A STUDY OF WORKING CAPITAL MANAGEMENT

By
KARTHICK.C.S.
200825306

A PROJECT REPORT
Submitted to the

FACULTY OF MANAGEMENT STUDIES

In partial fulfillment of the requirements

for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

ANNA UNIVERSITY
CHENNAI 600 025
September, 2010
 BONAFIDE CERTIFICATE

Certified that this project report titled“A STUDY OF WORKING

CAPITAL MANAGEMENT OF NEXG SPACE CREATORS” is the
bonafide work of Mr.KARTHICK.C.S who carried out the research under
my supervision. Certified further, that to the best of my knowledge the work
reported herein does not form part of any other project report or dissertation
on the basis of which a degree or award was conferred on an earlier occasion
on this or any other candidate.

SIGNATURE SIGNATURE
Dr. L. Suganthi, Ms.E.Thenral
HEAD OF THE DEPARTMENT, LECTURER
Department of Management Studies, Department of Management
Studies,
College of Engineering, Guindy, College of Engineering,
Guindy,
Anna University Chennai Anna University Chennai
Chennai – 600 025. Chennai – 600 025.
 ACKNOWLEDGEMENT

It gives me immense pleasure to present this project report on working

capital management carried out on M/s. NEXG Space Creators. In partial
fulfillment of post-graduate course M.B.A

No work can be carried out without the help and guidance of various
persons. Im happy to take this opportunity to express my gratitude to those
who have been helpful to me in completing this project report.

I thank Dr.L.SUGANTHI, Head of the Department, Department of

Management Studies, Anna University Chennai for encouraging this project.
I also thanks Ms E. THENRAL, our project coordinator and Lecturer,
Department of Management Studies, Anna University Chennai for
effectively guiding the project work.

I thank Mr. C.Sudhakar, Business Head of NEXG Space Creators who

allowed me to do project in his concern. I thank M/s. Kaviya who has
working as accountant in NEXG Space Creators, for giving me sufficient
information.

Chennai
1.7.2010 KARTHICK.C.S
 ABSTRACT

Name of the project : A STUDY OF WORKING CAPITAL

MANAGEMENT OF NEXG
SPACE
CREATORS
Name of the student : KARTHICK.C.S
Roll Number : 200825306
Name of the college : College of Engineering,Guindy
Anna University Chennai,
Chennai – 600 025

NEXG Space Creators is an interior decoration company, has started

its business on 2002. Due its hard work, sincerity and timely delivery to
clients it has grown up into an big organization. It has started with one site
supervisor and an accountant. Now it has 10 site supervisors and 2
accountants and 1 administrator. It has labour of nearly 300 in various
categories as carpenter, painter, house keeping and civil.

I have work in this organization for two years, and these two years I
was watching that managing the working capital is not so good. I want to
implement some strategy into it in order to regularize the working capital
requirement of NEXG Space Creators. By this project, Im completely
analyzing the past datas of working capital records, in order to give solution
to manage the working capital in a efficient and effective way.
 TABLE OF CONTENTS
CHAPTER NO. TITLE PAGE
NO.
BONAFIDE CERTIFICATE i
ACKNOWLEDGEMENT ii
ABSTRACT iii
LIST OF TABLES
LIST OF FIGURES
1 WORKING CAPITAL MANAGEMENT 1

1.1 INTRODUCTION

1.2 NEED OF WORKING CAPITAL

1.3 GROSS WORKING CAPITAL AND NET
WORKING CAPITAL
1.4 TYPES OF WORKING CAPITAL
1.5 DETERMINANTS OF WORKING CAPITAL
2 RESEARCH METHODOLOGY

2.1 INTRODUCTION
2.2 TYPES OF RESEARCH METHODOLOGY
2.3 OBJECTIVE OF STUDY
2.4 SCOPE AND LIMITATION OF STUDY
3 INTRODUCTION TO THE COMPANY
3.1 CORPORATE PHILOSOPHY
3.2 CORPORATE HISTORY
3.3 CURRENT FINANCIAL HIGHLIGHTS
4 WORKING CAPITAL LEVEL AND ANALYSIS
4.1 WORKING CAPITAL LEVEL
4.2 WORKING CAPITAL TREND ANALYSIS
4.3 CURRENT ASSET ANALYSIS
4.4 CURRENT LIABILITY ANALYSIS

4.5 CHANGES OF WORKING CAPITAL

4.6 OPERATING CYCLE

5 CONCLUSION AND RECOMMEDATION

 LIST OF TABLES
TABLE NO. TITLE PAGE NO
3.3 FINANCIAL HIGHLIGHT FOR YEAR
2005-06
4.1 SIZE OF WORKING CAPITAL
4.2 WORKING CAPITAL SIZE
4.3 CURRENT ASSET SIZE
4.4 CURRENT LIABILITY SIZE
4.5 STATEMENT OF CHANGES IN WORKING
CAPITAL
4.6 LIST OF OPERATING CYCLE.

LIST OF FIGURES
FIGURE NO. TITLE PAGE NO.
4.2 WORKING CAPITAL INDICIES
4.3 CURRENT ASSET INDICIES
4.4 CURRENT LIABILITY INDICIES
4.6 OPERATING CYCLE

CHAPTER – I
 WORKING CAPITAL MANAGEMENT
1. INTRODUCTION
2. NEED OF WORKING CAPITAL
3. GROSS W.C. AND NET W.C
4. TYPES OF WORKING CAPITAL
5. DETERMINANTS OF WORKING CAPITAL

INTRODUCTION

1.1WORKING CAPITAL MANAGEMENT

 Working capital management is concerned with the problems araise in
attempting to manage the current assets, the current liabilities and the
inter relationship that exists between them. The term current assets refer
to those assets which is in 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 operation of the firm. The major current
assets are cash, marketable securities, account receivable and inventory.
Current liabilities where those liabilities which intended at there
inception to be paid in ordinary course of business, within a year, out of
the current assets or earning of the concern. The basic current liabilities
are account payable, bill payable, bank over-draft, outstanding expenses.

The goal of working capital management is to manage the firm’s

current assets and current liabilities in such way that satisfactory level of
working capital is mentioned. The current should be large enough to
cover its current liabilities in order to ensure a reasonable margin of the
safety.

DEFINITION :

 ACCORDING TO GUTTMAN & DOUGALL

 Excess of current assets over current liabilities.

 ACCORDING TO PARK & GLADSON

The excess of current asset of a business (i.e cash, accounts

receivables, inventories) over current items owned to employees and
others (such as salaries & wages payable, accounts payable, taxes
owned to government)

1.2 NEED OF WORKING CAPITAL MANAGEMENT

The need for working capital gross or current assets cannot be over
emphasized. The objective of financial decision making is to maximize the
shareholders wealth. To achieve this, it is necessary to generate sufficient
profits can be earned will naturally depend upon the magnitude of the sales
among other things but sales cannot convert into cash. There is a need for
working capital in the form of current assets to deal with the problem arising
out of lack of immediate realization of cash against goods sold.

Therefore sufficient working capital is necessary to sustain sales activity.

If company has certain amount of cash, in order to purchase the raw
material. They have made half of the payment and rest is credit. Then the
company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress , and ultimately finished goods.
These finished goods convert into sales on credit basis in the form of sundry
debtors. Sundry debtors are converting into cash after expiry of credit
period. Thus some amount of cash is blocked in raw material, WIP, finished
goods, and sundry debtors and day to day cash requirements. However some
part of current assets may be financed by current liabilities also. The amount
required to be invested in this current assets is always higher than the funds
available from current liabilities. This is the precise reason why the needs for
working capital araise.

1.3GROSS WORKING CAPITAL AND NET WORKING

CAPITAL

GROSS WORKING CAPITAL:

Gross working capital refers to the firm investment current asset.

Current assets are the assets which can be converted into cash within a
year include cash, short term securities, debtors, bills receivable and
inventory.

NET WORKING CAPITAL:

Net working capital refers to the difference between current assets and
current liabilities. Current liabilities are those claims of outsiders which
are expected to mature for payment within an accounting year and
include creditors, bills payable and outstanding expenses. Net working
capital can be positive or negative.

Efficient working capital management requires that firms should

operate with some amount of net working capital, the exact amount
varying from firm to firm and depending, among other things; on the
nature of industries. Net working capital is necessary because the cash
outflows and inflows do not coincide. The cash outflows resulting from
payment of current liabilities are relatively predictable. The cash inflows
are however difficult to predictable. The more predictable the cash
inflows are, the less net working capital will be required.

1.4TYPES OF WORKING CAPITAL

The operating cycle creates the need for current assets (working
capital). However the need does not come to an end after the cycle is
completed to explain this continuing need of current assets a
destination should be drawn between permanent and temporary
working capital.

PERMENANT WORKING CAPITAL:

The need for current assets araises, as already observed,

because of the cash cycle. To carry on business certain minimum level
of working capital is necessary on continues and uninterrupted basis.
For all practical purpose, this requirement will have to be met
permanent as with other fixed assets. This requirement refers to as
permanent or fixed working capital.

TEMPORARY WORKING CAPITAL:

 Any amount over and above the permanent level of working
capital is temporary, fluctuating or variable, working capital. This
portion of the required working capital is needed to meet fluctuation
in demand consequent upon changes in production and sales as result
of seasonal changes.

1.4DETERMINANTS OF WORKING CAPITAL

The amount of working capital is depends upon a following factors.

1.4.1 NATURE OF BUSINESS

Some businesses are such, due to their very nature, that

their requirement fixed capital is more rather than working
capital. These business sell services and not the commodities
and that too on cash basis. As such, no founds are blocked in
piling inventories and also no funds are blocked in receivables.

E.G. Public utility services like railways, infrastructure

oriented project etc, there requirement of working capital is
less. On the other hand, there are some business like trading
activity, where requirement of fixed capital is less but more
money is blocked in inventories and debtors.

1.4.2 LENGTH OF PRODUCTION CYCLE

 In some business like machine tool industry, the time gap
between the acquisition of raw material till the end of
final production of finished products itself is quit high.
As such amount may be blocked either in raw material or
work in progress or finished goods or even in debtors.
Naturally there need of working capital is high.

1.4.3 SIZE AND GROWTH OF BUSINESS

In very small company the working capital requirement

is quit high overhead, higher buying and selling cost etc.
as such medium size business positively has edge over
the small companies. But if the business start growing
after certain limit, the working capital requirements may
adversely affect by the increasing size.

1.4.4 BUISNESS/TRADE CYCLE

If the company is the operating in the time of boom, the

working capital requirement may be more as the
company may like to buy more raw material, may
increase the production and sales to take the benefit of
favorable market, due to increase in the sales, there may
more and more amount of funds blocked in stock and
debtors etc. similarly in the case of depressions also,
working capital may be high as the sales terms of value
and quantity may be reducing, there may be unnecessary
 piling up of stack without getting sold, the receivable
may not recovered in time etc.

1.4.5 TERMS OF PURCHASE AND SALES

Some time due to competition or custom, it may be

necessary for the company to extend more and more
credit to customers, as result which more and more
amount is locked up in debtors or bills receivables which
increase the working capital requirement. On the other
hand, in the case of purchase, if the credit is offered by
suppliers of goods and services, a part of working capital
requirement may be financed by them, but it is necessary
to purchase on cash basis, the working capital
requirement will be higher.

1.4.6 PROFITABILITY

The profitability of the business may be vary in each and

every individual case, which is in turn its depend on
numerous factors, but high profitability will positively
reduce the strain on working capital requirement of the
company, because the profits to be extend that they
earned in cash may be used to meet the working capital
requirement of the company.
1.4.7 OPERATING EFFICIENCY
If the business is carried on more effectively, it can
operate in profits which may reduce the strain on
working capital; it may ensure proper utilization of
existing resources by eliminating the waste and improved
coordination etc.
 CHAPTER – II

RESEARCH METHODOLOGY

1. INTRODUCTION
2. TYPES OF RESEARCH METHODOLOGY
3. OBJECTIVE OF STUDY
4. SCOPE AND LIMITATION OF STUDY.

INTRODUCTION:
 Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying now research is done
systematically. In that various steps, those are generally adopted by a
researcher in studying his problem along with the logic behind them.

It is important for research to know not only the research method but
also know methodology. The procedures by which researcher go about their
work of describing, explaining and predicting phenomenon are called
methodology. Methods comprise the procedures used for generating,
collecting, and evaluating data. All this means that it is necessary for the
researcher to design his methodology for his problem as the same may differ
from problem to problem.

Data collection is important step in any project and success of any

project will be largely depend upon now much accurate you will be able to
collect and how much time, money and effort will be required to collect that
necessary data, this is also important step.

Data collection plays an important role in research work. Without

proper data available for analysis you cannot do the research work
accurately.

TYPES OF DATA COLLECTION

There are two types of data collection methods available.

 • Primary data collection

• Secondary data collection

PRIMARY DATA COLLECTION

Primary data are those which is collected fresh or first hand, and for
first time which is original in nature. Primary date can collect through
personal interview, questionnaire etc. to support the secondary data.

SECONDARY DATA COLLECTION

The secondary data are those which have already have collected and
stored. Secondary data can easily get from records, journal, annual reports of
the company etc. It will save the money, time and efforts to collect the data.
Secondary data also made available through trade magazines, balance sheets,
books etc.

This project is based on primary data collected through personal

interview of head of account department and other concerned staff members.
But primary data collection had limitations such as matter confidential
information thus project is based on secondary information collected through
the company last year profit and loss account and balance sheet.

OBJECTIVES OF THE STUDY

 Study of the working capital management is important because unless
the working capital is managed effectively, monitored efficiently planned
properly and reviewed periodically at regular intervals to remove bottlenecks
if the company can not earn profits and increase its turnover. With this
primary objective of the study, the following further objectives are framed
for a depth analysis.

To study the working capital management of NEXG Space Creators.

To study the optimum level of current asset and current liabilities of the
company.
To study the liquidity position through various working capital related
ratios.
To study the working capital components such as receivables accounts,
cash management, inventory position
To study the way and means of working capital finance of the NEXG
Space Creators.
To estimate the working capital requirement of NEXG Space Creators.
To study the operating and cash cycle of the company.

SCOPE AND LIMITATIONS OF STUDY

SCOPE OF STUDY
 The scope of study is identified after and during the study is
conducted. The study of working capital is based on tools like trend analysis,
ratio analysis, working capital leverage, operating cycle etc.

LIMITATION OF STUDY

LIMITED DATA

As the company has started in 2002, it has only five years profit
and loss account and balance sheet. So we cant get more information
about past data.

LIMITED PERIOD

This project is based on only five year annual reports.

Conclusions and recommendations are based on such limited data.
The trend of last five year may or may not reflect the real working
capital position of the company.

LIMITED AREA

Also it was difficult to collect the data regarding competitors

and their financial information.
 CHAPTER III

INTRODUCTION OF THE COMPANY

1. CORPORATE PHILOSOPHY
2. CORPORATE HISTORY
3. CURRENT FINANCIAL HIGHLIGHTS

CORPORATE PHILOSOPHY
VISION AND MISSION :

1. ADAPTABILITY TO CHANGING NEEDS

2. ATTENTION TO DETAIL
3. INNOVATION IN SERVICE AND EXECUTION
4. UNDERSTANDING CLIENT’S NEEDS AND PROVIDING
CAPTIVATING IDEAS
5. QUALITY OF HIGHEST STANDARDS
6. ACCOMPLISHING ON TIME
7. CREATING INSPIRING SPACES

CORPORATE HISTORY :

EVOLUTION OF NEXG SPACE CREATORS :

Founded by Mr. I. Chinnasamy, a civil engineer from PSG

Tech, our company’s roots stared with bricks manufacturing in the 80’s. We
panned out in to Private building construction in the last twenty years,
starting with residential homes and commercial complexes including
marriage halls, schools, hotels, banks, and a multi specialty hospital in and
around Chennai and in south Tamil Nadu.
Over the past 40 years, our founder was project engineer in designing,
planning and execution of public sector official and residential buildings,
milk diaries and chilling centers through-out the state of Tamil Nadu.
 Our Company grew and has become a family business by the joining
of the founder’s two sons Mr. C. Sudhakar and Mr. C. Suresh. Mr.
Sudhakar’s involvement in the hospitality industry in various countries
abroad enabled an interest in interior fashioning of commercial places
according to international standards. Mr. Suresh’s previous involvement in
telecommunication product sales helps harness technical and non technical
human resource management and varied strata business contacts.

In the past eight years our company evolved and formed IGGI Promoters
concentrating in promoting residential apartment at various parts of Chennai.
Catering to todays and future tastes and needs, we started promoting a
lifestyle and not just a home through our modern interior designing.

This led us to conceive NEXG SPACE CREATORS The Next Generation

in interior fashioning and a turnkey Solution Provider servicing corporate
spaces residential homes, apartments and commercial complexes.

GROWTH OF NEXG SPACE CREATORS:

 • Nexg space creator have been started in the year june 2002with
the one site supervisor and an accountant. Its first project is

coffee day
which is located in villivakkam, a 200 sqft project. As it has
shown greater commitment in this site, yields a good name with
Quadra Architect. Quadra is a architect company, which function
is to get orders from clients those who are in requirement of
interior decoration for their office or houses. Once if it gets the
order, it will analyse the site condition and prepare Bill of
Quantity. Then it will float the BOQ to various interior decoration
company in order to get the best rates.

• The next project is India Infoline

which is located in Tharamani, a 1800 sq.ft project. As this is a
big project, they recruited one more site supervisor. It has recruited
more labours from varios part of India. Carpenters are from
rajasthan, painters are from Gujurat, housekeeping labours from
Andhra Pradash, Civil labours from thiruvanamalai.
 • IFCI which is located in
Nungambakkam, is the next project for NEXG Space Creators.
• The next project is Yalamanchili Services

, Tharamani, a 2000 sq.ft project. Its

project cost is Rs. 70,00,000. It has recruited one more
candidate for administration.
• The next project is TVS Capital funds

Which is located in Saidapet.

HOW NEXG WORKS :

 If NEXG gets the project as Turnkey project, then it has to taking care
of all work in the site. The various works in the site are

o Interior
o Electrical
o Modular and Chairs
o Heat ventilation Air Condition
 o Fire Alarming System
o Networking

 Interior work including of

o Gypsum False Ceiling

o Grid Ceiling
o False flooring
o Carpentry Works
o Painting works

 Rest of the work will hand over to subcontractors by issuing PO to

them. They will carry on the work in the site as per BOQ. NEXG part
is to supervise their work as per BOQ and correct them if there is any
deviation.
 NEXG select the suppliers for interior works based on various criteria,
o Quality
o Price
o Timely Delivery
o Attitude of suppliers

 The Purchase Order (PO) will release to the selected suppliers. The
PO contains
o Date
 o PO no
o Material Requirement
o Quantity
o Price at which they are supplied
o Tax component
o Delivery Address
o Billing Address

 The site supervisor will receive the material in site and start the work
with the labours. He will execute the work as per the BOQ as released
and approved by the client and architect. From architect side, there
will be a project manager to co ordinate the day to day work. Once in
fifteen days, there will be project review meeting will be held. NEXG
site supervisor, Sub contractor Site supervisor project manager, and
client will attend that meeting. They will discuss about progress of
work and issues.
CURRENT FINANCIAL HIGHLIGHTS

TABLE NO : 3.3 FINANCIAL HIGHLIGHTS FOR

YEAR 2005-06

PARTICULARS YEAR 2006-07 YEAR 2005 -06

SALES
DOMESTIC 110355 80281
PROJECT
FOREIGN PROJECT 40720 29029
OTHER 681 336
OPERATING
INCOME
LESS : OPEATING 24332 18623
EXP
SALE AND 127424 91023
OPERATING
INCOME
OPERATING 22654 15524
PROFIT(PBDIT)
INTEREST AND 6558 4711
FINANCE CHARGES
DEP, WRITTEN OFF 3136 2625
PROFIT BEFORE
TAX
PROVISION FOR
TAX
CURRENT 84
DEFERRED (2830) (128)
(ASSET)/LIABILITY
FRINGE BENEFIT 115 70
PROFIT OF THE 9911 6719
YEAR(PAT)
 CHAPTER - IV

WORKING CAPITAL LEVEL AND ANALYSIS

1. WORKING CAPITAL LEVEL

2. WORKING CAPITAL TREND ANALYSIS
3. CURRENT ASSET ANALYSIS
4. CURRENT LIABILITY ANANLYSIS
5. CHANGES OF WORKING CAPITAL
6. OPERATING CYCLE
4.1 WORKING CAPITAL LEVEL

The consideration of the level investment in current assets should

avoid two danger points excessive and inadequate investment in current
assets. Investment in current assets should be just adequate, not more or less,
to the need of the business firm. Excessive investment in current assets
should be avoided because it impairs the firm’s profitability, as idle
investment earns nothing. On the other hand inadequate amount of working
capital can be threatened solvency of the firms because of its inability to
meet its current obligation. It should be realized that the working capital
need of the firms may be fluctuating with changing business activity. This
may cause excess or shortage of working capital frequently. The
management should be prompt to initiate an action and correct imbalance.

TABLE 4.1 – SIZE OF WORKING CAPITAL

PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07

A. CURRENT
ASSETS
INVENTORIES 9180 10827 15437 18373 27430
SUNDRY 13346 16200 22304 28305 44051
DEBTORS
CASH AND 2228 1378 1127 22619 3566
BANK
BALANCE
OTHER ASSETS 1556 349 329 571 1010
LOAN AND 7765 7341 7271 7577 10751
ADVANCES
TOTAL OF A 34075 36095 46468 77445 86808
(GROSS W.C)
B. CURRENT
LIABILITIES
CURRENT 14515 16572 20019 30789 43203
LIABILITIES
PROVISIONS 138 308 369 3018 2594
TOTAL OF B 14653 16880 20388 33807 45797
NET W.C (A-B) 19422 19215 26080 43638 41011

4.2 WORKING CAPITAL TREND ANALYSIS :

 In working capital analysis the direction at changes over a period of
time is of crucial importance. Working capital is one of the important fields
of management. It is therefore very essential for an annalist to make a study
about the trend and direction of working capital over a period of time. Such
analysis enables us to study the upward and downward trend in current in
assets and current liabilities and its effect on the working capital position.

In the words of S.P.GUPTA the term trend is very commonly used

day to day conversation trend also called secular or long term need is the
basic tendency of population, sales, income, current assets, current
liabilities, to grow or decline over a period of time.

According to R.C. GALEZIEM “the trend is defined as smooth

irreversible movement in the series. It can be increasing or decreasing.”

Emphasizing the importance of working capital trends, Man mohan

and Goyal have pointed out that analysis of working capital trends provides
as base to judge whether the practice and privilege policy of management
with regard to working capital is good enough or an important is to be made
in managing the working capital funds.
 TABLE 4.2 WORKING CAPITAL SIZE
YEAR 2002-03 2003-04 2004-05 2005-06 2006-07
NET W.C 19423 19217 26081 43640 41013
(A-B)
W.C. 100 98.94 134.28 224.68 211.16
INDICES

CHART 4.2 – WORKING CAPITAL INDICIES

250

200

150

100

50

0
2002-03 2003-04 2004-05 2005-06 2006-07
OBSERVATIONS:

It is observed that major source of liquidity problem is the mismatch

between current payment and current receipts from the comparision of funds
flow statement of NEXG Space Creators. It was observed that in the year
2004-05 current assets increased by 29% and the current liabilities increased
only by 19% which affects the working capital by 35%. In the year 2005, to
2006 net working capital increased to Rs. 4634 million from Rs. 2608
million the increase in working capital is close to 67%. While current asset
increased by 66% and current liability increased by 65 %. It shows that
management uses long term funds to short term requirement. And it has
fallen to Rs. 4101 million in the year 2007 because the current assets has
gone up by alone 12%. Current liability grown by 35%. This two together
pushed down the net working capital to present level. The fall in working
capital is clear indication that company is utilizing its short term resources
with efficiency.

4.3 CURRENT ASSET ANALYSIS :

Total assets are classified in two parts such as fixed assets and current
assets. Fixed assets are in the nature of long term or life time for the
organization. Current assets convert in the cash in the period of one year. It
means that current assets are liquid assets or liquid assets which can covert
into cash within a year.
 TABLE 4.3 – CURRENT ASSETS SIZE

PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07

A. CURRENT
ASSETS
INVENTORIES 9180 10827 15437 18373 27430
SUNDRY 13346 16200 22304 28305 44051
DEBTORS
CASH AND 2228 1378 1127 22619 3566
BANK
BALANCE
OTHER ASSETS 1556 349 329 571 1010
LOAN AND 7765 7341 7271 7577 10751
ADVANCES
TOTAL OF A 34075 36095 46468 77445 86808
(GROSS W.C)
C.A. INDICES 100 105.93 136.37 227.27 254.75

CHART 4.3 – C.A. INDICES

 300
250
200
150
100
50
0
2002-03 2003-04 2004-05 2005-06 2006-07

4.4 CURRENT LIABILITY ANALYSIS

Current liability mean the liabilities which have to pay in a current

year. It includes sundry creditors means supplier whose payment is due but
not paid yet, thus creditors called as current liabilities. Current liabilities also
include short term loan and provision at tax provision. Current liabilities also
includes bank overdraft. For some current assets like bank overdrafts and
short term loans, the company has to pay interest thus the management of
current liabilities has importance.

TABLE 4.4 CURRENT LIABILITY SIZE

PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07
CURRENT 14515 16572 20019 30789 43203
LIABILITIES
PROVISIONS 138 308 369 3018 2594
TOTAL OF B 14653 16880 20388 33807 45797
INDICES OF 100 115.19 139.13 230.7 312.52
C.L.

CHART – 4.4 CURRENT LIABILITY INDICIES

350
300
250
200
150
100
50
0
2002-03 2003-04 2004-05 2005-06 2006-07

OBSERVATIONS :
Current liabilities show continues growth each year because the
company creates in the market by good transaction. To get maximum credit
from supplier which is profitable to the company it reduces the working
capital of the firm. As a current liability increases in the year 2006-07 by
35% it reduces the working capital size in the same year. But company
enjoyed over creditors which may include indirect cost of credit terms.
4.5 CHANGES IN WORKING CAPITAL
There are so many reason to changes in the working capital as
follows.
1. change in sales and operating expenses :
 The changes in sales and operating expenses may be due to three
reasons.
1. There may be long run trend of change. E.g. the price of raw material

say sand or cement may constantly raise necessity of holding the large
inventory.
2. Cyclical changes in economy dealing ups and downs in business
activity will influence the level of working capital both permanent and
temporary.
3. Changes in seasonality in sales activity.
2. Policy changes.
The second major case of changes in the working capital is because of
policy changes initiated by management. The term current assets policy may
be defined as the relationship between current asset and sales volume.
3. Technology changes
The changes in working capital are changes in technology because
changes in technology to install that technology our business more working
capital is required.
A change in operating expanses rise or full will have similar effects on
the working following working capital is prepared on the base of balance
sheet of last two years.

TABLE 4.5– STATEMENT OF CHANGES IN WORKING CAPITAL

PARTICULARS 2005-06 2006-07 INCREASE DECREASE
IN W.C IN W.C.
A. CURRENT
ASSET
INVENTORIES 18373 27430 9057
SUNDRY 28305 44051 15746
DEBTORS
CASH AND 22619 3566 19053
BANK
BALANCE
OTHER 571 1010 439
ASSETS
LOANS AND 7577 10751 3174
ADVANCES
TOTAL OF A 77445 86808
B. CURRENT
LIABILITIES
CURRENT 30789 43203 12414
LIABILITIES
PROVISIONS 3018 2594 424
TOTAL OF B 33807 45797
W.C (TOTAL 43638 41011
OFA-B)
NET 2627 2627
DECREASE IN
WORKING
CAPITAL
TOTAL 43638 43638 31467 31467

OBSERVATIONS :
Working capital decreased in the year 2006-07 because of
1. sales increased by around 35%, where cost of raw material purchased
increased by 42%, and manufacturing expenses increased by 51%.
2. cost of material and manufacturing increased by due to inflation,
which was 6.63% in feb 2007 increased from 4% in 2006.
4.6) Operating Cycle
The need of working capital arrived because of time gap between production
of goods and their actual realization after sale. This time gap is called
Operating Cycle or Working Capital Cycle . The operating cycle of a
company consist of time period between procurement of inventory and the
collection of cash from receivables. The operating cycle is the length of time
between the company s outlay on raw materials, wages and other expanses
and inflow of cash from sales of goods.

Operating cycle is an important concept in management of cash and

management of cash working capital. The operating cycle reveals the time
that elapses between outlays of cash and inflow of cash. Quicker the
operating cycle less amount of investment in working capital is needed and
it improves profitability. The duration of the operating cycle depends on
nature of industries and efficiency in working capital management.

TABLE – 4.6 TABLE OF OPERATING CYCLE

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07
ADD
RAW 70 66 58 54 58
MATERIAL
HOLDING
PERIOD
WIP 2 4 3 2 1
FINISHED 51 58 47 39 36
GOODS
HOLDING
PERIOD
RECEIVABLE 155 133 116 107 109
COLLECTION
PERIOD
GROSS 278 261 224 202 204
OPERATING
CYCLE
LESS
CREDITORS 169 178 122 130 130
PAYMENT
PERIOD
NET 109 83 102 72 74
OPERATING
CYCLE

CHART 4.6 - NET OPERATING CYCLE

120
100
80
60
40
20
0
2002-03 2003-04 2004-05 2005-06 2006-07

CONCLUSION AND RECOMMEDATION :

I have analyse the working capital of NEXG Space Creators by first I
analyse the level of working capital then I analyse the trend of working
capital, then I analyse the current asset in order to know the level of raise of
current asset and analyse the current liability in order to know the level of
raise of current liability. Then I analyse about the changes of working
capital. By this I come to conclusion that, their debt collecting period is soo
long and unsystematic. For this if they follow factoring, they can get their
pending receipts from debtors as soon as possible by this they can also
increase their working capital. By increasing their working capital, they can
avoid getting loan for working capital process.