Yogesh Fin..Sup

Working Capital Management
A SUMMER PROJECT
ON
WORKING CAPITAL
SUBMITTED BY
NARESH MAHESH PANDE

SUBMITTED TO NORTH MAHARASHTRA UNIVERSITY, JALGAON
IN PARTIAL FULFILLMENT OF
BACHOLER IN BUSINESS MANAGEMENT

GUIDED BY
Mr. PRASHANT PATIL
INSTITUTE OF MANAGEMENT AND RESERCH 2010-2011
The Supreme Industries Ltd. Gadegaon -1-
INDEX
S.No.
PARTICULARS Introd uction Of Project Introductio n Of Company

3
PAGE No.
1. 2. . 4 . 5. 6. 7 . 8. 9. 10. 1 1. 12.
Res earch Methodology In ventory Management Recei vable Management Pay able Management Anal ysis & Interpretation C ompany Balance-Sheet Findin gs Recomm endation & Suggestion Glo ssary Bibliograph y
Chapter 1:-Introduction of Project Objective of the Project:

All the student of BBM has to go for the summer training after been in completion of last year. Training is the most important part of learning in any technical and professional education. Exposing the young prospective executive to the actual business world not only broadens their horizons but also helps them to effectively grasp the various angle of business. So that it is the stand for them in good self employed professional when they actually come to occupy the executive position. It aims at practical training obviously of small duration, is valuable and indispensable part of the BBM degree. This project is a great experience in terms of the opportunity it has been offered for learning. It is a perfect simulation of the real life situation that would have to face some days ahead during the professional career. It provides sample opportunities for the application of various management concepts which were learnt simultaneously aiding the realization of plausibility of each. The objectives of Summer Training are: . To acquaint with real organizational problems and challenges. To develop communication skill. To develop analytical ability. To develop decision making ability and skills
Selection of Topic:-
The topic selected for the project work is the study of Working Capital Management As Working Capital is the fundamental need of any organizations. The term is commonly used for the capital required for day-to-day working. A business cannot invest whole of its capital in long term assets. The ratio of Fixed Capital and Working Capital may differ due to nature and volume of business but it is quite impossible to have no working capital. Therefore, investment in fixed assets only is not sufficient to run the business. Working capital or investment in current assets is must for running the day to day business activities. The fate of large scale investment in fixed capital is often determined by a relatively small amount of current assets. Working Capital is just like a heart of industry, if it is weak, the business cannot prosper and survive although there is the large body of fixed assets. Moreover, adequacy of working capital is the live blood and controlling nerve centre of a business. It is said Inadequate working capital is disastrous, where as redundant working capital is a criminal waste. Both situations are not warranted in a sound organization. The problems involved in managing the working capital are quite different from those in managing fixed capital. In working capital management time factor is not crucial as a decision variable. Therefore the deep study of Working Capital Management is essential to get familiar with the practical aspects of business challenges and management.
Definition: Working capital Definition: The amount by which current assets exceed current liabilities. Working capital is used to fund the operations of the company and pays for inventory purchases, as well as for goods used in the production process; working capital also provides money to expand sales. A shortage of working capital can lead to a company's bankruptcy. Working capital is a good measure of liquidity because it looks at debts that must be paid within one year or less. Working capital Definition: Cash available for day to day operations of a firm. Strictly speaking, one borrows cash (and not working capital) to be able to buy assets or to pay for obligations. Also called current capital. Working capital is in the Accounting & Auditing and Entrepreneurship, Management, & Leadership subjects. Need of Working Capital: The need of Gross working capital or current assets cannot be overemphasized. The object of any business is to earn profits. The main factor affecting the profits is the magnitude of the sales of the business. But the sales cannot be converted into cash immediately. There is time lag between the sale of goods and realization of cash. There is need of working capital in the form of current assets to fill up this time lag. This is called as operating cycle or working capital cycle, which is heart of need for working capital.
Importance of Working Capital:

Management of working capital is an essential task of the finance manager. He has to ensure that the amount of working capital available with his concern is neither too large nor too small for its requirement. A large amount of working capital would mean that the company has an idle fund. Since funds have a cost, the company has to pay huge amount of interest on such funds. This results in over capitalization. If the firm has inadequate working capital it is said to be undercapitalized, such a firm runs the risk of insolvency. This is because; paucity of working capital may lead to situation where the firm may not be able to meet its liabilities. It is the job of financial manager to estimate the requirement of working capital carefully and to determine the optimum level of investment in working capital. Working Capital Management is concerned with: 1. Arranging short term sources of Finance. 2. Deciding favorable credit terms and policies. 3. Managing cash inflows and cash outflows. 4. Controlling accounts receivables and their collections. 5. Administrating the investment in various types of investments.
Working Capital Cycle: If company has a certain amount of cash , it will be require for purchasing the raw material though some row material available on credit basis. Than company has spent some amount for labors and factory overheads to convert row material in work in progress, and ultimately finish goods. This finished goods sold on credit basis get converted into sundry debtors. Sundry debtors are converted to cash only after the expiry of credit period. Thus, there is cycle in which the originally available cash is converted in the form of cash again but only after the following the stages of row material, work in progress, finished product and sundry debtors. Thus there is the time gap for originally cash to get converted in form of cash again. Working capital needs is arise to cover the requirements of funds during this time gap, and quantum of working capital needs varies as per the length of this time gap. The working capital cycle is shown below,
Cash Sundry Debtors Finished Goods
Raw Material
WIP
Type of working capital: There are two type of working capital i.e. 1) Fixed or Permanent or Core Working Capital 2) Variable or Temporary Working Capital Fixed or Permanent or Core Working Capital: This indicate that amount of minimum working capital which required to be maintained by every the business at the point of time, in order to carry on the business on permanent and uninterrupted basis. Variable or Temporary Working Capital: This indicates that amount of working capital which required by the business which is over and above fixed or permanent or core working capital. This need of working capital may vary depending upon the fluctuations in demand as a result of changes in production or sales.
Sources of Working Capital Finance:

After determining the level of working capital on the basis of various determinants, the next step is to consider how it will be financed. A large scale manufacturing concern may procure funds from various sources to meet its working capital requirement from time to time. The sources of working capital may be classified under the two heads: Sources of long term or regular working capital: It include the initial working capital and regular working capital which are of permanent nature and require long term funds. Sources of short term or seasonal working capital: It involves financing of day to day business operations. The sources of short term capital may be classified into; a) Internal Sources and b) External Sources.
Sources of Working Capital
Long Term Sources Internal 1. Issue of Shares. 2. Issue of Debentures. 3. Retained Profits. 4. Sale of Fixed Assets. Credit 5. Term Loans. Deposits. 6. Security from Employees Directors and Customers. 1. Depreciation Funds. 2. Provision for Taxation. 3. Accrued Expenses.
Short Term Sources External 1. Trade Credit. 2. Credit Papers. 3. Bank Credit. 4. Customers 5. Public 6. Loans from
Operating Cycle:
Operating Cycle
The Supreme Industries Ltd. Gadegaon - 10 -
Raw Finished Cash Material Goods Received Purchase on Introduce Completed from debtors Credit Process credit
Raw Finished Material Goods
sold on into
Raw material finished goods Debtors holding Period WIP Period holding Period collection Period
Creditors payment period Cash cycle Time
Payment To Creditors
Fig : Operating Cycle

Management of Working Capital:

For studying the Working Capital Management, it is of paramount importance to have clear and accurate reports on the components of working capital and an awareness of the potential impact of external influences. Therefore, managing working capital is a matter of balance. The skills for Working Capital Management are somewhat unique; though the goals are the same as in managing current assets individually, like to make an efficient use of funds for minimizing the risk of loss to attain profit objectives. Working Capital Management takes place on two levels: The individual components of working capital can be effectively done by using various techniques and strategies. Financial tools like Ratio Analysis can be used to monitor overall trends in working capital and to identify areas requiring closer management. There are four main components of Working Capital Management, which are explained below:
Cash Management
Cash is the most liquid form of current assets. After this, in order of, liquidity come cash equivalent i.e. marketable securities or short term investments. Every finance manager has primary task to keep it flowing and to use the cash flow to generate profits. He has also to ensure that no funds are blocked in idle cash since this will involve costs in terms of interest to the business. A sound cash management scheme, therefore, maintains the balance between the twin objective of liquidity and costs. The basic promise of sound cash management is to ensure that cash inflows (sources of funds) and outflows (uses of funds) are effectively controlled and utilized. Good cash management refers to the practices and techniques design to accelerate and control collections, ensure prompt deposit of receipts, improve control over disbursement methods, and eliminate idle cash balances. The cash management function involves the effective and efficient use of cash to maximize cash flow at minimum cost. Reasons for holding cash: The three reasons are for the purpose of making transactions, for the purpose of precaution and for the purpose of speculation. All three of reasons stem from the need of firms to possess liquidity. Thus, motives for holding liquid assets are: 1. Transaction motive- to make routine payments. 2. Precautionary motive- to protect the firm against being unable to satisfy unexpected demands for cash. 3. Speculative motive-to take advantage of favorable market conditions. Zero Balance Account:
Working Capital Management Under this system of cash disbursement, a firm does not keep any cash balance in the bank account. Cash is transferred only when the cheque is presented for the payment to the bank. So a Zero Balance Account is a disbursement account on which cheques are written even through the balance in the account is zero. Therefore, a ZBA is a bank account with a zero balance in which only an amount sufficient to cover a days cheque is deposited. Idle cash balances are thus minimized. Float: Float is the difference between the bank balance and the book balance of the cash. This float can be positive or negative. If the bank balance is > book balance it implies positive (disbursement) float and if the bank balance is < book balance i.e. negative (collection) float. Net float = Disbursement float + Collection float. Float management seeks to speed up the collection and slow down the disbursement of the cash. Efficient cash management generates positive net float.
Limitations of Study
1. All the financial statements are generally prepared for the entire Supreme group as a whole and it was a tedious job to study the working capital management of a big organization in a project period of two months. This is the top most limitation of the study. 2. Company has some financial information secrecy regarding its policies, which was not disclosed at the time of the project. 3. The study of this project is restricted to the geographical area of Jalgaon and surroundings. 4. The duration of the project was short to collect all the information required.
Chapter 2:-Introduction of Company Company profile:

Founded in 1942, Supreme is an acknowledged leader of India's plastics industry. Handling volumes of over 171364 tones of polymers annually effectively makes us the country's largest plastics processors. Not surprisingly, we also offer the widest and most comprehensive range of plastic products in India. Our 20 advanced plants are powered by technology from world leaders, and complement our extensive facilities for R & D and new product development In fact, Supreme is credited with pioneering several products in India. These include Cross- Laminated Films, HMHD Films, and Multilayer Films, SWR Piping Systems, PP Mats and more. We are seeking to perform strongly internationally as well. Exports remain a focal area of our operations, even as we add newer markets to our list worldwide. 2009 will see The Supreme Group turnover touch a projected Rs.23,000 million (USD500 million). The Supreme is become one of the most leading MNCs organization.
Mission Statement:
Every company seeks to excel. Yet, we see ourselves as having an even more significant role to play. By expanding our capabilities in technology and product development, and exploring new challenges, we hope to chart a new course of possibilities. Beyond excellence, we seek breakthroughs: that will enhance our leadership in the industry. "
Mr. M.P.Taparia Ji Managing Director
The Quality Approach: At Supreme, we aspire to Total Quality. We stand committed to seeing this excellence permeate every aspect of our operations, at every level in the organization. Several of our plants are ISO certified: for their quality management systems, safety norms, and environmental performance standards. It is indicative of our larger quality consciousness that helps us make superior products, exceed the that helps us make superior products, exceed the expectations of our existing clients, and win new customers with confidence. The Supreme is the ISO 9001 Certified Company. Quality Policy: Supreme is one of the leading plastics processors in India Manufacturing and Marketing wide range of products. To retain this Leadership, the management is committed to build and pursue excellence in all aspects of every activity of the Organization. Conforming to the specification of the Customer and giving him the best possible services shall be the prime duty of every member of Supreme family. To achieve this goal, we shall I. Maintain an efficient Quality Management system. II. Have on going training programs for Ungrading Skills of every individual and III. Continually review standards of performance. Respecting individuals & giving due recognition to their good work shall always the our guiding spirit.
Mr. M.P. Taparia The Supreme Industries Ltd. Gadegaon - 18 -
Working Capital Management Managing Director
Global Vision: World View: Subscribing to the "one world, one market" view, Supreme's holistic approach to business is expressed in its global success. Strategic technological alliances with world leaders reflect our commitment to making products of uncompromising quality. Products that, in turn, are well received in the most discerning international markets. Supreme are associating with the best in the world on one hand and embracing new frontiers on the other. With Wavin Overseas b.v. of Netherlands for plastics piping systems. With Schoeller Wavin Systems International Services GmbH & Co. KG of Germany for bottle crate moulds. And with Rasmussen Polymer Development AG of Switzerland for cross- laminated films. The results are showing. Supreme Plastics Piping Systems, for instance, have garnered a particularly good response, even from the most demanding customers. UK, Australia and New Zealand are among the markets that have appreciated these. Supremes Cross-Laminated Films, likewise, have won over clients in the US and Australia. Multilayer Films, Rigid PVC Films, Crates, Furniture, FSW products, Industrial Mouldings, PP Mats, have all made a global mark-- in places as diverse as South Africa and South America, Russia and Singapore, Cyprus and Canada, Spain and Bangladesh.
The Supreme Group: From Strength to Strength From modest beginnings, as a small single product company in the 1950s, to 2,000crores multi-unit conglomerate with India's largest plastic products portfolio today, the Supreme Group has certainly come a long way. This unrelenting growth has come through diverse efforts: consolidation and expansion, enhancement of capacities, addition of fresh products and variants, establishment of newer plants, and occasionally, even acquisition of underperforming but high potential units and brands. Understandably, the integration route has been successfully explored by the Group. For instance, in a major backward integration move, Supreme Petrochem Ltd. -- and with it, one of India's largest world class styrenics complexes-- came into being. Similarly, diversification and horizontal integration have been fuelled by strategic collaborations with technology leaders. Two prime examples of this are introduction of multi-layer films and calendered film products in the country. The Group has made substantial complementary investments in R & D. This has not only helped in a thorough and superior assimilation of cutting edge technologies, but also contributed to a collateral development of newer and improved products on a continuing basis. So, while Supreme SWR systems were India's first viable alternative to conventional GI pipes and fittings, the unflagging creation of newer fittings keeps an unmatched range growing ever further. A client-friendly approach, a readiness to customize and an eagerness to provide all technical support have played no mean role in propelling Supreme to leadership. An open mind and receptivity to new ideas and needs remain hallmarks of the Group's interface with all customers-- in India and across the globe. The Supreme Industries Ltd. Gadegaon - 20 -
Board of Directors:
Mr. B. L. Taparia Mr. M. P. Taparia Mr. S. J. Taparia Mr. V. K. Taparia Mr. B. V. Bhargava Mr. E. B. Desai Mr. H. S. Parikh Mr. N. N. Khandwala Mr. S. R. Taparia Mr. Y. P. Trivedi Mr. O. P. Roongta Mr. J. M. Totla
Chairman Managing Director Executive Director Executive Director Director Director Director Director Director Director Sr. Vice President (Finance) & Secretary Sr. Vice President (Operation)
Chapter 3:-Research Methodology

Approach to Research: Research is considered to be the more formal, systematic and intensive process of carrying on a scientific method of analysis. Research methodology is a way to systematically solve the research problem. It is important for research to know not only the research method but also the methodology. The procedures by which researchers go through their work of describing, explaining and predicting phenomenon are called methodology. Data Collection is an important step in methodology of any project and success of any project will be largely depend upon how much accurate you will be able to collect and how much time, money and efforts will be required to collect the necessary data. There are two types of data: Primary Data: The Primary Data is a fresh and first hand data which is collected for the first time and happen to be original in character. We have collected the information and data through formal and informal discussions with our professional guide in the organisation, and through personal interviews, questionnaire, observation etc. which are methods available for primary data collection. Secondary Data: The secondary data is the data which have already collected and stored. We can easily get secondary data from records, journals, annual reports, and books. It will save the time, money and efforts in collecting the data. We also have collected the data related to working capital management from annual reports, website of Supreme industries, etc.
Chapter 4:-Inventory Management Inventory management

Management of inventory assumes importance due to the fact that investments in inventory constitute one of the major investments in current assets. The various forms in which a manufacturing concern may carry inventory are; Raw Material: These represent input purchased and stored to be converted into finished product in future by making certain manufacturing process on the same. Work in Progress: These represents semi-manufacturing products which need further processing before they can be treated as finish product. Finished product: These represent the finished product ready for sale in the market. Stores and Supplies: These represent that part of the inventory which does not become part of final product but are required for production process. Normally, these are part of inventory and do not involve significant investments. Inventory constitutes the most significant part of current assets of large majority of companies in India. On an average inventories are approximately 60% 70% of current assets in Supreme Ind. Ltd. Because of the large size of inventories maintained by firms ,a considerable amount of the fund are required to be considered in them. It is therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment in them. An undertaking neglecting the management of inventories will be jeopardizing its long term profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g. 10 to 20 %, without any adverse
Working Capital Management effect on production and sales, by using simple inventories planning and control techniques.
Chapter 5:-Receivable management Management of receivable

The well known from of the trade credit is Book dept, also referred to as Debtors, Outstanding and Account receivables. When a seller extends credit to buyer, mutual trust is implicit in the transaction. The trust has three dimensions, 1) Element of risk which need to be assessed. Cash transaction, covering immediate payment in exchange for goods and services, is totally risk less. 2) It is based on economic value. The economic value in goods passes to the buyer currently, in return for an equivalent economic value expected from him later. 3) It implies futurity. The payment for value received arises at future date. From the point of view of the seller, account receivables or trade credit represents a claim or assets. Adequacy of credit implies a degree of calculated moderation; where by the right amount of credit is available for the right duration. Too little of credit stifles trade and affect profit. Too much of it creates a false sense of abundance, leads to overtrading and inability to meet the fast increasing obligation and ultimate failure. Effective credit management seeks to avoid these two undesirables extremes. Knowledge of credit principles and sound credit practices is the best safeguard against abuses of credit. The management of account receivable can be broken down into: 1. Credit policies and terms of sale: The term credit policies or standards represent the basic criteria for extension of credit to customers. The credit terms refers to the terms under which a firm sells goods on credit to its customers. The two components of credit terms are credit period and cash discount. 2. Credit analysis: The companys intension is to increase the profits by increasing their sales. For this purpose the company has to decide the customers to whom it should sale its products on credit. The credit should be extended only to those The Supreme Industries Ltd. Gadegaon - 24 -
Working Capital Management customers whose creditworthiness is established. The creditworthiness of the customer will be decided on the various factors such as analysis of the financial status, reputation of the customer, records of previous deal with the company, quality and the character of the management, running the business of the customer, etc.
3. Collection policy procedure: A stringent collection procedure is expensive for the firm because of high out-of- pocket costs and loss of goodwill of the firm among its customers. However it minimizes the loss on accounts of bad debts as well as increases saving in terms of lower capital costs on account of reduction in the size of receivables. The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit (i.e. cost of capital). Purpose of Receivables: The purpose of receivables is directly connected with the objectives of making credit sales. The objectives of credit sales are as follows: 1. Achieving growth in sales. 2. Increasing the profits. 3. Meeting competition.
Chapter 6:-Payable Management

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. The credit period extended by business firm usually ranges from 15 days to 60 days. When goods are purchased on credit, finished goods get converted into Accounts Payable in the books of buyer. Trade creditors provide the company with an additional source of short term finance. Accounts Payable are the suppliers of goods or services whose invoices have not yet been paid. Accounts or bills payable to creditors or banks are a second measure source of financing for the business. The important questions in this class include: What is the amount of bank borrowing employed? Is this debt amount reasonable in relation to the equity financing of the firm? When will principal and interest payment for due? Will funds be available to meet these payments on time? Organization often regards the amount owing to creditors as a free source of credit. However, creditor administration systems are expensive and time consuming to run. The key concern in this area should be to minimize cost with simple procedures. While it is not advisable to pay accounts before they fall due, it is also not worthwhile to delay payments and forego discounts. Effective management and control of creditors requires the establishment of appropriate policies covering the choice of suppliers, the way in which purchase are made, trading terms, the purchase invoicing system, and the means of settlement. The finance manager must maintain the level of payables and cash outflows in line with company policy, and at the same time ensuring no interruption to any manufacturing processes or the operations of the business. The manager must have accurate accounts payable information that is up-to-date in terms of all invoices received, invoices awaited and payments made.
Customer Order Fulfillment Chart:
Customer
Dealer
Area Officer
Plant
Production Planning
Procurement Planning of Raw Material
Sundry Creditors
Inventory
Payment Outflow
Consumption
W-I-P
Finished Goods
The process begins with the marketing functions of getting orders from the customers. The customer places order to area office of the company through dealers. The orders from the area office are proceeds to Production Planning and Control (PPC) Department. The PPC Department analyses the order and prepares the requirement schedule. The requirement of Labor, Raw-Materials etc. is reported to respective departments. The PPC after analyzing the order, available capacity and sources; it provides instructions and specifications to the production plant. The plant has its own Production Planning Department. This department prepares the schedule to run the production cycle. It includes the requirement of line of productions, manpower requirement and the very first and main requirement of any manufacturing firm is raw material which constitutes near about 60% of its working capital. Once the procurement of raw material is done through specific chain of purchasing function, it creates two aspects, Sundry Creditors Inventory. Sundry Creditors are subject to the payments; this function is carried out by the accounts section called Payable Management. Inventory management is a very important aspect of Working Capital. It includes raw material consumption, work in process, and finished products. Finished goods are needed in order to sell to the customers by fulfilling his orders in time.
Working Capital Management Therefore, for proper management of working capital, the above two aspects should be smoothly managed.
Chapter 7:- Analysis & Interpretation

Statement of Showing Working Capital Changes: Amt. Rs. (In Lacks) Particulars Current Assets : Inventories Sundry debtors Cash & Bank balance Loans & Provisions (A) Current Liability : Creditors Provisions (B) Net Working Capital : ( A B ) Decreases in W. C. 11992.40 9548.47 1460.94 11009.41 11992.40 15123.98 2139.04 17263.02 8752.23 3240.17 11992.40 2004 - 2005 2005 - 2006
7462.35 8996.05 751.61 5791.80 23001.81
9826.92 11182.91 770.79 4234.63 26015.25
Working Capital Management Statement of Showing Working Capital Changes: Amt. Rs. (In Lacks) Particulars Current Assets : Inventories Sundry debtors Cash & Bank balance Loans & Provisions (A) Current Liability : Creditors Provisions (B) Net Working Capital : ( A B ) Decreases in W. C. 8752.23 15123.98 2139.04 17263.02 8752.23 27337.78 1805.90 29143.68 1385.72 7366.51 8752.23 2005 - 2006 2006 - 2007
9826.92 11182.91 770.79 4234.63 26015.25
11022.21 12521.74 1422.65 5562.80 30529.40
Statement of Showing Working Capital Changes: The Supreme Industries Ltd. Gadegaon - 32 -
Working Capital Management Amt. Rs. (In Lacks) Particulars Current Assets : Inventories Sundry debtors Cash & Bank balance Loans & Provisions (A) Current Liability : Creditors Provisions (B) Net Working Capital : ( A B ) Decreases in W. C. 1385.72 27337.78 1805.90 29143.68 1385.72 37865.55 2068.39 39933.94 1190.04 195.68 1385.72 2006 - 2007 2007 - 2008
11022.21 12521.74 1422.65 5562.80 30529.40
15669.48 13682.23 2833.55 8938.72 41123.98
Statement of Showing Working Capital Changes: Amt. Rs. (In Lacks) The Supreme Industries Ltd. Gadegaon - 33 -
Particulars Current Assets : Inventories Sundry debtors Cash & Bank balance Loans & Provisions (A) Current Liability : Creditors Provisions (B) Net Working Capital : ( A B ) Decreases in W. C.
2007 - 2008
2008 - 2009
15669.48 13682.23 2833.55 8938.72 41123.98 37865.55 2068.39 39933.94 1190.04 1190.04
16829.11 11563.80 1041.42 7205.83 36640.16 37656.09 5608.06 43264.15 -6623.99 7814.03 1190.04
Note:Decline in working capital turnover ratio (Efficiency) is because of sudden hike in provisions as follows.(Schedule 12). PROVISIONS (2008-09) (200708) Provisions for income Tax Provisions for Wealth Tax Proposed Dividend Provisions for Corporate Divi. Tax Provisions for Gratuity Liability TOTAL 1978.35 4.54 3048.64 518.12 58.41 5608.06 0457.57 4.00 1242.98 211.24 152.60 2068.39
Note:It is very good because creditors reduce that is company solvency/liquidity Position is better how ever if you observe current assets there is a decrease in cash and Bank balance that is main cause of negative working capital how ever this does not means That companies working capital position impaired..
Working Capital Management OPERATING CYCLE METHOD: Calculation: Raw material holding period : 360 days X Stock of Raw material Formula (In Lacks) Years 2004 2005 2005 2006 2006 2007 2007 2008 2008-2009 Ans. (Rs. In Lacks) 360 X 3493.83 ------------------50578.18 360 X 4719.10 ------------------58884.18 360 X 5949.30 --------------------70303.84 360 X 7981.06 ---------------------78719.63 360 X 9854.09 ------------------95047.81 Days 24 days 28 days 30 days 36 days 37 days = -----------------------------------------------Cost of Raw material consumed Amt. Rs.
40 35 30 25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 Days
Finished goods Storage period: 360 X stock of finished goods Formula: = ----------------------------------------Sales Amt. Rs. (In Lacks) Years 2004 2005 Particulars 360 X 3254.41 -------------------81409.71 360 X 4151.75 --------------------98206.40 360 X 3968.89 --------------------116166.06 360 X 5766.55 --------------------131022.10 360 X 5497.44 ------------------165192.87 Output 14 days
2005 2006
15 days
2006 2007
12 days
2007 2008
16 days 12 days
2008-2009
16 14 12 10 8 6 4 2 0 2004-05 2005-06 2006-07 2007-08 2008-09 Days
Debtors Collection Period : Formula = Debtors X 360 Credit Sales Years Ans. (Rs. In Lacks) 8996.05 ------------X 360 81409.71 11182.91 -------------- X 360 98206.4 12521.74 -----------X 360 116166.06 13682.23 -----------X 360 131022.10 11563.80 ------------- X 360 165192.87 Days
2004 - 2005
39 days
2005 - 2006 2006 - 2007
40 days 39 days
2007 - 2008 2008-2009
38 days 25 days
40 35 30 25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 Days
Creditors Payment Period : Formula = Creditors X 360 Credit Purchase Years Ans. (Rs. In Lacks) 9548.47 -------------- X 360 61093.19 15123.98 ---------------- X 360 74548.33 27337.78 --------------- X 360 74510.05 37865.55 ----------------- X 360 86749.44 37656.09 ------------- X 360 105133.53 Days
2004 - 2005 2005 - 2006
56 days 73 days
2006 - 2007
132 days
2007 - 2008
157 days
2008-2009
128 days
1400 1200 1000 800 600 400 200 0 2004-05 2005-06 2006-07 2007-08 2008-09 Days
Note: In all calculation, Net Sale assume as a Credit sale, Purchase as Credit Purchase. No information or data available of Bank overdraft.
Inventory conversion period: Particular 1) Raw material holding period 2)Finished goods Storage period 3)Debtors Collection period 4)Creditors Payment period Operating cycle period (1+ 2 + 3 4) 21 days 10 days (51) days (67) days (54) days 56 days 73 days 132 days 157 days 128 days 39 days 40 days 39 days 38 days 25 days 12 days 15 days 12 days 16 days 12 days 24 days 28 days 30 days 36 days 37 days 2004 2005 2005 2006 2006 2007 2007 2008 20082009
200 150 100 50 0 -50 -100 2004- 2005- 2006- 2007- 200805 06 07 08 09
R.M.H. F.G.S. D.C.P. C.P.P. O.C.P.
Working Capital Management EFFICIENCY RATIO: Working Capital to Sales : Formula = Net Sales Working capital Years Ans. (Rs. In Lacks) 81409.71 -------------11992.40 98206.40 --------------8752.23 116166.06 ---------------1385.72 131022.10 ---------------1190.04 165192.87 -------------6623.99 Ratio
2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008-2009
6.78 11.22 83.83 110.09 -24.94
120 100 80 60 40 20 0 -20 -40 2004-05 2005-06 2006-07 2007-08 2008-09 Column 1
Working Capital Management Inventory Turnover Ratio : Formula = Net Sales Inventory Years Ans. (Rs. In Lacks) 81409.71 --------------7462.35 98206.40 -------------9826.92 116166.06 --------------11022.21 131022.10 -------------15669.48 165192.87 ------------16829.11 Ratio
2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008-2009
10.91 10.00 10.53 8.36 9.81
12 10 8 6 4 2 0 2004-05 2005-06 2006-07 2007-08 2008-09
Ratio
Current Assets Turnover Ratio : Formula = Net Sales Current Assets
Years
Ans. (Rs. In Lacks) 81409.71 -------------23001.81 98206.40 --------------26015.25 116166.06 --------------30529.40 131022.10 ---------------41123.98 165192.87 --------------36640.16
Ratio
2004 - 2005 2005 - 2006
3.53 3.77
2006 - 2007 2007 - 2008 2008-2009
3.80 3.18 4.50
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2004-05 2005-06 2006-07 2007-08 2008-09 Ratio
LIQUIDITY RATIO: Current Ratio : Formula = Current Assets Current Liability
Years
Ans. (Rs. In Lacks) 23001.81 ------------11009.41 26015.25 -------------17263.02 30529.40 ------------29143.68 41123.98 ------------39933.94 36640.16 -------------43264.15
Ratio
2004 2005 2005 2006 2006 2007 2007 2008 2008-2009
2.08 1.50 1.04 1.02 0.85
2.5 2 1.5 1 0.5 0 2004-05 2005-06 2006-07 2007-08 2008-09 Current Ratio
Quick Ratio : Formula = Current Assets - Inventory Current Liability Bank Overdraft Years 2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008-2009 Ans. (Rs. In Lacks) 23001.81 - 7462.35 --------------------------11009.41 - 00.00 26015.25 - 9826.92 --------------------------17263.02 - 00.00 30529.40 - 11022.21 --------------------------29143.68 - 00.00 41123.98 - 15669.48 --------------------------39933.94 - 00.00 36640.16 16829.11 --------------------------43264.15 00.00 Ratio 1.41 0.93 0.66 0.63 0.45
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-06
Quick Ratio
STRUCTURAL HEALTH RATIO: Debtors Turnover Ratio : Formula = Credit Sales Debtors Years Ans. (Rs. In Lacks) 81409.71 -----------------8996.05 98206.40 -----------------11182.91 116166.06 -----------------12521.74 131022.10 -----------------13682.23 165192.87 ---------------11563.80 Ratio
2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008-2009
9.04 8.78 9.27 9.57 14.29
16 14 12 10 8 6 4 2 0 2004-05 2005-06 2006-07 2007-08 2008-09 Note: In all calculation, Net Sale assume as a Credit sale, Purchase as Credit The Supreme Industries Ltd. Gadegaon - 48 Ratio
Working Capital Management Purchase. No information or data available of Bank overdraft
Chapter 8:-Company Balance sheet

Balance Sheet as on 30th June, 2006 Particular Sc h. SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Share Capital Suspence Reserves & Surplus LOAN FUNDS Secured Loans Unsecured 3 4 168279.26 6869.42
23748.68
(Rs. In Lacs) 2004 2005 Amt.Rs.
2005 2006 Amt. Rs.
1 2 1381.08 _____ 18662.00

20043.08
1339.08 84.00 19772.2 0 20089.7 0 4563.8 5 24653.55 21195.28
DEFERRED TAX LIABILITY (Net)
4283.20
48074.96
__ 45848.83
APPLICATION OF FUNDS FIXED ASSETS Gross Block Less : Depreciation
67061.16 34384.39
61919.2 7 31797.1 7 30122.1 0
Net Block Add : Capital Work
32676.77
Working Capital Management in - Progress INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans & Advances 6 3248.73 35925.5 0 8 3397.23 3478.35 255.9 30378.08
7 8 9 10
9826.92 11182.91 770.79 4234.63 26015.2 -----------
7462.35 8996.05 751.61 5791.80 23001.8 1 ------------
Less : CURRENT LIABILITIES & PROVISIONS Creditors Provisions
11 12
15123.98 2139.04 17263.02 -------------8752.23 48074.9 6
9548.47 1460.94 11009.4 1 -----------11992.40 45848.83
Significant Accounting Policies Notes to the Account
18 19
Working Capital Management Balance Sheet as on 30th June,2008 Particular Sc h. SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Share Capital Suspence Reserves & Surplus 2007 2008 Amt. Rs. (Rs. In Lacs) 2006 2007 Amt. Rs.
1 2 2762.17 _____ 22299.39 25061.5 6 7 ______ 19878.5 7 22640.74 2762.1
LOAN FUNDS Secured Loans Unsecured
3 4
27226.2 1 2805.82 30032.0 3
20128.5 7 2703.26 22831.83
DEFERRED TAX LIABILITY (Net)
5228.0 9 60321.6 8
4733.20 50205.77
80289.99 33881.31
66376.0 6 32717.0 8 33658.9 8
Net Block Add : Capital Work in - Progress Add: Assets held for
46408.68 6841.29
8656.5 The Supreme Industries Ltd. Gadegaon - 52 -
Working Capital Management disposal 2486.32 55736.2 9 3086.67 INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans & Advances 9 10 6 3395.35 3417.86 4 45402.19
7 8
15669.4 8 13682.2 3 2833.5 5 8938.7 2 41123.9 8
11022.2 1 12521. 74 1422.65 5562.80 30529.4 0
Working Capital Management Less : CURRENT LIABILITIES & PROVISIONS Creditors Provisions
11 12
37865.55 2068.39 2068.39 ----------------1190.04 60321.6 8
27337.7 8 1805.90 29143.6 8 ------------1385.72 50205.77
18 19
Balance Sheet as on 30th June,2009 Particular Sch . Amt. Rs.
(Rs. In Lacs) 2007 2008 Amt. Rs.
2008 2009
Working Capital Management SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Reserves & Surplus
1 2
2540.54 26267.0 3 28807.5 4
2762.1 7 22299.3 9 25061.56
LOAN FUNDS Secured Loans Unsecured DEFERRED TAX LIABILITY (Net)
3 4
21517.9 7 3356.10 24874.0
27226.2 1 30032.03 5228.09 60321.68 7 2805.82 6428.09 60109.7 3
5 90224.5 7 35924.2 2 80289.9 9 33881.3 1 46408.6 8 6841.29 63372.0 9 2486.32 55736.29
Net Block Add : Capital Work in - Progress Add: Assets held for disposal
54300.3 5 8952.36 119.38
INVESTMENTS
3361.63
3395.35
Working Capital Management CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans & Advances
7 8 9 10
16829.11 11563.80 1041.42 7205.83 36640.16
15669.4 8 13682.2 3 2833.5 5 8938.7 2 41123.98
Less : CURRENT LIABILITIES & PROVISIONS Creditors Provisions
11 12
37656.09 5608.06 43264.15
37865.55 2068.39 -6623.99 39933.94 60109.7 3 1190.04 60321.6 8
18 19
Chapter 9:- Finding: I have understood working capital management of company. Also the Method and technique of inventory for analyzing the companys policy regarding inventory. To find out the operating cycle period for each, by taking into account the Raw material storage period, work in progress storage period finished goods storage period Average collection period & Average payment period. Raw material holding period is increases because its seasonal business, off time holding of raw material in go-down or yard. Finished goods storage period it is fluctuate because its reason seasonal business, off time finished goods storage in yard. Debtors of the company should be collection the money minimum days it is good for the company. Creditors payment period (timing) should be higher its good for the company. Liquidity ration is falling down its dangerous for company, because idol ratio is 2. Quick ratio is also falling down it is minimum and idol ratio is 1, in that condition company liquidity is dangerous. Debtors turnover ratio should be good of the company. Current year working capital decreases because company shift Jalgaon plant to Gadegaon plant in that condition provisions should be high as per schedule 12 and its effect also working capital ratio. Company should be working in 360 day in year. A lot more space is uncover that create problem to discoloration of finished goods in hot seasons. The worker is on contract basis All the transport work on contract basis (mostly are on daily basis).
Chapter 10:- Recommendation & Suggestion

While doing project in Supreme Industries Ltd. I had used 5 years data with help of that I had arrived at some conclusion which are recommended below, Supreme industries Ltd. has full control over the storage period of Raw material which should be keep going up. There is WIP in manufacturing of pipes & fittings. The dispatch of finished goods over its production is most suitable. Company has to change their approach to towards technique of quick collection. Taking capital of company into consideration this can be said that company may go for investment of short term. Such as promissory notes or bills, securities, etc. As per the Creditors Payment ratio, management takes important decision to Payment early year to creditors. Because the long Creditors payment duration is Dangers in the view of Credit ranking. Current assets turnover ratio may be high it is good for the company. Increase in holding period raw material seems mainly on account of increase in production capacity & resultant production .It occurred because company has set up new mega plant at Gadegaon near Jalgaon. heavy accumulators of the requires large qty of raw material because seasonal .Although company conditions Although effect of heavy accumulator of raw material not resulted in consents increase in finished goods stock it is very healthy sign. It seems that company is able to maintain balanced stock finished goods & also seems capable of meeting market demand. .. suppliers pipe & fitting is is operating in many areas of plastic but
40%.Heavey raw material benefit of qty discount & favorable market
Chapter 11:-Glossary
Accounts Payable Accounts Receivable Accrued Interest
: Money owed to creditors or suppliers. : Money owed by debtors or customers. : The amount of interest owing but not paid. a sale before receiving cash.
Average Collection Period : The average length of time a firm must wait after making Capital Asset : A long-term asset, such as land or building, acquired for carrying on the business of company with life exceeding one year. Cash Management Collection Policy : Concerned with holding sufficient cash to meet demand and investing cash balance to maximize return. : Collection Policy describes the procedures a firm follows in attempting to collect its accounts receivable. Collection policy has to do with only overdue accounts Credit Analysis Credit Period Credit Standards Credit Terms : Estimating probability of default for individual customers to determine who receives credit and at what terms. : Amount of time allowed for payment. : Credit Standards are used to determine whether the credit application and the amount of will be accepted. : Credit Terms composed of the size of the cash discount, the amount of cash discount, the credit period and the maturity date. Current Assets : Assets are expected to be turn into cash within one years time. These include cash, accounts receivable, inventory and marketable securities.
Working Capital Management Current Liabilities : Financial obligations that will have to be paid within one year. These include accounts payable, bank loan and short term loans. Financial position : The financial status of a firms or an individuals assets and liability as reflected by its financial statement.
Float
: Float refers to funds that have been dispatched by a payer but are not in a form that can be spent by the payee. The three components are mail float, processing float and clearing float.
Interest Liability Liquid asset Raw Material Return On Capital Employed (ROCE)
: A charge for the use of money supplied by a lender. : Any obligation for payment or to render a service. : Any asset that can be quickly converted to cash without substantial loss in the value of asset. : Material that is converted into finished product for the purpose of sale. : Indicates the profitability of the firms capital investments. It is determined by dividing Earnings Before Interests and Taxes by Capital Employed including short term loans.
Chapter 12:-Bibliography
Financial Management (9th Edition) I. M. Pandey Financial Management (Taxmans) Dr. RaviKishor Financial Management Dr. S. M. Inamdar Annual Reports of The Supreme Group.(Last 5 years) Web Sites www.supreme.co.in www.google.co.in
62

Yogesh Fin..Sup

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Yogesh Fin..Sup

Загружено:

Авторское право:

Доступные форматы

Working Capital Management

NARESH MAHESH PANDE

BACHOLER IN BUSINESS MANAGEMENT

INSTITUTE OF MANAGEMENT AND RESERCH 2010-2011

The Supreme Industries Ltd. Gadegaon -1-

Working Capital Management

PARTICULARS Introd uction Of Project Introductio n Of Company

The Supreme Industries Ltd. Gadegaon -2-

Working Capital Management

Chapter 1:-Introduction of Project Objective of the Project:

The Supreme Industries Ltd. Gadegaon -3-

Working Capital Management

The Supreme Industries Ltd. Gadegaon -4-

Working Capital Management

The Supreme Industries Ltd. Gadegaon -5-

Working Capital Management

Importance of Working Capital:

The Supreme Industries Ltd. Gadegaon -6-

Working Capital Management

Cash Sundry Debtors Finished Goods

The Supreme Industries Ltd. Gadegaon -7-

Working Capital Management

The Supreme Industries Ltd. Gadegaon -8-

Working Capital Management

Sources of Working Capital Finance:

The Supreme Industries Ltd. Gadegaon -9-

Working Capital Management

Sources of Working Capital

The Supreme Industries Ltd. Gadegaon - 10 -

Working Capital Management

Raw Finished Material Goods

Working Capital Management

Creditors payment period Cash cycle Time

Fig : Operating Cycle

Working Capital Management

Management of Working Capital:

The Supreme Industries Ltd. Gadegaon - 13 -

Working Capital Management

The Supreme Industries Ltd. Gadegaon - 14 -

The Supreme Industries Ltd. Gadegaon - 15 -

Working Capital Management

The Supreme Industries Ltd. Gadegaon - 16 -

Working Capital Management

Chapter 2:-Introduction of Company Company profile:

Mr. M.P.Taparia Ji Managing Director

The Supreme Industries Ltd. Gadegaon - 17 -

Working Capital Management

Mr. M.P. Taparia The Supreme Industries Ltd. Gadegaon - 18 -

Working Capital Management Managing Director

The Supreme Industries Ltd. Gadegaon - 19 -

Working Capital Management

Working Capital Management

The Supreme Industries Ltd. Gadegaon - 21 -

Working Capital Management

Chapter 3:-Research Methodology

The Supreme Industries Ltd. Gadegaon - 22 -

Working Capital Management

Chapter 4:-Inventory Management Inventory management

The Supreme Industries Ltd. Gadegaon - 23 -

Chapter 5:-Receivable management Management of receivable

The Supreme Industries Ltd. Gadegaon - 25 -

Working Capital Management

The Supreme Industries Ltd. Gadegaon - 26 -

Working Capital Management