A-C.L)
16,30,492
Net decrease in working 16,30,492
capital
8,06,702 8,06,702 35,08,513 35,08,513
INTERPRETATION:
From this analysis it can be inferred that there was increase in as cash, bank
and sundry debtors and decrease in current liabilities as provision and sundry
creditors and decrease in inventories, loan and advance increase in current liabilities
as other liabilities result net increase in working capital. When comparing 2016 to
2017 there was a decrease in working capital by Rs 16, 30,492.

YEAR 2017-2018
61
Increase Decrease
CURRENT ASSETS
Cash 1,82,440 8,465 ……. 1,73,975
Bank 3,84,687 9,64,704 5,80,017 ……
Inventory 1,49,39,986 87,49,450 ……. 61,90,536
Sundry debtor 1,29,08,788 9,23,789 …….
Loan and Advance 1,19,84,999 1,34,31,706 9,05,320 .……
1,25,26,386
4,00,18,498 3,60,63,113
CURRENT LIABILITY
Provision 2,83,34,101 2,78,53,743

4,80,358 ..…..
Sundry creditor 1,06,39,580 1,01,23,832
5,15,748 ……
Other liability 18,68,607 15,77,801
2,90,806 ……
4,08,42,288 3,95,55,376
Working capital (C.A-C.L) 8,23,790 34,92,263
Net decrease in working capital 26,68,473
26,68,473
-8,23,790 -8,23,790 63,64,511 63,64,511
INTERPRETATION:
From this analysis it can be inferred that there was increase in as bank,
sundry debtor, loan and advance and decrease in cash, inventories and increase in
current liabilities as provision, sundry creditor, and other liabilities result net increase
in working capital. When comparing 2017 to 2018 there was a decrease in working
capital by Rs 26, 68,473.

YEAR 2018-2019
62
Increase Decrease
CURRENT ASSETS
Cash 8,465 15,100 ……. 1,73,975
Bank 9,64,704 10,39,554 5,80,017 ……
Inventory 87,49,450 5416,988 ……. 61,90,536
Sundry debtor 1,29,08,788 1,76,53,018 9,23,789 …….
Loan and Advance 1,34,31,706 1,42,70,528 9,05,320 .……
3,60,63,113 3,83,95 , 188
CURRENT LIABILITY
2,78,53,743 2,71,80,480
Provision 4,80,358 ..…..
1,01,23,832 1,31,46,129
Sundry creditor 5,15,748 ……
15,77,801 12,71,869
Other liability 2,90,806 ……
3,95,55,376 4,15,98,478
-32,03,290
Working capital (C.A-C.L) -34,92,263
Net increase in working capital 2,88,973

2,88,973
-32,03,290 -32,03,290 66,43,732 66,43,732
INTERPRETATION:
in working capital. When comparing 2018 to 2019 there was an increase in working

YEAR 2019-2020
63
Increase Decrease
CURRENT ASSETS
Cash 15,100 36,532 21,432 -------
Bank 10,39,554 14,15,615 3,76,061 ……
Inventory 5416,988 33,84,268 ……. 20,32,720
Sundry debtor 1,76,53,018 1,90,71,362 14,18,344 …….
Loan and Advance 1,42,70,528 1,60,36,157 17,65,62 .……
9
3,83,95 , 188 3,99,43,934
CURRENT LIABILITY
2,71,80,480 2,64,26,607
Provision 7,53,873
1,31,46,129 1,26,24,444 ..…..
Sundry creditor 5,21,685
12,71,869 7,68,262 ……
Other liability 5,03,607
4,15,98,478 3,98,19,313 ……
-32,03,290 1,24,621
Working capital (C.A-C.L)
33,27,911
Net Increase in working capital
33,27,911
1,24,621 1,24,621 53,60,631 53,60,631
INTERPRETATION:
in working capital. When comparing 2019 to 2020 there was an increase in working
1. CURRENT RATIO:
64
The current ratio is the ratio of total current assets to total current liabilities. It
is calculated by dividing current assets by current liabilities.
Current Assets
Current Ratio =
Current Liabilities
TABLE: 4.1
YEARS CURRENT ASSETS CURRENT LIABILITIES CURRENT

Rs Rs RATIO
2015-16 4,16,54,241 4,08,47,539 1.02

2016-17 4,00,84,098 4,08,42,288 0.98
2017-18 3,60,63,112 39,55,375 0.91
2018-19 3,83,95,188 41,59,848 0.92
2019-20 3,99,43,933 3,98,19,313 1.00
GRAPH: 4.1
65
INTERPRETATION:
In the year 2015-16 the current ratio is 1.02 to 1 and 2016-17 is 0.98 to 1. The
current ratio is decreasing from 2015-16 to 2017-18 and than increasing It represent
the firm’s inability to meets its obligations. The current ratio in the year 2016-17,
2017-18, 2018-19 and 2019-20 are 0.98, 0.91, 0.92 and 1.0 respectively.
66
2. QUICK RATIO (OR) ACID TEST RATIO:
Quick ratio indicates the ability of a firm to pay its short term
commitments higher the ratio is the identification that the firm is liquid and has the
ability to meet its current liabilities in time on the other hand a low quick ratio
represent satisfactory current financial conditions.
Quick Ratio
Quick Ratio = ------------------------
Current Liabilities
Or
Current assets – Inventories

Quick Ratio = --------------------------------------
Current Liabilities
TABLE: 4.2
YEARS CURRENT INVENTORIES CURRENT QUICK
ASSETS Rs LIABILITIES RATIO
Rs
2015-16 4,16,54,241 1,78,14,891 4,08,47,539 0.58
2016-17 4,00,18,498 1,49,39,986 4,08,42,288 0.61
2017-18 3,60,63,112 87,49,450 3,95,55,375 0.69
2018-19 3,83,95,188 54,16,988 4,15,98,478 0.79
2019-20 39,94,39,33 33,84,268 3,98,19,313 0.91
67
GRAPH: 4.2
INTERPRETATION:
In the year 2015-16 the quick ratio is 0.58:1. it is less than required level.
Quick ratio is increasing in every year. In the year 2019-20 quick ratio is 0.91 which
is reachable to ‘1’. It represents to reach the ability to meet its quick liabilities. Quick
ratio in the years 2016-17, 2017-18, 2018-19, 2019-20 is 0.61, 0.69, 0.79 and 0.91
respectively.
68
3. INVENTORY TURNOVER RATIO:
(STOCK TURNOVER RATIO)
It indicates whether inventory is efficiently used or not the purpose is to see

whether only the required minimum funds have been locked up to in inventory.
This ratio implies no. of times stock has been turned over during a period and
evaluates efficiency with a firm is able to manage its inventory.
Usually a high inventory turnover ratio indicated efficient over investment of

inventory.
A low inefficient management of inventory over investment in inventories,

debt business, poor quality of goods, stock accumulation and low profit as compared
to total investment.
Cost of Goods Sales

Inventory Turnover Ratio = ------------------------ (or) --------------
Avg. Inventory Inventory
TABLE: 4.3
YEARS SALES INVENTORY INVENTORY
Rs Rs TURNOVER
RATIO
2015-16 1,23,53,450 1,78,14,891 0.69
2016-17 2,05,82,346 1,49,39,986 1.37
2017-18 3,32,62,721 87,49,450 3.80
2018-19 7,52,63,228 54,16,988 13.89
2019-20 8,88,80,317 33,84,268 26.26
69
GRAPH: 4.3
INTERPRETATION:
In the years 2015-16 to 2017- 2018 the company inventory turnover ratio is
increasing. That is 0.69, 1.37, and 3.80. From 2018-19 onwards the inventory
turnover ratio is highly increasing i.e. 13.89, 26.26.
70
4. WORKING CAPITAL TO SALES RATIO:
The working capital turn over ratio is the ratio of working capital of sale.
This ratio indicates how many times that the sales on working capital. If this is high
the liquidity is good, if it is less the liquidity of the firm is not good. The generally
accepted principle is
Sales
Net Current Assets Turnover =
Net Working Capital
TABLE: 4.4
YEARS Net Sales Working capital Ratio

2015-16 1,23,53,450 8,06,702 15.31
2016-17 2,05,82,346 - 8,23,790 24.98
2017-18 3,32,62,721 -34,92,263 9.52
2018-19 7,52,63,228 -3203290 23.49
2019-20 88880317 124621 713.2
GRAPH: 4.4
71
INTERPRETATION:
Due to decrease in current assets and increase in current liabilities. The

net working capital declined. As current assets decreases the net working capital also
decrease and if it increases the net working capital also increase the decline in the
working capital is not good for the company.
5. DEBTORS TURNOVER RATIO
Debtor’s turnover ratio indicates the no of times debtors turnover each year.
Generally the higher the value of debtor’s turnover, the more efficient is the
management of credit.
72
Debtors turnover ratio = credit sales/average debtors
(Or)
Debtors turnover ratio = sales/debtors
TABLE: 4.5
YEARS SALES DEBTORS DEBTORS Debtors Collection

Rs Rs TURNOVER Period
RATIO
2015-16 1,23,53,450 1,04,73,775 1.17 30.9
2016-17 2,05,82,346 1,19,84,999 1.71 21.3
2017-18 3,32,62,721 1,29,08,788 2.58 139.53
2018-19 7,52,63,228 1,76,53,018 4.26 84.51
2019-20 8,88,80,317 1,90,71,362 4.66 71.25
73
GRAPH: 4.5(A)
INTERPRETATION:
Debtors turnover indicates the number of times debtors turnover each year.
Generally, the higher the value of debtor’s turnover, the more efficient is the
management of credit. From the year 2015-16 to 2019-20 the debtor’s turnover ratio
is 1.17, 1.71, 2.58 and 4.66. It represent the debtors turnover ratio is increasing. The
company is ability efficient in the management of credit.
74
AVERAGE COLLECTION PERIOD:
GRAPH: 4.5 (B)
INTERPRETATION:
Average collection period for the year 2016-2017 and Average collection
period for the year 2018-19.
75
6. CREDITOR PAYMENT PERIOD:
The creditors turnover ratio indicates the time taken by the company to pay
back to there creditors. It is calculated by.
Creditors
Creditor payment period = X 100
Purchase
YEARS Purchases Creditors Ratio Avg Payment

Period
2015-16 17,11,249 1,04,80,302 0.16 22.81
2016-17 32,15,799 1,06,39,580 0.30 12.08
2017-18 43,52,685 1,01,23,832 0.43 8.49
2018-19 31961628 13146129 0.41 8.78
2019-20 38283122 12624444 0.33 10.91
TABLE: 4.6
76
GRAPH: 6
AVERAGE PAYMENT PERIOD:
GRAPH: 6.1
INTERPRETATION:
The creditor’s payment period is decreasing year by year. Is indicates that

the company is not paying the debtors correctly. It tends to difficulty in getting credit
in future. The company is doing the entail operation with creditor’s money.
77
7. GROSS PROFIT RATIO
The gross profit reflects the efficiency with which management product each
unit of profit. The ratio indicates average spread between cost of goods sold and the
sales revenue.
A high gross profit is sign of good management also a high gross profit
relative to the industry average implies that the firm is able to product at relatively
low cost.
Gross Profit
Gross Profit Ratio = ----------------------- x 100
Sales
TABLE: 4.7
YEARS GROSS PROFIT SALES GROSS PROFIT

( Sales – Cost of goods Rs MARGIN RATIO
sold) Rs
2015-16 28,11,798 1,23,53,450 0.22
2016-17 47,15,138 2,05,82,346 0.23
2017-18 76,54,667 3,32,62,721 0.23
2018-19 92,18,046 7,52,63,228 0.12
2019-20 1,53,69,590 8,88,80,317 0.17
78
GRAPH: 4.7
INTERPRETATION:
The gross profit indicates the relationship between total sales and cost of goods
sold. From years 2015-16 to 2017-18, the gross profit ratio is 0.22, 0.23, and 0.23 on
2018-19. The ratio is decreased because, the gross profit not increased as well as
sales. On 2019-20 the ratio is slowly increased on compare with 2018-19 i.e. 0.17
even though, the sales increased from 2018-19, the gross profit is not much increased.
79
8. NET PROFIT RATIO
Net profit is obtained when operating expenses, interest and taxes are
subtracted from the gross profit. The net profit margin ratio is measured by dividing
profit after tax by sales.
Net profit
Net profit Ratio = X 100
Sales
Where,
Net profit = PBIDT
TABLE: 4.8
YEARS Net Profit Sales Percentage

2015-16 -2,28,02,728 1,23,53,450 -184.58
2016-17 -78,84,355 2,05,82,346 -38.31
2017-18 -89,56,412 3,32,62,721 -27
2018-19 -5861685 75263228 -7.79
2019-20 -885154 8880317 -9.97
GRAPH: 4.8
80
INTERPRETATION:
The Net profit ratio of the company is highly fluctuating. The decreasing trend
from -0.39% in 2015 to -1.10% in 2017 and again it has increased to -1.85% in 2017.
But decreasing the trend from 2019 to 2020 that is -0.38% in 2017 to -0.27% in 2020.
WORKING CAPITAL RATIOS
PARTICULAR YEARS
2016 2017 2018 2019 2020
81
Working capital to Sale ratio 15.31 24.98 9.52 23.49 713.2

Inventories Turnover ratio 0.52 1.06 2.93 11.37 21.72
Current ratio 1.02 0.97 0.91 0.92 1.00
Quick ratio 0.58 0.61 0.35 0.79 0.92
Debtors turn over 1.18 1.72 2.58 4.26 4.66
Average debt Collection period 309.00 213.00 139.53 84.51 71.25
Creditors turn over 0.16 0.30 0.43 0.41 0.33
Average credit Payment period 2281.00 1208.00 849.00 878 10.91
Gross profit ratio 22.76 22.91 23.01 12.20 17.20
Net profit ratio -184.58 -38.31 -27 -7.79 -9.97
5.1 FINDINGS
After proper analysis of the financial position of the Sibar Auto Parts Ltd with
the help of tools of financial analysis, the following are things are found during the
study.
 In the years 2015-16 to 2019-20 the company inventory turnover ratio is

highly increasing. That is 0.69, 1.37, 3.80, 13.89, and 26.26.
82
 In the years 2015-16 to 2019-20 the current ratio is nearly 1 from 2016-17 is
2 to 1 from year onwards the current ratio is gradually decreasing and them
2016-17. Increasing from 2018-19 it represents the firms inability to meet it’s
obligations.
 The debtor’s turnover ratio is low due to huge increase in debtors and
decrease in the sales.
 The creditor’s payment was not done regularly which indicating that the
company is not paying the debts correctly.
 It is found that the company is getting good percentage of gross profit on sales
this is due low cost of production.
 The part of long term debt is more in capital structure this will effect solvency
position of the company.
 In the year 2015 to 2016 our company sales has been increases.
 The cash and bank balances shows increased trend but had come down
marginally in the year 2016.
 In the year 2015 to 2016 sales has been decreased because of in efficient raw
materials.
 In the 2017 to 2020 our sales has increased to 10 cores shares.
 Turn over of the company is increasing from year to year because of efficient
in the cash management.
5.2 SUGGESTIONS
After proper analysis of the financial position of the company and according
the findings founds in the analysis the following are some of the suggestions
recommended to the company for better performance.
83
 The profitability of the company is affected due to unnecessary administration

expenses incurred by the company. It is better to reduce it to increase the
profit.
 The company must maintain its operating expenses in manner and improve
the operating nature.
 It is suggested to take measures for collecting dues from the debtors, by
allowing discount and reduce bad debts.
 It is suggested to pay the dues to the creditors as earlier as possible, because
delay increases more interest charges and damage the credibility.
 It is suggested to put promotional/advertisements efforts for increasing the
sales of the company.
 It is suggested to make additions/ introduce new technology in the production
for better quality of output and for increasing the portion of fixed assets on
total application of funds.
5.3 CONCLUSION
84
The study reveals that the company’s management was inefficient in

performing effectively and also the company faced losses. For the past 4 financial
years, hence the company has to take care of his management in order to come out
from losses and to make profits.
ANNEXURES
BALANCE SHEET: FINANCIAL REPORTS 2015-16 TO 2019-20
PARTICULARS Schedule 2015-16 2016-17 2017-18 2018-19 2019-20

Rs. Rs. Rs. Rs. Rs.
85
1. SOURCE OF
FUNDS
A .Share holders funds a)

Equity shares capital A 55351000 55351000 55351000 55351000 55351000
b) Reserves & Surplus B -173230842 -181871748 -191769708 1535979 1535979
B) Loan funds
a) Secured loans C 124412166 124265284 123762967 123421934 118323986
b) Un secured loans D 17554308 16878362 16457311 16525160 17597491
Total 1 AND 2 84086632 74622897 63801570 196834073 192808456
11.Application of funds
1.FIXED ASSETS E
a) Gross Block 128744087 128744087 129350453 130940766 131221531
less: 75598731 83431974 92191194 101041843 109690611
Depreciation
Net block 53145356 45312113 37159259 29898923 21530920
2. Investments F 701500 701500 701500 701500 701500
3.Current Assets, loans and G 41654241 40018498 36063112 38395190 39943933

advance
Less:
4. Current liability& H 40847539 40842288 39555375 41598478 39819313
provisions
Net Current assets 806702 -823790 -3492263 3203288 124620
(G-H)
5.Miscellaneous expenditure I 29433074 29433074 29433074 140003864 14101834

(to the extent not written or 2
adjusted)
Notes on accounts J - - - - -
Total 1 to 5 - 84086632 74622897 63801570 196834073 192808456
86
PROFIT AND LOSSES ACCOUNT: FINANCIAL REPORTS
2015-16 TO 2019-20
DESCRIPTION 2015-16 2016-17 2017-18 2018-19 2019-20
Rs. Rs. Rs. Rs. Rs.

SALES 12353450 20582346 33262721 75263228 88880317
Cost of goods sold 9541652 15867208 25608054 66045182 73510727
Gross profit (k-1) 2811798 4715138 7654667 9218048 15369590
Selling and Administrative 3927032 4776618 7760578 6487062 7820214
expenses
Depreciation 9080119 7833243 8759220 8850648 8705418
Interest 12838748 104918 267580 152862 18423
Other Income 231372 115287 176299 335446 351264
PBIT 22802728 7884355 -8956412 -5784218 -804778
Provision for income tax 0 0 0 77467 80376
PAT 22802728 7884355 -8956412 -5861685 -885154
Prior period adjustment 48228 756552 941547 836491 129324
Balance c / f to balance 22850956 8640907 -9897959 -200003864 -201018342
sheet
87
BIBLIOGRAPHY
Author : I.M.PANDEY
Title of the book : Financial Management
Publisher : Vikas Publishing House Pvt. Ltd.,
Edition : Eighth Edition.
Author : M.Y. Khan & P.K. Jain

Publisher : Tata Mc. Graw Hill Publishing Co.Ltd.,
Edition : Third Edition.
Author : Prasanna Chandra

Publisher : Tata Mc. Graw Hill Publishing Co.Ltd.,
Edition : Fourth Edition.
Websites:
 www.sibarautomobil.com
 www.sibarauto77@yahoo.com
88

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Working Capital Management

Finance is one the basic foundations of all kinds of economic activities. It is

Financial management emerged as a distinct field of study at the turn of this

According to GUTHMANN AND DOUGHAL: “Business finance can broadly

According to BONNEVILE AND DEWEY: “Financing consists in the rising,

According to Prof. EZRA SOLOMAN: “Financial management is concerned

The finance functions of raising funds, investing them in assets and

The finance functions can be divided into four broad categories.

1. Investment or long-term asset mix decision

1. Financing or capital mix decision

2. Dividend or profit allocation decision

Investment or capital budgeting involves the decisions of allocation of cash or

Financing decision is the second important function to be performed by the fir.

Current assets management, which affects firm’s liquidity, is yet another

Investment in current assets affects the profitability, liquidity, and risk. A

GOALS OF FINANCIAL MANAGEMENT:

 Ensuring maximum operational efficiency through planning,

1.2 INDUSTRY PROFILE

The present automobiles are most sophisticated combining luxury, safety

ACMA is represented on a number of panels, committees and councils of the

1.3 COMPANY PROFILE

The Promoter and Managing Director of this company is Mr. P.VEERA

MARKETING AND DISTRIBUTION

The company is having marketing network in France, Italy, Netherlands,

ABOUT THE PRODUCT

In India automobiles engine cylinders are predominately of cast iron or of

Aluminum cylinders with hard chrome plating reduce Engine weight

General General Manager

Manager R&D- Finance

1.4 PRODUCT PROFILE

In India automobile engine cylinders are predominantly of cast iron or of

Aluminum cylinders with hard chrome plating reduce engine weight

The founder of this company is Mr. P.V.NARAYANA who is now as vice

Engineering and Management. Mr.Ravichandra, now as Executive director,

The company started hard-chrome plating technology with in house research

The manufacturing process broadly consists of shell molding, die casting

ADVANTAGES OF SIBER ALUMINUM HARD CHROME

Automotive item O.E.M Customer for casting:

1. M/S greaves cotton ltd-RANIPET.

Auto Motive Item O.E.M (INDIA) Customer For Cylinder Blocks:

1. M/S BAJAJ AUTO LTD. PUNE.

Auto Motive Item O.E.M (Exports) Customer for Cylinder Blocks:

1. M/S Electrolux, Meculloch- TALIANA, ITALY,

Electrical Transmission Line Item and other are casting Customer:

1. M/S GR power switches Gear Limited HYDERABED. (ISI 9001 certified

 The Company always maintained status of single source supplier with

DEFINITION OF WORKING CAPITAL:

According to M Y Khan & P. K. Jain “Working capital refers to manage the

According to the Cubing working capital is am amount of fun is

Working capital management is concerned with the problem is that arise in

Working capital management is concerned with the problem is that arise in

Therefore interaction between current assets and current assets liabilities in

“WORKING CAPITAL” is also called as “CIRCULATING CAPITAL”.

CONCEPTS OF WORKING CAPITAL:

Working capital can be defined through its two concepts, namely:

(a) Gross working capital

(b) Net working capital.

Gross working capital

Gross working capital refers to the firm’s investment in current assets.

Net Working Capital

WORKING CAPITAL = CURRENT ASSETS -- CURRENT LIABILITIES

It could be defined as that portion of firm’s current asset, which is financed

OPERATING CYCLE CONCEPT: