EXECUTIVE SUMMUARY

Working capital performance provides critical insight into the state of a companys financial
position. As an important indicator of financial fitness, the availability of a companys
working capital is one of the first items a lender or savvy investor will examine on a balance
sheet. Although working capital evokes a range of meanings, for the purpose of this study, it
is defined as the net liquid assets (current assets minus current liabilities available to an
organi!ation to meet liquidity needs in day to day operations.
"kilful cash management, including working capital management, cash forecasting, and
financing, is key to the success of an enterprise. When cash is tight, companies focus on
generating liquidity for the variety of different funding needs within the business. #n the
operational side, working capital is primarily impacted through the management of the three
ma$or areas% receivables, payables and inventory. &hese typically represent the primary areas
in which a company can influence working capital in the short term without the need for
external financing.
&he need for working capital is directly related to the firms growth. 'nvestment in current
assets represents a very significant portion of the totalinvestment in assets. Working capital
management is critical for all firms. A smallfirm may not have much investment in fixed
assets, but it has to invest to in currentassets. "mall firms in 'ndia face a severe problem of
collecting their debtors.
A well designed and implemented working capital management is expected to contribute
positively to the creation of a firms value. &he purpose of this pro$ect is to examine the
trends in working capital management (W() and its impact on the performance of
*+A,A& -,'&. W/,0/, 1&2. (*-W during the last few years. &his pro$ect aims at
learning various facets of working capital management at *-W by studying the day to day
activities
Working capital management involves not only managing the different components of the
current assets, but also managing the current liabilities, or to be more precise, financing the
current assets. A firm is required to maintain a balance between liquidity and profitability
while conducting its day to day operations.
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1iquidity is a precondition to ensure that firms are able to meet its short3term obligations and
its continued flow can be guaranteed from a profitable venture. &he importance of cash as an
indicator of continuing financial health should not be surprising in view of its crucial role
within the business. &his requires that business must be run both efficiently and profitably. 'n
the process, an asset3liability mismatch may occur which may increase firms profitability in
the short run but at a risk of its insolvency. #n the other hand, too much focus on liquidity
will be at the expense of profitability.
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INTRODUCTION
1.1 Introduction
Working (apital can be regarded as the circulatory system of any business. Working capital is
described as the capital which is not fixed but the more common uses of the working capital
is to consider it as the difference between the book value of current assets and current
liabilities. &he success and efficiency of business enterprise depends largely on its ability to
manage its working capital. /ven in a well3established business operation, needs careful
attention for effective management of working capital. Working capital is one of the
important facets of a firm overall financial management. Whatever be the si!e of a business,
working capital is one of the important facets of a firm overall financial management.
Whatever be the si!e of a business, working capital is its life3blood.
Working capital management is concerned with short3term finance of the business concern
which is a closely related trade between profitability and liquidity. 't deals with the
problems that arise in attempting to manage the current assets, current liabilities and the inter
relationship that exist between them. &he current assets refer to those assets, which in
ordinary course of business can be converted into cash within one year without undergoing a
diminution in value. (urrent liabilities are those liabilities, which are intended at their
inception, to be paid in ordinary course of business, within a year out of current assets.
&he basic ob$ective of working capital management is to put current assets to optimum use
for overall profitability of a business enterprise. 'f the firm can4t maintain a satisfactory level
of working capital it is likely to become insolvent and may even be forced to bankruptcy. &he
effective management of working capital requires both medium term planning and
intermediate reactions to changes in forecast and conditions.
&he current assets should be managed in such a way that it should cover its current liabilities
in order to ensure a reasonable margin of safety. &herefore the interaction, between the
current assets and current liabilities is the main theme of the theory of working capital
management. 't improves the operating performance of the business concern and it helps to
meet the short3term liquidity
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1.2 Concept of Worin! C"pit"# M"n"!e$ent
&here are two concepts of working capital viz. quantitative and qualitative. "ome people also
define the two concepts as gross concept and net concept. According to quantitative concept,
the amount of working capital refers to 5total of current assets. What we call current assets,
"mithcalled, 5circulating capital. (urrent assets are considered to be gross working capital in
this concept.
&he qualitative concept gives an idea regarding source of financing capital. According to
qualitative concept the amount of working capital refers to 6excess of current assets over
current liabilities.7 1.8. 9uttmann defined working capital as 6the portion of a firms current
assets which are financed from long:term funds.7
&he excess of current assets over current liabilities is termed as 50et working capital. 'n this
concept 60et working capital7 represents the amount of current assets which would remain if
all current liabilities were paid. *oth the concepts of working capital have their own points of
importance. 6'f the ob$ectives are to measure the si!e and extent to which current assets are
being used, 59ross concept is useful; whereas in evaluating the liquidity position of an
undertaking 50et concept becomes pertinent and preferable.'t is necessary to understand the
meaning of current assets and current liabilities for learning the meaning of working capital,
which is explained below.
Current assets % 't is rightly observed that 6(urrent assets have a short life span. &hese types
of assets are engaged in current operation of a business and normally used for short: term
operations of the firm during an accounting period i.e. within twelve months. &he two
important characteristics of such assets are, (i short life span, and (ii swift transformation
into other form of assets. (ash balance may be held idle for a week or two, account
receivable may have a life span of <= to >= days, and inventories may be held for <= to ?==
days.7
-it!gerald defined current assets as, 6cash and other assets which are expected to be
converted in to cash in the ordinary course of business within one year or within such longer
period as constitutes the normal operating cycle of a business.7
Current liabilities % &he firm creates a (urrent 1iability towards creditors (sellers from
whom it has purchased raw materials on credit. &his liability is also known as accounts
payable and shown in the balance sheet till the payment has been made to the creditors.
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&he claims or obligations which are normally expected to mature for payment within an
accounting cycle are known as current liabilities. &hese can be defined as 6those liabilities
where liquidation is reasonably expected to require the use of existing resources properly
classifiable as current assets, or the creation of other current assets, or the creation of other
current liabilities.7
Circulating capital % working capital is also known as 5circulating capital or current capital.
6&he use of the term circulating capital instead of working capital indicates that its flow is
circular in nature.
Structure of Worin! C"pit"#
&he different elements or components of current assets and current liabilities constitute the
structure of working capital which can be illustrated in the shape of a chart as follows%
Current &i"'i#itie( Current A((et(
*ank #verdraft (ash and *ank *alance
(reditors 'nventories% ,aw3)aterials
Work3in3progress
-inished 9oods
#utstanding /xpenses "pare @arts
*ills @ayable Accounts ,eceivables
"hort3term 1oans *ills ,eceivables
@roposed 2ividends Accrued 'ncome
@rovision for &axation, etc. @repaid /xpenses
"hort3term 'nvestments
Table-1: Structure of Current Assets and Current Liabilities

Circulation of Working Capital
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At one given time both the current assets and current liabilities exist in the business. &he
current assets and current liabilities are flowing round in a business like an electric current.
+owever, 6&he working capital plays the same role in the business as the role of heart in
human body. Working capital funds are generated and these funds are circulated in the
business. As and when this circulation stops, the business becomes lifeless. 't is because of
this reason that he working capital is known as the circulating capital as it circulates in the
business $ust like blood in the human body.7
-igure 0o.? depicting 5Working (apital (ycle makes it clear that the amount of cash is
obtained mainly from issue of shares, borrowing and operations. (ash funds are used to
purchase fixed assets, raw materials and used to pay to creditors. &he raw materials are
processed; wages and overhead expenses are paid which in result produce finished goods for
sale.
Figure:1 Circulation of working capital
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&he sale of goods may be for cash or credit. 'n the former case, cash is directly received
while in later case cash is collected from debtors. -unds are also generated from operation
and sale of fixed assets. A portion of profit is used for payment of interest, tax and dividends
while remaining is retained in the business. &his cycle continues throughout the life of the
business firm.
&he quantitative concept of Working (apital is known as gross working capital while that
under qualitative concept is known as net working capital.
Working capital can be classified in various ways. &he important classifications are as given
below%
Conceptual classification % &here are two concept of working capital viz., quantitative and
qualitative. &he quantitative concept takes into account as the current assets while the
qualitative concept takes into account the excess of current assets over current liabilities.
2eficit of working capital exists where the amount of current liabilities exceeds the amount
of current assets. &he above can be summari!ed as follows%
(i 9ross Working (apital A &otal (urrent Assets
(ii 0et Working (apital A /xcess of (urrent Assets over (urrent 1iabilities
(iii Working (apital 2eficit A /xcess of (urrent 1iabilities over (urrent Assets.
1.) I$port"nce of Worin! C"pit"# M"n"!e$ent
-or smooth running an enterprise, adequate amount of working capital is very essential.
/fficiency in this area can help, to utili!e fixed assets gainfully, to assure the firms long3
term success and to achieve the overall goal of maximi!ation of the shareholders, fund.
"hortage or bad management of cash may result in loss of cash discount and loss of
reputation due to non3payment of obligation on due dates. 'nsufficient inventories may be the
main cause of production held up and it may compel the enterprises to purchase raw materials
at unfavorable rates.
1ike3wise facility of credit sale is also very essential for sales promotions. 't is rightly
observed, 6)any a times business failure takes place due to lack of working capital.7
Adequate working capital provides a cushion for bad days, as a concern can pass its period of
depression without much difficulty.
7
# 2onnelet al. correctly explained the significance of adequate working capital and
mentioned that 6to avoid interruption in the production schedule and maintain sales, a
concern requires funds to finance inventories and receivables.7
&he adequacy of cash and current assets together with their efficient handling virtually
determines the survival or demise of a concern.An enterprise should maintain adequate
working capital for its smooth functioning. *oth, excessive working capital and inadequate
working capital will impair the profitability and general health of a concern.
&he dangers of excessive working capital are as follows%
Heav invest!ent in fi"ed "((et( % A concern may invest heavily in its fixed assets which are
not $ustified by actual sales. &his may create situation of over capitalisation.
#eckless purc$ase of !aterials* 'nventory is purchased recklessly which results in dormant
slow moving and obsolete inventory. At the same time it may increase the cost due to
mishandling, waste, theft, etc.
Speculative tendencies * "peculative tendencies may increase and if profit is increased
dividend distribution will also increase. &his will hamper the image of a concern in future
when speculative loss may start.
Liberal credit * 2ue to liberal credit, si!e of accounts receivables will also increase. 1iberal
credit facility can increase bad debts and wrong practices will start, regarding delay in
payments.
Carelessness * /xcessive working capital will lead to carelessness about costs which will
adversely affect the profitability.
1.+ Me"nin! of Worin! C"pit"# M"n"!e$ent
&he management of current assets, current liabilities and inter3relationship between them is
termed as working capital management. 6Working capital management is concerned with
problems that arise in attempting to manage the current assets, the current liabilities and the
inter3relationship that exist between them. 6'n practice, 6&here is usually a distinction made
between the investment decisions concerning current assets and the financing of working
capital.7
-rom the above, the following two aspects of working capital management emerge%
(? &o determine the magnitude of current assets or 6level of working capital7 and
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(B &o determine the mode of financing or 6hedging decisions.7
1., Si!nific"nce of Worin! C"pit"# M"n"!e$ent
-unds are needed in every business for carrying on day3to3day operations. Working capital
funds are regarded as the life blood of a business firm. A firm can exist and survive without
making profit but cannot survive without working capital funds. 'f a firm is not earning profit
it may be termed as 5sick, but, not having working capital may cause its bankruptcy working
capital in order to survive. &he alternatives are not pleasant. *ankruptcy is one alternative.
*eing acquired on unfavorable term as another. &hus, each firm must decide how to balance
the amount of working capital it holds, against the risk of failure.7
Working capital has acquired a great significance and sound position in the recent past for the
twin ob$ects of profitability and liquidity. 'n period of rising capital costs and scare funds, the
working capital is one of the most important areas requiring management review. 't is rightly
observed that, 6(onstant management review is required to maintain appropriate levels in the
various working capital accounts7. )ainly the success of a concern depends upon proper
management of working capital so 6working capital management has been looked upon as
the driving seat of financial manager.7
't consumes a great deal of time to increase profitability as well as to maintain proper
liquidity at minimum risk. &here are many aspects of working capital management which
make it an important function of the finance manager. 'n fact we need to know when to look
for working capital funds, how to use them and how measure, plan and control them.
A study of working capital management is very important for internal and external experts.
"ales expansion, dividend declaration, plants expansion, new product line, increase in salaries
and wages, rising price level, etc., put added strain on working capital maintenance. -ailure
of any enterprise is undoubtedly due to poor management and absence of management skill.
'mportance of working capital management stems from two reasons, viz., (i A substantial
portion of total investment is invested in current assets, and (ii level of current assets and
current liabilities will change quickly with the variation in sales. &hough fixed assets
investment and long3term borrowing will also response to the changes in sales, but its
response will be weak.
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1.- ."ctor( Inf#uencin! Worin! C"pit"# Re/uire$ent
0umerous factors can influence the si!e and need of working capital in a concern. "o no set
rule or formula can be framed. 't is rightly observed that, 6&here is no precise way to
determine the exact amount of gross or net working capital for every enterprise. &he data and
problem of each company should be analy!ed to determine the amount of working capital.
*riefly, the optimum level of current assets depends upon following determinants.
%ature of business--&rading and industrial concerns require more funds for working capital.
(oncerns engaged in public utility services need less working capital. -or example, if a
concern is engaged in electric supply, it will need less current assets, firstly due to cash nature
of the transactions and secondly due to sale of services. +owever, it will invest more in fixed
assets.
'n addition to it, the investment varies concern to concern, depending upon the si!e of
business, the nature of the product, and the production technique.
Conditions of suppl--'f the supply of inventory is prompt and adequate, less funds will be
needed. *ut, if the supply is seasonal or unpredictable, more funds will be invested in
inventory. 'nvestment in working capital will fluctuate in case of seasonal nature of supply of
raw materials, spare parts and stores.
&roduction polic** 'n case of seasonal fluctuations in sales, production will fluctuate
accordingly and ultimately requirement of working capital will also fluctuate. +owever, sales
department may follow a policy of off3season discount, so that sales and production can be
distributed smoothly throughout the year and sharp, variations in working capital requirement
are avoided.
Seasonal 'perations--'t is not always possible to shift the burden of production and sale to
slack period. -or example, in case of sugar mill more working capital will be needed at the
time of crop and manufacturing.
Credit Availabilit** 'f credit facility is available from banks and suppliers on favorable terms
and conditions, less working capital will be needed. 'f such facilities are not available more
working capital will be needed to avoid risk.
Credit polic of enterprises** 'n some enterprises most of the sale is at cash and even it is
received in advance while, in other sales is at credit and payments are received only after a
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month or two. 'n former case less working capital is needed than the later. &he credit terms
depend largely on norms of industry but enterprise some flexibility and discretion. 'n order to
ensure that unnecessary funds are not tied up in book debts, the enterprise should follow a
rationali!ed credit policy based on the credit standing of the customers and other relevant
factors.
(rowt$ and e"pansion--&he need of working capital is increasing with the growth and
expansion of an enterprise. 't is difficult to precisely determine the relationship between
volume of sales and the working capital needs. &he critical fact, however, is that the need for
increased working capital funds does not follow growth in business activities but precedes it.
't is clear that advance planning is essential for a growing concern.
&rice level c$ange)With the increase in price level more and more working capital will be
needed for the same magnitude of current assets. &he effect of rising prices will be different
for different enterprises.
Circulation of working capital)1ess working capital will be needed with the increase in
circulation of working capital and vice-versa. (irculation means time required to complete
one cycle i.e. from cash to material, from material to work3in3progress, form work3in3
progress to finished goods, from finished goods to accounts receivable and from accounts
receivable to cash.
Vo#u$e of ("#e** &his is directly indicated with working capital requirement, with the
increase in sales more working capital is needed for finished goods and debtors, its vice versa
is also true.
Li*uidit and profitabilit--&here is a negative relationship between liquidity and
profitability. When working capital in relation to sales is increased it will reduce risk and
profitability on one side and will increase liquidity on the other side.
+anage!ent abilit 0 @roper co3ordination in production and distribution of goods may
reduce the requirement of working capital, as minimum funds will be invested in absolute
inventory, non3recoverable debts, etc.
,"ternal ,nviron!ent )With development of financial institutions, means of
communication, transport facility, etc., needs of working capital is reduced because it can be
available as and when needed.
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1.1 2rincip#e( of Worin! C"pit"# M"n"!e$ent
&he following are the principles of working capital management%
&rinciples of t$e risk variation0 ,isk here refers to the inability of firm to maintain
sufficient current assets to pay its obligations. 'f working capital is varied relative to sales, the
amount of risk that a firm assumes is also varied and the opportunity for gain or loss is
increased. 'n other words, there is a definite relationship between the degree of risk and the
rate of return. As a firm assumes more risk, the opportunity for gain or loss increases. As the
level of working capital relative to sales decreases, the degree of risk increases. When the
degree of risk increases, the opportunity for gain and loss also increases. &hus, if the level of
working capital goes up, amount of risk goes down, and vice-versa, the opportunity for gain
is like3wise adversely affected.
&rinciple of e*uit position0 According to this principle, the amount of working capital
invested in each component should be adequately $ustified by a firms equity position. /very
rupee invested in the working capital should contribute to the net worth of the firm.
&rinciple of cost of capital0 &his principle emphasi!es that different sources of finance have
different cost of capital. 't should be remembered that the cost of capital moves inversely
with risk. &hus, additional risk capital results in decline in the cost of capital.
&rinciple of !aturit of pa!ent)A company should make every effort to relate maturity of
payments to its flow of internally generated funds. &here should be the least disparity
between the maturities of a firms short3term debt instruments and its flow of internally
generated funds, because a greater risk is generated with greater disparity. A margin of safety
should, however, be provided for any short3term debt payment.
1.3 Oper"tin! C4c#e
&he duration of time required to complete the following sequence of events, in case of
manufacturing firm, is called the operating cycle%
?. (onversion of cash into raw materials.
B. (onversion of raw materials into work3in3progress.
<. (onversion of work in process into finished goods.
C. (onversion of finished goods into debtors and bills receivables through sales.
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D. (onversion of debtors and bills receivables into cash.
&he length of cycle will depend on the nature of business. 0on manufacturing concerns,
service concerns and financial concerns will not have raw material and work3in3process so
their cycle will be shorter. -inancial (oncerns have a shortest operating cycle.
Figure:- 'perating Ccle of +anufacturing Concerns
Dur"tion of t5e Oper"tin! C4c#e
&he duration of the operating cycle is equal to the sum of the duration of each of these stages
less the credit period allowed by the suppliers of the firm. 'n symbols,
# A , E W E - E 2 : (
Where,
# A duration of operating cycle.
, A raw material storage period.
WA work3in3process period.
-A finished goods storage period.
2Adebtors collection period, and
( A creditors payment period.
&he components of the operating cycle may be calculated as follows%
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,A Average stock of raw materials and storesFAverage raw
)aterial and stores consumption per day
WAAverage work3in3process inventoryFAverage cost of
@roduction per day
-AAverage finished goods inventoryFAverage cost of goods sold
@er day per day
2AAverage book debtsFAverage credit sales per day
(Aaverage creditorsF average credit purchase per day
1.6 Deter$in"nt( of Worin! C"pit"#
&here are no set rules or formulas to determine the working capital requirement of a firm. A
number of factors influence the need and quantum of the working capital of a firm. &hese are
discussed below%
N"ture of indu(tr4% &he composition of an asset is related to the si!e of a business and the
industry to which it belongs. "mall companies have smaller proportion of cash, requirements
and inventory than large corporations. 0eed of working capital is thus determined by the
nature of an enterprise.
De$"nd of creditor(% (reditors are interested in the security of loans. &hey want their
advances to be sufficiently covered. &hey want the amount of security in assets which are
greater than liabilities.
C"(5 re/uire$ent(% (ash is one of the current assets which are essential for the successful
operations of the production cycle. (ash should be adequate and properly utili!ed. A
minimum level of cash is always needed to keep the operations going.
7ener"# n"ture of 'u(ine((% &he general nature of a business is an important determinant of
the level of the working capital. Working capital requirements depends upon the general
nature and its activity on work. &hey are relatively low in public utility concerns in which
inventories and receivables are rapidly converted into cash. )anufacturing organi!ations,
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however, face problems of slow turn3over of inventories and receivables, and invest large
amount in working capital.
Ti$e* &he level of working capital depends upon the time required to manufacture goods. 'f
the time is longer, the amount of working capital required is greater and vice-versa.
)oreover, the amount of working capital depends upon inventory turnover and the unit cost
of goods that are sold. &he greater this cost, the larger is the amount of working capital.
Vo#u$e of ("#e(% &his is the most important factor affecting the si!e and component of
working capital. A firm maintains current assets because they are needed to support the
operational activities which results in sales. &he volume of sales and the si!e of the working
capital are directly related to each other. As the volume of sales increases, there is an increase
in the investment of working capital in the cost of operations, in inventories and in
receivables.
Ter$( of purc5"(e( "nd ("#e(% 'f the credit terms of purchases are more favorable and those
of sales less liberal, less cash will be invested in inventory. With more favorable credit terms,
working capital requirements can be reduced as a firm gets time for payment to creditors or
suppliers.
In8entor4 turno8er% 'f the inventory turnover is high, the working capital requirements will
be low. With good and efficient inventory control, a firm is able to reduce its working capital
requirements.
Recei8"'#e( turno8er% 't is necessary to have effective control over receivables. @rompt
collection of receivables and good facilities for setting payables result into low working
capital requirements.
9u(ine(( c4c#e% *usiness expands during periods of prosperity and decline during a period of
depression.
(onsequently, more working capital is required during periods of prosperity and less during
the periods of depression.
V"ri"tion in ("#e(% A seasonal business requires the maximum amount of working capital for
a relatively short period of time.
2roduction c4c#e% &he time taken to convert raw material into finished products is referred
to as the production cycle or operating cycle. &he longer the duration of production cycle, the
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greater is the requirement of working capital. Gtmost care should be taken to shorten the
period of the production cycle in order to minimi!e working capital requirements.
&i/uidit4 "nd profit"'i#it4% 'f a firm desires to take a greater risk for bigger gains or losses,
it reduces the si!e of its working capital in relation to its sales. 'f it is interested in improving
its liquidity, it increases the level of its working capital. +owever, this policy is likely to
result in a reduction of sales volume and, therefore, of profitability. A firm, therefore, should
choose between liquidity and profitability and decide about its working capital requirements
accordingly.
2rofit p#"nnin! "nd contro#% &he level of working capital is decided by management in
accordance with its policy of profit planning and control. Adequate profit assists in the
generation of cash. 't makes it possible for management to plough back a part of earnings into
the business and substantially build up internal financial resources.
Acti8itie( of t5e fir$% A firms stocking of heavy inventory or selling on easy credit term
calls for a higher level of working capital than a firm selling services or making cash sales.
.orec"(tin! of Worin! C"pit"#
&o forecast the working capital requirement for the next year the following formula may be
used%
(/stimated cost of goods sold x #perating (ycle E 2esired (ash *alance
Contro# of Worin! C"pit"#
Working capital requirement depends upon the level of operation and the length of operating
cycle. )onitoring the duration of the operating cycle is an important ingredient of working
capital control. 'n this context, the following points should borne in mind%
?. &he duration of the raw material stage depends on regularity of supply, transportation time,
price fluctuations and economy of bulk purchase. -or imported materials it takes a longer
time.
E:"$p#e : H 1td. expects its cost of goods sold for the forthcoming year to be ,s. B crore.
&he present operating cycle of the firm is IJ days. &he firm plans to reduce its operating
cycle to I< days and desired cash balance is ,s. D lakh.
&he expected working capital requirement would be,
B, ==,==,=== xI<F<>D ED,==,=== A ,s.CD,==,===F3
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B. &he duration of the work3in3process depends on the length of manufacturing cycle,
consistency in capacities at different stages, and efficient coordination of various inputs.
<. &he duration of the finished goods depends on the pattern of production and sales. 'f
production is fairly uniform throughout the year but sales are highly seasonal or vice versa.
&he duration of finished goods tends to be long.
C. &he duration at the debtors stage depends on the credit period granted, discounts offered
for prompt payment, and efficiency and rigor of collection efforts.
't is helpful to monitor the behavior of overall operating cycle and its individual components.
-or this purpose time series analysis and cross section analysis may be done. 'n time series
analysis the duration of the operating cycle and its individual components is compared over a
period of time for same firm. 'n cross section analysis the duration of the operating cycle and
its individual components is compared with that of other firms of a comparable nature.
Ade/u"c4 of Worin! C"pit"#
&he importance of adequacy of working capital can hardly be over3emphasi!ed. 8ohn 1. #.
2onnell and )ilton ". 9ladberg observe 6)any a times business failure takes place due to
lack of working capital.7+ence, working capital is considered as the life blood and the
controlling nerve centre of a business. 'nadequate working capital is business ailment.
&herefore, a firm has to maintain a sound working capital. 't should be adequate foe the
following reasons%
(? 't protects a business form the adverse effects of shrinkage in the values of current assets.
(B 't is possible to pay all the current obligations promptly and to take advantage of cash
discounts.
(< 't ensures, to a greater extent, the maintenance of a companys credit standing and
provides for such emergencies as strikes, floods, fires etc.
(C 't permits the carrying of inventories at a level that would enable a business to serve
satisfactorily the needs of its customers.
(D 't enables a company to extend favorable credit terms to its customers.
(> 't enables a company to operate its business more efficiently because there is no delay in
obtaining materials, etc., because of credit difficulties.
(I 't enables a business to withstand periods of depression smoothly.
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(J &here may be operating losses or decreased retained earnings.
(K &here may be excessive non3operating or extraordinary losses.
(?= &he management may fail to obtain funds from other sources for purposes of expansion.
(?? &here may be an unwise dividend policy
(?B (urrent funds may be invested in non3current assets
(?< &he management may fail to accumulate funds necessary for meeting debentures on
maturity.
(?C 'ncreasing price may necessitate bigger investments in inventories and fixed asset.
1.1; Source of Worin! C"pit"#
(onventional generali!ations relating to financing of working capital suggest that an amount
equal to the basic minimum of current assets should be financed from long3term source and
that only seasonal needs of working capital should be financed from short3term sources.
B?
't
is obvious that such an arrangement helps to keep the cost of working capital finance to the
minimum for an enterprise and gives a rise to its rate of return on the total funds employed.
Liewed thus, the sources of working finance can be classified into permanent and the current
sources of working capital finance.
Structure of Worin! C"pit"#
&he study of structure of working capital is another name for the study of working capital
cycle. 'n other words, it can be said that the study of structure of working capital is the study
of the elements of current assets viz. inventory, receivable, cash and bank balances and other
liquid resources like short3term or temporary investments. (urrent liabilities usually comprise
bank borrowings, trade credits, assessed tax and unpaid dividends or any other such things.
&he following points mention relating to various elements of working capital deserves%
In8entor4% 'nventory is ma$or item of current assets. &he management of inventories : raw
material, goods3in3process and finished goods is an important factor in the short3run liquidity
positions and long3term profitability of the company.
R"< $"teri"# in8entorie(% Gncertainties about the future demand for finished goods,
together with the cost of ad$usting production to change in demand will cause a financial
manager to desire some level of raw material inventory. 'n the absence of such inventory, the
company could respond to increased demand for finished goods only by incurring explicit
18
clerical and other transactions costs of ordinary raw material for processing into finished
goods to meet that demand. 'f changes in demand are frequent, these order costs may become
relatively large. )oreover, attempts to purchases hastily the needed raw material may
necessitate payment of premium purchases prices to obtain quick delivery and, thus, raises
cost of production. -inally, unavoidable delays in acquiring raw material may cause the
production process to shut down and then re3start again raising cost of production. Gnder
these conditions the company cannot respond promptly to changes in demand without
sustaining high costs. +ence, some level of raw materials inventory has to be held to reduce
such costs. 2etermining its proper level requires an assessment of costs of buying and
holding inventories and a comparison with the costs of maintaining insufficient level of
inventories.
Wor*in*proce(( in8entor4% &his inventory is built up due to production cycle. @roduction
cycle is the time3span between introduction of raw material into production and emergence of
finished product at the completion of production cycle. &ill the production cycle is
completed, the stock of work3in3process has to be maintained.
.ini(5ed !ood( in8entor4% -inished goods are required for reasons similar to those causing
the company to hold raw materials inventories. (ustomers demand for finished goods is
uncertain and variable. 'f a company carries no finished goods inventory, unanticipated
increases in customer demand would require sudden increases in the rate of production to
meet the demand. "uch rapid increase in the rate of production may be very expensive to
accomplish. ,ather than loss of sales, because the additional finished goods are not
immediately available or sustain high costs of rapid additional production, it may be cheaper
to hold a finished goods inventory. &he flexibility afforded by such an inventory allows a
company to meet unanticipated customer demands at relatively lower costs than if such an
inventory is not held.
&hus, to develop successfully optimum inventory policies, the management needs to know
about the functions of inventory, the cost of carrying inventory, economic order quantity and
safety stock. 'ndustrial machinery is usually very costly and it is highly uneconomical to
allow it to lie idle. "killed labour also cannot be hired and fired at will. )odern requirements
are also urgent. "ince requirements cannot wait and since the cost of keeping machine and
men idle is higher, than the cost of storing the material, it is economical to hold inventories to
the required extent. &he ob$ectives of inventory management are%
19
(? &o minimi!e idle cost of men and machines causes by shortage of raw materials, stores
and spare parts.
(B &o keep down%
(a 'nventory ordering cost.
(b 'nventory carrying cost,
(c (apital investment in inventories.
(d #bsolescence losses
Recei8"'#e( : )any firms make credit sales and as a result thereof carry receivable as a
current asset. &he practice of carrying receivables has several advantages viz., (i reduction of
collection costs over cash collection, (ii ,eduction in the variability of sales, and (iii
increase in the level of near3term sales. While immediate collection of cash appears to be in
the interest of shareholders, the cost of that policy may be very high relative to costs
associated with delaying the receipt of cash by extension of credit. 'magine, for example, an
electric supply company employing a person at every house constantly reading electricity
meter and collecting cash from him every minute as electricity is consumed. 't is far cheaper
for accumulating electricity usage and bill once a month. &his of course, is a decision to carry
receivables on the part of the company. 't may also be true that the extension of credit by the
firm to its customers may reduce the variability of sales over time. (ustomers confined to
cash purchases may tend to purchase goods when cash is available to them. /rratic and
perhaps cyclical purchasing patterns may then result unless credit can be obtained elsewhere.
/ven if customers do obtain credit elsewhere, they must incur additional cost of search in
arranging for a loan costs that can be estimated when credit is given by a supplier. &herefore,
extension of credit to customers may well smooth out of the pattern of sales and cash inflows
to the firm over time since customers need not wait for some inflows of cash to make a
purchase. &o the extent that sales are smoothed, cost of ad$usting production to changes in the
level of sales should be reduced.
-inally, the extension of credit by firms may act to increase near3term sales. (ustomers need
not wait to accumulate necessary cash to purchase an item but can acquire it immediately on
credit. &his behavior has the effect of shifting future sales close to the present time.
&herefore, the extension of credit by a firm and the resulting investment in receivables occurs
because it pays a firm to do so. (osts of collecting revenues and adapting to fluctuating
20
customer demands may make it desirable to offer the convenience associated with credit to
firms customers. &o the extents that near sales are also increased, extension of credit is made
even more attractive for the firm.
1.11 9enefit( of Worin! C"pit"# M"n"!e$ent=
(reate an effective, companywide working capital management system
?.+andle cash flows more efficiently
B.2evelop successful strategies for short term liquidity
<./nhance the conversion of accounts receivable to cash
C.-ind out how different purchasing approaches affect accounts payable and cash )anagement
D.)easure and control the costs of your company4s working capital management
>.Apply a global approach to working capital management; incorporating ma$or foreign
subsidiaries into your system value added conversion work in progress
/ven profitable companies fail if they have inadequate cash flow. 1iabilities are settled
with cash not profits. &he primary ob$ective of working capital management is to ensure
that sufficient cash is available to%
A.)eet day 3 to3 day cash flow needs;
*.@ay wages and salaries when they fall due;
(.@ay creditors to ensure continued supplies of good and services;
2.@ay government taxation and providers of capital3 dividends; and
/./nsure the long3 term survival of the business entity.
INDUSTRY OVERVIEW
2.1 Ro#e of $"nuf"cturin! in t5e Indi"n econo$4
)anufacturing holds a key position in the 'ndian economy, accounting for nearly ?> per cent
of real 92@ in -M?B and employing about ?B.= per cent of 'ndias labour force. 9rowth in
21
the sector has been matching the strong pace in overall 92@ growth over the past few years.
-or example, while real 92@ expanded at a (A9, of J.C per cent over -M=D3-M?B, growth
in the manufacturing sector was marginally higher at around J.D per cent over the same
period. (onsequently, its share in the economy has marginally increased during this time : to
?D.C per cent from ?D.< per cent.
"trong growth has been accompanied by a change in the nature of the sector : evolving from
a public sector dominated set3up to a more private enterprise driven one with global
ambitions. 'n fact, according to G0'2#, 'ndia (with the exception of (hina is currently the
largest producer of textiles, chemical products, pharmaceuticals, basic metals, general
machinery and equipment, and electrical machinery. 'n the coming year, the sectors
importance to the domestic and global economy is set to increase even further as a
combination of supply3side advantages, policy initiatives, and private sector efforts set 'ndia
on the path to a global manufacturing hub.
-igure3 <
22
-igure3 C
2.2 T5e (u'*(ector( t5"t (t"nd out in Indi">( $"nuf"cturin! (ector
Among sub3sectors in manufacturing, the top five are food products, basic metals, rubber and
petrochemicals, chemicals, and electrical machinery. &ogether they account for over >>.= per
cent of total revenues in manufacturing. +owever, these verticals rely primarily on domestic
demand for a ma$or part of their revenues.
2.) M"nuf"cturin! (ector>( recent !ro<t5 (purt= C#ue( fro$ II2
)anufacturing accounts for a large chunk of 'ndian industry, a fact borne out by the sectors
ID.D per cent share in the 'ndex of 'ndustrial @roduction (''@. With (A9, of J.I per cent
during -M=D3-M?B(-M ?B includes data from AprilB=?? to -eb?B, the manufacturing sector
helped the overall industrial sector get over low growth in the other two sub3segments of ''@,
)ining and Nuarrying (?C.B weight age in ''@ and /lectricity (?=.< weightage in ''@
witnessed (A9, of <.C per cent and D.J per cent respectively. #n an even more encouraging
note, the manufacturing sector has strengthened in -M?? compared to the previous fiscal : an
analysis of ?B? sub3sectors by the (onfederation of 'ndian 'ndustry (('' reveals that only D
of them recorded declines in -M?? compared to BD in -M?=. At the same time, key sub3
sectors like machine tools, ball and roller bearings, textile machinery, and utility vehicles
recorded either excellent (above B= per cent or high (?=3B= per cent growth, thereby adding
to value creation in manufacturing.
23
-igure3 D
COM2ANY OVERVIEW
24
).1 95"r"t .rit? Werner &td.
*harat -rit! Werner 1imited is one of the flagship companies of the @ot5"ri 7roup.*-W
was incorporated on #ctober ?I, ?K>? in collaboration with -rit! Werner
Werk!eugmaschinen 9mb+ of West 9ermany. 't is one of the rare private sector machine
tool companies in 'ndia to complete D= years of operation.
).2 Vi(ion=
We shall be the most admired among the top five machine tool companies in Asia, creating
customer pride through value based partnerships and global standards of excellence with best
in class people.
).) O'Aecti8e(
Cu(to$er(
&o provide a caring customer service anticipating solutions required by our customers and
innovatively satisfying them beyond expectations.
Or!"ni?"tion
&o commit ourselves to the highest standards in corporate and business ethics whilst
maintaining financial stability and growth.
E$p#o4ee(
&o motivate, develop, recogni!e and reward our employees.
Co$$unit4
&o be strongly committed to contribute to the national goal of providing shelter for all.
Indu(tr4
"etting industry benchmarks of international standard in delivering customer value
throughout comprehensive product range, customer service and all our activities
Et5ic(
)aintaining the highest ethical standards worth of a leading corporate citi!en.
25
).+ 2roduct(
(0( Lertical )illing )achines
(0( Lertical )achining (entres
(0( 2ouble (olumn Lertical machining (entre
(0( D3axis +ori!ontal )achining (entre
(0( +ori!ontal )aching (entres
(0( D3axis Lertical )achining (entres
(0( Lertical 1athes
Onee &ype )illing machines
(rank shaft pin milling machines
"pecial purpose )achines
)atec @roducts
"pinner @roducts
(astings
"pindles
Automation "olutions
After "ales service
&raining
@une &ech (entre services
C"pit"# Structure
As on )arch <?, B=?< the authori!ed share capital of the *ank is ,s. B=crore. &he paid3up
capital as on the said date is ,s I, ?I, K?,K=CF3 equity shares of ,s. BF3 each. &his group has
B=.JBP share of Ootari 'nvestments, B=.DJP of Ootari and company, ?D.<JP share of
commercial house pvt. 1td., J.?>P share of Ootak )ahindra trusteeship services and
remaining share is of @rabhawti 2evi Ootari.
)., SWOT An"#4(i(
Stren!t5(=
&he *rand *-W is very popular in the )achine tool )arket. &hey have a monopoly in the
vertical machining centres. &heir products are of low cost compared to competitors and has a
good quality.
We"ne((=
26
&heir market in hori!ontal machining centres is very poor. &heir technology to manufacture
1athe machines is very poor. &hey dont have innovation in the product manufacturing.
Opportunitie(=
All small scale industries which used to manufacture on normal machining centres are now
shifting to (0( machines. &hey have a large market to target with their Nuality product.
Tre"t(=
&here are lot of small scale manufactures in the market who sells same products at low price.
(ompetitors are advancing in technology to overcome the leader like A(/ )icromatic.
2roAect 2rofi#e
+.1 Tite# of t5e Stud4
6Working capital management analysis through financial ratios.7
+.2 Need for t5e (tud4=
27
&his study helps the company to identify its competitive position among its industrial
competitors by which the company can further improve its performance which
thereby would result in increasing the market share of the company and its reputation
with its shareholders.
&he study also helps in making changes in the attributes of the products offered by the
company which certainly would result in maximi!ing the revenue and minimi!ing the
cost to the company.
+.) St"te$ent of t5e pro'#e$=
-inancial statement of *harat -rit! Werner ltd only provides the financial earnings and
spending, what the firm owns and owes from its debtors and to its creditors as on a particular
day. +ence it does not provide a clear financial position of the firm. -inancial analysis is done
at this $uncture to know the performance of the company over the years and certainly
provides knowledge on the future growth prospects of the firm. -inancial analysis is a
technique used to assists the shareholders, and the future prospect investors about the
financial performance and the position of the company.
+.+ O'Aectie8e of t5e Stud4
&o analysis the financial statement.
&o study the working capital components such as ,eceivables accounts, (ash
management, 'nventory management.
&o understanding various steps of operating cycle so which are involved in working
capital management.
+., Met5odo#o!4
&he ob$ective of the study can be accomplished by conducting a systematic study in order to
solve the research problem. A systematic research is the systematic design, collection,
analysis, reporting of data and findings.
+.- Re(e"rc5 De(i!n
28
#nce the ob$ective of the study is decided an appropriate research method is chosen to carry
out the research. &here are many types of research methods such as descriptive research3
those studies are done which are concerned with describing the characteristics of a particular
group, exploratory research3 study which focuses on the delivery of ideas generally based on
secondary data.
&his study is conducted using the exploratory research wherein a large amount of is data is
being collected and the information thereby being obtained is used to provide an
understanding and a conclusion.
+.1 D"t" Co##ection
&he data can be of two types%
@rimary data% 2ata that is being collected for the first time.
"econdary data% An already existing data being used in a research is a secondary data.
'n this study secondary data are being collected and various analysis and interpretation are
done so as to reach a conclusion. "econdary data has been collected from the following
sources%
Annual ,eport
Articles and maga!ines
*ooks
#ther materials and reports published by the company
+.3 .in"nci"# Too#(=
R"tio An"#4(i(=
-inancial ratios are mathematical comparisons of financial statement accounts or categories.
&hese relationships between the financial statement accounts help investors, creditors, and
internal company management understand how well a business is performing and areas of
needing improvement.
-inancial ratios are the most common and widespread tools used to analy!e a business4
financial standing. ,atios are easy to understand and simple to compute. &hey can also be
used to compare different companies in different industries. "ince a ratio is simply a
29
mathematically comparison based on proportions, big and small companies can be use ratios
to compare their financial information. 'n a sense, financial ratios don4t take into
consideration the si!e of a company or the industry. ,atios are $ust a raw computation of
financial position and performance.
,atios allow us to compare companies across industries, big and small, to identify their
strengths and weaknesses. -inancial ratios are often divided up into six main categories%
liquidity, solvency, efficiency, profitability, market prospect, investment leverage, and
coverage.
O'(er8"tion B An"#4(i(
,.; R"tio( c"n 'e c#"((ified into four !roup(=
1. 1iquidity ,atio
2. "olvency ,atio
30
3. @rofitability ,atio
4. &urnover ,atio
'n a manufacturingindustry &urnover ratios are important as there are lot of raw materials
involved.
&i/uidit4 R"tio
1iquidity ratio is calculated to determine the companys ability to pay off its short term debt
obligations. 't states the companys ability to convert short3term assets into cash to cover up
the debts of the utmost importance when the creditors are seeking payments.
(ommon liquidity ratios are%
(urrent ,atio
Nuick ,atio
0et Working (apital
,.1 Current #atio:
(urrent ,atio implies the companys ability to meet up the current liabilities using the current
assets of the company. 'deal current ratio for a company is B%?. +igher the ratio the better it is
for the company to meet its liabilities.
(urrent ,atio A
Current liabilities

CurrentAssets

Also known as Qliquidity ratioQ, Qcash asset ratioQ and Qcash ratioQ.
Mear (urrent Assets (urrent 1iabilities ,atio
B=?< ?B? ?<J =.JI%?
B=?B ?K< BB? =.JI%?
B=?? ?>D ?I> =.K<%?
&able3 B
31
2013.0 2012.0 2011.0
0.84
0.85
0.86
0.87
0.88
0.89
0.9
0.91
0.92
0.93
Current Ratio
Current Ratio
-igure3 >
(urrent ratio states the liquidity position of the company. -rom the above graph it is clear that
the current ratio is almost same but with small difference. As these manufacturing units
operate on the leverage the current ratios are usually small, the current position is satisfactory
but need to improve. )anufacturing units have more trade payables so it is common that their
current ratio is very small. *ut they need to improve in orde to have good liquidity position.
,.2 Cuic R"tio=
Nuick ,atio states the companys ability to meet its shot3term liabilities with its most liquid
assets. &he higher the ratio indicates the better the position of the company.
Cuic A((et(
Cuic R"tio D
Current &i"'i#itie(
Cuic A((et( D Current A((et( % 2rep"4$ent( * In8entorie(
Also known as the 6acid3test ratio7 or the 6quick asset ratio7.
Mear Nuick Assets (urrent
1iabilities
,atio
B=?< CC.? ?<J =.<B%?
32
B=?B IJ BB? =.<D%?
B=?? ID ?I> =.CB>%?
&able3 <
2013.0 2012.0 2011.0
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
Quick Ratio
Quick Ratio
-igure3 I
9enerally the ideal quick ratio is =.D%? and here the company is below the ratio, it cannot
manage its liability with the quick assets. "o it has to improve its performance in managing
the quick assets by decresing the liability. 'f they decrease their inventory it will not increase
much in quick assets as their current assets are still less than current liabilities.
,.) Net Worin! C"pit"#=
0et Working capital shows the companys efficiency and its short3term financial health.
@ositive working capital indicates that the company is able to pay off its short3term liabilities.
0egative working capital indicates that the company is unable to meet its shot3term liabilities
with its current assets.
Net Worin! C"pit"#D Current A((et( % Current &i"'i#itie(
Ye"r Current A((et( Current &i"'i#itie( Net <orin!
C"pit"#
2;1) ?B? ?<J E11F
2;12 ?K< BB? E23F
33
2;11 ?>D ?I> E11F
&able3 C
2013.0 2012.0 2013.0
-30
-25
-20
-15
-10
-5
0
Net Working Capital
Net Working Capital
-igure3 J
&he company has negative working capital in all the years as their current assets are less than
the current liabilities all the time. &his is not a good sign to the company with net working
capital. 'n )anufacturing firms there will be a lot of 'nventory purchase so there will be a
high creditor balance.
Acti8it4 An"#4(i(
,.+ In8entor4 Turno8er R"tio=
'nventory turnover ratio A
Cost of sales
Avg. Inventory
Ye"r Co(t Of S"#e( A8!. In8entor4 R"tio
B=?< BB? II B.JI
34
B=?B <=B ??? B.IB
B=?? B<J J= B.KID
&able3 D
2013.0 2012.0 2011.0
2.55
2.6
2.65
2.7
2.75
2.8
2.85
2.9
2.95
3
Inventory Turnover Ratio
n!entor" #urno!er Ratio
-igure3 K
&he 'nventory &urnover ,atio is nearly same every year. 't is about < times every year. #n an
average the maintance of 'nventory in the workshop is ?F< of the total sales. &hey have a lot
of safety inventory in their stores
,., Recei8"'#e( Turno8er R"tio=
,eceivables turnover ratio A
Sales
Avg Debtors
Ye"r Tr"de recei8"'#e( S"#e( R"tio
B=?< ?B C=C )).--
B=?B <I CJK 1).21
B=?? ?C C?J 26.3,
35
T"'#e* -
2013.0 2012.0 2011.0
0
5
10
15
20
25
30
35
Receivables Turnover Ratio
Recei!a$le% #urno!er Ratio
-igure3 ?=
&he receivables turnover ratio of the company is very good in the year B=?<. 't has increased
a lot from B=?B. "o the flow of payments is excellent. #n an average they are receiving the
payments round <= times in an year. &his high receivable turnover ratio will help working
capital management.
,.- 2"4"'#e( Turno8er R"tio=
@ayables &urnover ,atio A
Sales
AvgCreditors
Mear &rade @ayables "ales ,atio
B=?< DI C=C I.=J
B=?B ?<I CJK <.DI
B=?? >> C?J >.<<
36
&able3 I
2013.0 2012.0 2011.0
0
1
2
3
4
5
6
7
8
Payables Turnover Ratio
&a"a$le% #urno!er Ratio
-igure3 ??
&he ratio is high. 't has increased from B=?B. &his is because they got new vendors in the
B=?< so their credit period is reduced. &his means the firm is paying more frequently to the
vendors.
,.1 Worin! C"pit"# Turno8er R"tio=
Working (apital &urnover ,atio A
Sales
Working Capital
Ye"r Worin! C"pit"# S"#e( R"tio
B=?< (?I C=C (B<.I>%?
B=?B (BJ CJK (?I.C>C%?
B=?? (B? C?J (?K.K=C%?
T"'#e* 3
37
2013.0 2012.0 2011.0
-25
-20
-15
-10
-5
0
Working Capital Turnover Ratio
Working Capital #urno!er
Ratio
-igure3 ?B
&he working capital turnover ratio is negative as the current libilities of the firm are more
than the current assets. &he company being a private limited company not being a listed
company its credit balance is more. &his implies the company has more money with it, wit
the credit balance and inventory high and debit balance low.
,.3 Oper"tin! C4c#e of 9.W 28t. &td.
9ross #perating (ycle A 'nventory conversion period E 2ebtors (onversion @eriod
'(@ A ,)(@ E W'@(@ E -9(@
,)(@ A
RMI360
RMC
W'@(@ A
WIPI360
COP
-9(@ A
FGI360
CGS
38
2(@ A
D!"ORS360
CRDI" SA#S
(2@ A
CRDI"ORS360
CRDI" P$RC%ASS
0et #perating (ycle A 9ross #perating (ycle : (reditors 2eferal @eriod
'(@ A 'nventory (onversion @eriod
,)(@ A ,aw )aterial (onversion @eriod
W'@(@ A Work in @rogess (onversion @eriod
-9(@ A -inished 9oods (onversion @eriod
2(@ A 2ebtors (onversion @eriod
(2@ A (reditors 2eferral @eriod
,)' A ,aw )aterial 'nventory
,)( A ,aw )aterial (onsumption
W'@' A Work in process 'nventory
(#@ A (ost of @roduction
-9' A -inished 9oods 'nventory
(9" A (ost of 9oods "old.
@articulars B=?< B=?B
,aw material "torage @eriod ?BJ.>J ?<I.=J>
W'@ "torage @eriod C?.=I C>.J=
-inished 9oods "torage
@eriod
J.KD K.II
39
2ebtors (ollection @eriod ??.>< BI.?
(reditors payment @eriod D? ?==.>K
9ross #perating (ycle
@eriod
?K=.<< BB=.ID>
0et #perating (ycle ?<K.<< ?B=.=>>
#a$le- 9
'ro%% operating c"cle net operating c"cle
0
50
100
150
200
250
2013
2012
-igure3?<
&he operating cycle shows an increasing trend. 't was increased from B=?B to B=?<. &he main
reason behind this is that debtors collection period has decreased and creditors payment
period has increased a lot. &he credit period granted by vendor is generally K= days but since
the company is running good it can pay the amount in stipulated time and even faster, &hey
also added new creditors so their credit period has decreased to CD days .&his has led to the
decrease in credit period availed from vendor and thus increasing the operating cycle to such
an extent.
&he gross operating cycle has decreased from B=?B to B=?< as they had decreased the
'nventory conversion period and also they have decreased a lot in collection period.
According to 9ross operating cycle it is a good sign for the company. *ut according to the
40
0et operating cycle it is not a good sign, they have to increase the payable period in order to
decrease their net working capital.
.indin!(
&he liquidity position of the firm is very low as the current liabilities are high. *eing a
manufacturing company and having a lot of product variation the inventory purchase
has to be high so their creditor balance is high.
&he Working capital is negative as they are maintaining a high creditor balance.
&he 'nventory level is too high in the current assets so the quick asset contribution is
less. &his has influenced the quick ratio as the quick assets are not to the level to clear
the current liabilities.
&he working capital ratio has shown the negative decresing trend but in between due
to the sudden increase in current liabilities it decreses and again after that increases by
keeping currnet liabilities lesser compared with the previous years.
&he Average collection period shows the decresing trend. &his shows the low
collection period, this implies highly efficient collection period. &his will affect the
liquidity position or short term paying capacity of the firm out of its current liabilities.
&he 'nventory conversion period of the company has shown a declining trend. #n an
average the company took ?<= days to convert the inventory into sales.
&he company has shown an improvement in the working capital mangement over the
past year.
41
Reco$$end"tion(
&he level of 'nventory can be improved by a close study of )anufacturing cycle. &his
helps in having the adequate amount of 'nventory.
&he )aximum utili!ation of computeri!ation must be adopted in mainting 'nventory
for its effective control and management.
As it is a manufacturing firm the scrap is very high, this scrap has to be disposed at
the earliest in order to avoid blocking of capital.
&he company can consider taking more debts into its capital structure, which will
improve its earnings per share.
&he company should decrease its current liabilities and at the same time it should
raise the long term liability, otherwise trading on equity is not possible.
'n order to earn more profits ,the company should reduce its operating cost.
&he company should encourage people who come out wuth new and 'nnovative ideas
to develop the organi!ation.
'n order to have more credit period with vendors, they have to maintain good
relationship. &his will help to decrease the operating cycle.
&he anslary units of *-W could be placed near by so that they have good flow of
material and time could be saved.
&he organi!ation has to strive to achieve consistently better turnover ratio in the
subsequent years. *etter controls have to be undertaken and remedial measures must
be taken after ascertaining the ratios.
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Conc#u(ion
-rom the analysis in the company, it is clear that, it has achieved greater importance in
production control to a large extent. 't also enhances the arising need of the organi!ation, in
respect of Working (apital )angement.
&he company should focus more often for advertise their products in the media to attract
more customers because many people do not know the different products offered by the
company.
&he study has helped me a lot in obtaining good knowledge of Working (apital )anagement
in *-W. +ere by, Working (apital )anagement is an essential element in an organi!ation,
provide it is maintained tactfully adopting latest techniques in 'nventory and utili!ing best
results from computeri!ation.
43