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PROJECT REPORT

ON
ANAYLSIS OF WORKING CAPITAL
OF
EASTMAN CAST & FORGE LTD.

COMPANY PROFILE:
We

cast and forge ltd. pleasure to introduce ourselves as quality manufacturers

established since 1989. Our manufacturing is based on Taiwanese & Indian Technology to get
optimum quality and cost effectiveness. We basically deal with manufacturing all types of
handtools, agricultural tools, construction tools, automotive tools, and plumbing tools etc. We
believe in research, design, engineering, quality testing, packing and then merchandising. We are
committed to assure our customers with quality tool and it is our endeavor to offer our vital
services to our esteemed customers with the superiority at very rational and competitive prices.
Our products by our valued customers in the country and abroad are gladly appreciated which
builds the pillars of encouragement to us. Our produce of goods confirms to the international
standards and we export them to more than 40 countries of the world like Russia, South America,
Central America, Europe, South East, Asian Countries, Middle East, and Africa etc.
We have an outstanding workmanship including a dedicated team of engineers and marketing
professionals, firm quality control, first-rate quality produce in accordance with international
standards(DIN, JIS, ANSI), competitive pricing, timely deliveries, customized packing and
branding.
Hand tools are basically the types of non-powered tools, hence the tools which do not require
power to run but a torque produced by an easy manual force. Handtools are designed for a
particular job used by experts and are applicable in Do-It-Yourself (DIY) projects, like, home
repairs, general maintenance, building mechanics, woodworking, and gardening. Handtools
provide mechanical advantage in accomplishing a physical job. Our produce of handtools have
high hardness even at elevated temperatures, toughness so that the tool does not chip or fracture,
machined to extremely stringent tolerances which makes it stiff and ensuring straight and
accurate working without bending and twisting, high wear and tear resistance so as to have
tolerable tool life before the requiring it to be changed, strong coated with deep chrome finish
that increases its durability and life. Handtools are widely applicable in repair works,
construction works, automotive works etc. Every hand tool is further categorized as quite a long
list as they are available according to the numerable range of typical application, design shape,
size etc.

BOARD OF DIRECTORS
The management team of the
worked with the vision of taking the

Group comprises of experienced professionals who have


Industries Limited to the top. They have always

believed in delivering the best quality products at or before the scheduled time. Our management
team has been constantly achieving its objective of maintaining leadership in the target markets.
Each member of the team is dedicated to increase the financial performance of the organization.
Headed by our MD Mr. Shri J.R. Singal, the management team comprises of following persons:

Sh. Jagdish Rai Singal (Managing Director)


Sh. Jagdish Rai Singal is a founder and promoter of

Group being the highly renowned

Industrial and the back born of our organization. He believes in strong leadership movement with
expert guidance in the field of Industry. Under his leadership

has won 4 National Export

Awards during last 30 years. This is an yearly award and 20 companies are honoured at national
level. The company was also awarded with the special Latin American Countries Focus award
for outstanding export performance by the Govt. of India.

Dr. J.S. Juneja (Independent Director)


Mr. Juneja is Professional Director (Non Executive) to the company. An Optimistic, Extrovert &
a person of total integrity His experience, vision & innovative ideas proved to be an asset to the
company.
He is an MBA from one of reputed Business School of India.

Mr. S.K. Vadhera (Independent Director)


Vadhera is an Professional Director (Non Executive) of the company.
A very dynamic personality with Bachelor of Engineering from a University of repute. His
technical knowledge, expertise is an asset to the company

Ranjodh Singh (Independent Director)


Mr Singh is an Professional Director (Non Executive)
having Bachelor of Engineering from a well reputed
Technical Institute of india. A very professional & dynamic
personality whose technical experties & farsightdness is very beneficial for the company.

Mr. Shekhar Singal (Family Director)


With a people-oriented approach, Mr. Shekhar Singal is known to be extremely resourceful and a
capable administrator. His out- of the box ideas have tremendously helped us in advancement of
business. He is always ready to face any challenge and encourages his staff to excel in every
field. His new ideas make the way easy and smooth for

. With a master's degree in

Business Administration, he is also the Managing Partner and Executive Director of


Auto & Power Limited (sister concern of

Group). He is also serving and giving his

valuable suggestions to Rohit Heritage Jewelers (P) Ltd. as a Director.

Mrs. Darshana Singal (Family Director)


Enriched with years of experience, Smt. Darshana Singal has an in-depth understanding of the
industry. At present, she is working as an Executive Director in

Group

Mrs. Vandana Aggarwal


(Family Director)
Mrs. Vandana Aggarwal is well known in the industry for her outstanding contributions. Her
innovative ideas are a source of inspiration and works as catalyst for the success of
Group. She has been an integral part of our Group. With her dedication and efficiency she has
steered

to become a reliable group of companies for its customers all over the globe.

With a graduation Degree in Commerce, Mrs. Vandana Aggarwal is an active Director in Ozone
Overseas Ltd. and is also working as a Managing Partner in Jaycee Overseas Ltd.

Our handtools are generally categorized as Spanners, Plumbing tools, Pliers, Automotive tools,
Carpentry tools, Masonry Tools , Hack Saws, Vices, String tools, Lubricating Tools, Punches,
Allen keys, Screw Drivers, Socket Spanners, Impact Drivers, Bolt Cutters, Leather Tool Aprons,
Misc Tools, Non Sparkling Tools.

EASTMAN CAST & FORGE AT LUDHIANA PLANT


We have manufacturing facilities at Ludhiana for Hand Tools and Power Tools.
The Export of Tools is directed towards 27 markets out of India such as Russia, Ukraine,
Belarus, Turkey, Panama, Peru, Bulgaria, France, Portugal, Malaysia, and Srilanka etc. Eastman
brand has presence in domestic market and 21 vehicle manufacturers such as Tata Motors,
Mahindra & Mahindra, Ashok Leyland, John-Deere, New Holland, Eicher, TAFE, and Hero
Honda Motors etc. Eastman tool kits are supplied as original equipments along with the vehicles
manufactured by these companies. In India Eastman products are available through a strong
network of more than 400 dealers and Company's exclusive Show Rooms cum Demo & Service
Centers. We have installed capacity of 300000 Tools per annum. To ensure the quality parameters
we have state of the art testing lab that contains equipments for Motor Endurance, Complete unit
life testing, temperature rise testing, High voltage testing, Parts testing, Cable tension etc.
Being a customer focused organization and to increase its competitiveness in the overseas
markets the company has full-fledged strong technical force to adhere to the goals of the
company. We look forward "to help you work better" with our tools.

5S AT ECFL

This enables the plant to have better working conditions and also increase work efficiency. A
copy of it also displayed at each shop and depth to motivate the employee towards healthy work
environment.
Meaning and benefits of 5S system are as follows
1. SEIRI:

It stands for Sorting

Take out necessary items and suitably dispose with them.


Benefits:
1.

Effective Space Utilization

2.

Stop Material from deteriorating or getting damaged

3.

Reduce wastage and searching items

2. SEITON: It stands for Set in Order


Arrange. All necessary items in a proper order so that they can be easily picked up for use
Benefits:
1.

Reduce preparation and machine setting and machine setting timings.

2.

Reduce time in locating or waiting for Tool Parts and Machines.

3. SIIESO:

It stands for Shine/Completely Clean

Clean your workplace completely so that there is no dust anywhere.


Benefits:
1.

Promotes Orderly and Safe Working Environment

2.

Reduces Breakdown and Accidents.

4. SEIKETSU: It stands for Standardize

Maintain a high standard of house keeping and work place organizational at all times
Benefits:
1.

Quick Response through Visual Management

2.

Create a maintenance system of House keeping for all the times.

5. SHITSUKE: It stands for Self Discipline Attitude


Train People to follow Good House Keeping Discipline Independently
Benefits:
1.

Self Discipline

2.

Improves Industrial Safety

3.

Creates Healthy Attitude and Habits


Advantages of 5S

Healthy Working Environment

Improves Work Efficiency

Producing Better Quality Products and Higher Productivity

Cutting Cost Down

Ensuring Delivery on time

Safe Working

High Morale and Better Life

Group of Companies EASTMAN Handtools

Cast & Forge Ltd


1989:- In order to cater the needs of durable equipment and more easily operatable tools by
machinists worldwide.

Cast and Forge limited came into existence in 1989.

cast

and forge limited manufactures carbon steel and chrome vanadium hand tools & power tools
which are being exported to more than 24 countries besides as an OEM of Ashok Leyland, TATA
Motors, Mahindra & Mahindra, John Deere, New Holland, TAFE, L&T, Hero Honda Motors,
Eicher etc.

Industrial Company
2002:-

Industrial Company came into existence in exporting two wheeler components

and other automobile components.

Industrial Company supplies products to more than

40 countries across the globe.

Auto & Power Ltd.


2000:-

Auto and Power limited come into existence with manufacturing and distribution

facilities of automotive batteries in India and neighboring countries under "ADDO" brand. The
brand "ADDO" is highly successful and high selling battery in Indian

ECFL VISION
"To create an enabline platform whereby Effective Leaders and Competent Managers Emerge on
the Stage to build an Organization and Move Further"

Our Mission
Sales Turnover of

OUR STRENGTHS

240 Crore with a Range of 24~30% Growth every Year

OUR STRONG ROOTS HELP US ACHIEVE THE MOST DIFFICULT OF MILESTONES WITH
EASE
A BRIEF OVERVIEW OF OUR ACHIEVEMENTS OVER THE YEARS:
TIMELINE
Mr. J. R. Singal, our Chairman sets up a bicycle brake shoe manufacturing
1970
plant in Ludhiana, Panjab.
1974
1978
1982
1986

Our first export consignment gets dispatched to Thailand.


First Export to Argentina & Ivory Cost by now Chairman & CMD (Eastman
Group) Mr. JR Singal.
EASTMAN INDUSTRIES LIMITED (E.I.L) a corporate entity established as a first step to
professionalize operations.
EASTMAN CAST & FORGE LTD (E.C.F.L) incorporated for export of hand tools.

Major product and market expansion initiated. EASTMAN products are available in all
1990

major markets of South America and introduced in Mediterranean regions of Europe. E.C.F.L
adds garden and agriculture tools to its range.
E.I.L wins the Latin America Focus award as per the Foreign Trade Policy decided by

1994

Directorate of Foreign Trade Policy decided by Directorate of Foreign Trade, (Ministry of


Commerce, Govt. of India).

1998

Both E.I.L and E.C.F.L certified ISO 9002 & ISO 9001 respectively.

1999

E.I.L wins Focus LAC Award for outstanding Export performance in 1999-2000.

2000

E.I.L wins National Export Awards for excellence in Exports.

2002
2005

2006

After a small beginning previous year, EASTMAN INDUSTRIAL COMPANY (E.I.C) is


formed for export of two wheelers and their spare parts.
E.C.F.L. wins the EEPC INDIA Excellence award 2005-06
EASTMAN AUTO & POWR LIMITED is incorporated for launch of Lead Acid Batteries
E.C.F.L. wins the EEPC INDIA Excellence award 2006-07.

2007

E.I.L awarded Niryat Shree for Excellence in exports.

2008

E.C.F.L wins the EEPC INDIA Excellence award 2008-09.

2009

2010

E.C.F.L wins the Energy Conservation-2008 award as per Punjab Energy development
Agency.
E.C.F.L wins the Energy Conservation Award under the aegis of power ministry.
E.A.P.L certified ISO 9001:2008 \ E.C.F.L awarded The Corporate Citizen of the year Award
2010 by PHDCCI

2012

ECFL wins Best Focus Product Award at DnB Indian Exporters Excellence Awards .

2013

EAPL enters Solar battery manufacturing. Automotive battery approval from ASRTU
(Association of State Transport Undertakings)
Gets MNRE certification for its Solar range of batteries

VRLA Motorcycle manufacturing at EAPL

GEOGRAPHICAL OVERVIEW

Group Structure

Eastman Industries Limited, Ludhia

EASTMAN GROUP

Eastman Indus
Eastman Cast & Forge Ltd., Ludhiana
Gurg

Eastman Auto &


Power Limited
Baddi

PRODUCT PROFILE
The main products of the company are:

Adjustable Wrench

Non Sparking Tools

Alien Keys

Oil Can

Automotive Spanners

Pincer

Automotive Tools

Pipe Cutting Tools

Bi-Hexagonal Spanners

Pipe Wrench

Carpenter Tools

Punches

Combination Spanners

Ratchet

Deo Spanners

Saw

Hammer

Socket

Jumbo Spanners

Socket Bits

Leather Aprons

Tap Wrench

Mason Tools

Vice

Measurement Instrument

Water Pump & Pliers

Products

Adjustable
Wrench

Adjustable
Adjustable Wrench

Wrench

Automotive
Allen Keys

Automotive Spanners

Automotive
Spanners

Automotive

Spanners

Automotive
Automotive Spanners

Bi-Hexagonal Spanners

Tools

Carpenter

Tools

Tools

Carpenter

Carpenter

Tools

Combination
Spanners

Carpenter Tools

Doe Spanners

Tools

Hammer

Jumbo Spanners
Hammer

Leather Aprons

Measurement
Mason Tools

Mason Tools

Instrument

Non Sparking
Tools

Oil Can

Oil Can

Pincer

Pincer

Pincer

Pipe Cutting
Tools

Pipe Wrench

Pipe Cutting Tools

Pipe Wrench

Pipe Wrench

Pipe Wrench

Punches

Ratchet

Saw

Saw

Socket

Socket Bits

Tap Wrench

Tap Wrench

Vice

Water Pump
Vice

Water Pump Plier

MANUFACTURING PROCESS

Plier

Quality Control
The fully equipped in house Laboratory is designed to control the Quality Process and give on
line test results as production goes on for Material testing / Hardness testing / Torque Testing /
Crack detector. Our laboratory is equipped with following Machines.only to name a few
TORQUE TESTING MACHINE (COMPUTERISED) -- For torque load capacity of
spanners
MAGNETIC CRACK DECTECTOR -- For detecting very fine flaws & cracks
SALT SPRAY MACHINE -- Testing the Quality of Chrome plating
DIGITAL HARDNESS TESTER -- For ensuring specified surface hardness
ABRASIVE CUTER FOR MAKING TEST PIECE -- Machines for making test
pieces
PLATING THICKNESS TESTER -- Chrome plating thickness
CHEMICAL LABORATORY -- Chemical composition of Products
The Quality/inspection program is designed to check and recheck the production quality at each
strategic stage of the production process i.e. quality program functions from the Raw material to
Finished products.

The Quality Testing program is listed as below ..also refer the Flow chart diagram.
RAW MATERIAL - Incoming raw material is Lab tested at entry level to the plant
BLANKING - The Quality of Blanks are checked for primary conformity
FORGING - The forging Die is Inspected for good forging out put
TRIMMING - Good finished products are selected after Trimming stage
PUNCHING - Inspection at punching stage rejects poorly finished goods
BROACHING - After broaching all spanners are checked for Jaw accuracy
HEAT TREATMENT - Heat treated products are is inspected for proper internal
structural formation and Hardness of the Product
GAUGING - All Products are checked with gauges for operational fitment.
SHOT BALLAST - Inspection at Shot Ballasting checks for finishing output.
ELECTRO PLATING - Final inspection is carried after electroplating stage. This is the
final and detailed inspection carried out manually

DEPARTMENTS

Procurement

Excise

Audit

HR

IT

Account & Finance

Marketing

Documentation

Nine
Showroom

Delhi &
Gurgaon Off.

China Off.

Tractor parts

Production

SWOT ANALYSIS
SWOT analysis provides the information that is helpful in matching the firms resources and
capabilities to the competitive environment in which it operates. Environmental factors internal
to the firm can be classified as Strengths (S) and Weaknesses (W) and those external to the firm
are classified as Opportunities (O) and Threats (T). Such an analysis of strategic environment is
called SWOT ANALYSIS.
SWOT ANALYSIS OF EASTMAN CAST & FORGE LTD, LUDHIANA IS AS
FOLLOWS:
STRENGTHS:The firms strengths are its resources and capabilities that can be used as competitive advantage.
The main strengths of Eastman Cast & Forge Ltd. are:

Full-fledged strong technical force.

Good reputation among the customers (like M&M, Tata Motors)

Peaceful Industrial Environment.

Strong discipline and positive attitude culture.

Strong HRD development tools for work force.

Approach to the plant at Ludhiana, It is through National highway.


WEAKNESS:The absence of certain strengths may be viewed as weakness and the major weakness faced by
the ECFL is:

Non-availability of tax exemptions and subsidies.

Gross profit is going Upward in the comparison of last year.

Raw material Turnover ratio is going Upward.

It is not registered under any stock exchange.

OPPORTUNITIES:External environment analysis may reveal certain new opportunities for profit and growth and
the opportunities before ECFL are:

Availability of latest / state of art technology


Liberalization in Gov. policies and tax laws
THREATS:-

Changes in external environment may also poses threats to the firm Major threats to ECFL are:
High inflation has offset the rise in household incomes as the disposable income of
people has declined vis--vis previous years.

Government Policies, Rules and Regulations.

Competition from other MNCs like Snap on company, Kraft Tool Company, Hands 2 You-US
Company.

INTRODUCTION TO
WORKING CAPITAL

MEANING OF WORKING CAPITAL


In simple words working capital means that which is issued to carry out the day-to-day operation
of business. Capital required for a business can be classified under two main categories.

Fixed capital

Working capital
Every business needs funds for two purposes, for its establishment and to carry on its day-to-day
operations. Long term is required to create production facilities through purchase of fixed assets
such as Plant, machinery, and building, furniture etc. Investment in these assets represent that
part of firms capital, which is blocked on a permanent or fixed basis, is called fixed capital.
Funds are also needed for short-term purposes i.e. for the purchase of raw material, payment of
wages and carry on day-to-day operations of business etc. These funds are known as working
capital.
The management of fixed and current assets however, differs in three important ways: -

1.

In managing fixed assets, time is a very important factor consequently discounting and
compounding techniques play a significant role in capital budgeting and a minor one in the
management of current assets.

2.

Large holding of current assets, especially cash, strengthens firms liquidity position
but it also reduces the overall profitability.

3.

Levels of fixed as well as current assets depend upon expected sales, but it is not only
current assets which can be adjusted with sales fluctuating in short run.
In simple words working capital refers to that part of firms capital, which is required, be
financing short term and current assets such as cash, marketable securities, debtors and
inventories.

Types of working capital:

Concept of time:Permanent Working capital and


Temporary Working capital.
Permanent Working capital
Permanent working capital refers to the minimum amount of all current assets that is required at
all times to ensure a minimum level of uninterrupted business operations. Some minimum
amount of raw materials, work-in-progress, bank balance, finished goods etc., a business has to
carry all the time irrespective of the level of manufacturing or marketing operations. This level of
working capital is referred to as core working capital or core current assets. But the level of core
current assets is not a constant sum at all the times.

For a growing business the permanent working capital will be rising, for a declining business it
will be decreasing and for a stable business it will almost remain the same with few variations.
So, permanent working capital is perennially needed one though not fixed in volume. This part of
the working capital being a permanent investment needs to be financed through long-term funds.
The permanent working capital can be further divided into two parts:

Regular working capital

Reserve working capital


It required ensuring circulation of current assets from cash to inventories, from inventories to
receivables and from receivables to cash and so on. Reserve working capital is the excess amount
over the requirement for regular working capital which may be provided for contingencies that
way arise at unstated period such as strikes, rise in prices, depression, etc.

Temporary Working capital


The temporary or varying working capital varies with the volume of operations. It fluctuates with
the scale of operations. This is the additional working capital required from time to time over and
above the permanent or fixed working capital.
During seasons, more production/sales take place resulting in larger working capital needs. The
reverse is true during off-seasons. As seasons vary, temporary working capital requirement
moves up and down. Temporary working capital can be financed through short term funds like
current liabilities. When the level of temporary working capital moves up, the business might use
short-term funds and when the level for temporary working capital recedes, the business may
retire its short-term loans. Variable working capital can be further classified as:

Seasonal working capital

Special working capital


Most of enterprises have to provide additional working capital to meet the seasonal and special
needs. The capital required to meet the seasonal needs of the enterprise is called seasonal
working capital. Special working capital is that part of working capital which is required to meet
special exigencies such as launching of extensive marketing campaigns for conducting research
etc.

Both permanent and temporary working capitals are necessary to facilitate the sales and
production process through operating cycle.

Operating cycle and cash cycle:


The primary concerns in working capital management include firms short run operating and
financing activities. For a typical manufacturing firm, the major short run activities will consist
of the following activities and related decisions:

Activity

Decision
How much to order
Whether to borrow or pay
cash
Choice of technology
Whether to extend credit or to
sell on cash
How to collect

Buy raw material


Pay for purchases
Manufacture products
Sell the product

Collection for sales

These activities entail cash inflows and cash outflows; but the cash flows are both
unsynchronized and uncertain. They are unsynchronized because the payment of cash for raw
materials does not take place at the same time as the receipt of cash from sales of the finished
product. They are uncertain because future sales and costs cannot be precisely predicted. These
give rise to what is called as operating cycles and cash cycle.

Operating cycle:
The entire cycle, from the time the firm acquires inventory to the time it collects the cash, takes
100 days. This is called the operating cycle. The operating cycle is the length of time it takes to
acquire inventory, sell it, and collect for it. This cycle has two distinct parts- the time it takes to
acquire and sell the inventory; a 60 day span in our case, is called the inventory conversion
period; and the time it takes to collect cash for the sales, 40 days in our case; called as accounts
receivable (debtors) conversion period. Thus, operating cycle is just the sum of the inventory
conversion period and accounts receivable conversion periods:
Operating
Cycle

= inventory conversion + accounts receivable


period
conversion period

100 days =

60 days

40 days

What the operating cycle describes is how a product moves through the current asset
accounts. The product begins life as inventory; it is converted to a receivable when it is sold, and
it is finally converted to cash when we collect for the sales.
For a typical manufacturing company, the inventory conversion period is the total time needed
for producing and selling the product and includes:
Raw material conversion period.
Work in process conversion period.
Finished goods conversion period.

Cash cycle
There are number of days that pass before the firm collects cash for sales, measured
from it actually pays for the inventory. Thus, cash cycle is the difference between the operating
cycle and the accounts payment period.
For example, the firm does not pay cash for inventory until 30 days after acquiring it. The
intervening 30 days period is called the accounts payable (creditors) period. Next, though the
firm spends cash on 30th day, it does not collect cash till 100 th day. Somehow, the firm must
arrange to finance the Rs 1000 for 100-30 = 70 days. This period is called the cash cycle or net
operating cycle.
Cash cycle =
=
=

operating

accounts payable
Cycle
period
100 days 30 days
70 days

Finished Goods
Work In
Progress
Wages &
Salaries

Sundry
Debtors (a/c
receivables

Raw material
component
Cash

Sundry
creditors (a/c
payable)

Selling + distribution
general Administration
In diagram, the short term operating activities and cash flows for a typical manufacturing firm by
way of a cash flow time line. As shown, the need for short term financial management arises
from gap between the cash inflows and the cash outflows, which is related to the lengths of the
operating cycle and the accounts payable period.
This gap can be filled either by borrowing or by holding a liquidity reserve in the form of cash or
marketable securities. Alternatively, the gap can be shortened by changing the inventory,
receivable, and payable periods- all of which comprise the areas of working capital management.

CONTENTS OF WORKING CAPITAL

CURRENT ASSETS

CURRENT LIABILITIES

Cash in hand and bank balance

Bills payable

Bills receivables

Sundry creditors

Sundry debtors

Accrued loans

Short term loans and advances

Short term loans

Investment of stock as:

Advances and deposits

Raw material

Dividend payable

Work in progress

Bank overdraft

Finished goods

Provision for taxation

Store and spares


Temporary investment
Prepaid expenses
Accrued incomes

GROSS WORKING CAPITAL

Simply called working capital it is total of current assets, it refers to the firms investment in
current assets. Current assets refer to those assets, which in the ordinary course of business can
be continued into cash within an accounting year.
Debtors
(Receivables
)

Cash

Raw Materials

Finished Goods

Work-in-Progress

Gross Working Capital = Current Assets

NET WORKING CAPITAL


Net working capital is the difference between current assets and current liabilities. Current
liabilities include items payable or expected to be turned within one year from the date of the
balance sheet and the term is used to designate obligation whose liquidation is reasonably
expected require the use of existing resources assets or creation of other current liabilities. Net
working capital may be positive or negative.
A positive working capital arises when current assets exceed current liabilities a negative net
working capital occurs when current liabilities are more than current assets.
Net working capital = Current Assets Current Liabilities

WORKING CAPITAL CYCLE


Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every
manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a
business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't
generate surpluses, the business will eventually run out of cash and expire.
The faster a business expands the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers and holding stocks can represent a
substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash - Inventory (stocks and work-inprogress) and Receivables (debtors owing you money). The main sources of cash are Payables
(your creditors) and Equity and Loans.
Each component of working capital (namely inventory, receivables and payables) has two
dimensions: TIME and MONEY, when it comes to managing working capital - TIME IS
MONEY. If one can get money to move faster around the cycle (e.g. collect money due from
debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels
relative to sales), the business will generate more cash or it will need to borrow less money to
fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have
additional free money available to support additional sales growth or investment. Similarly, if
you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit
limit; you effectively create free finance to help fund future sales.
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If
you do pay cash, remember that this is now longer available for working capital. Therefore, if
cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc.
Similarly, if you pay dividends or increase

Drawings, these are cash outflows and, like water flowing downs a plughole, they remove
liquidity from the business. More businesses fail for lack of cash than for want of profit.
It is this importance of cash that, cash management is one of the key areas of working capital
management. Apart from the fact that it is the most liquid asset, cash is the common denominator
to which all the current assets can be reduced because the other major liquid assets, that is,
receivables and inventory eventually get converted into cash. This underlines the significance of
cash management.
The term cash with reference to cash management is used in two senses. In a narrow sense it is
used to cover currency and generally accepted equivalents of cash, such as cheques, drafts and
demand deposits in banks. The broad view of cash also includes, near cash assets such as
marketable securities and time deposits in banks.
A firm is well advised to hold adequate cash balances but should avoid excessive balances. The
firm has, therefore, to assess its need for cash properly. Cash budget is a device that helps affirm
to plan and control the use of cash. It is statement showing the estimated cash inflows and
outflows over the planning horizon. In other words, the net cash position (surplus and deficiency)
of a firm as it moves from one budgeting sub period to other is highlighted by cash budget.

NEED OF WORKING CAPITAL


1.

For the purchase of raw material components and stores

2.

For the payment of wages and salaries.

3.

To incur day-to-day expenses and overhead costs such as fuel, power and office
expenses.

4.

To meet the selling cost as packing, advertising etc.

5.

To provide credit facility to the customers.

6.

To maintain the inventories of raw material, work-in-progress, stores and spares and
finished stock.

7.

To meet the requirement of anticipated needs of future.

8.

To face business crisis in emergencies such as depression, because during such


periods, generally, there is much pressure on working capital.

FINANCIAL RATIO ANALYSIS


Financial ratio analysis is a study of ratios between various items or group of items in financial
statement and the turnover ratios. Ratio analysis is the powerful tool of financial analysis. In
financial analysis, ratio analysis is used as an index or yardstick to measure the performance of
the firm.
Working capital is that part of total capital which is important in current assets. To get better
insights about the working capital position of the firm ratio analysis has been utilized.
To determine the Working Capital position of the firm following ratios have been analyzed:

Current ratio

Absolute liquid ratio

Quick ratio

Current asset turnover ratio

Working capital turnover ratio

Inventory turnover ratio

Debtors turnover ratio

Creditors turnover ratio


Current ratio, Quick ratio and absolute liquidity ratio are regarded ad liquidity ratios. The
liquidity aspect is essential for both the creditors as well as management of a business enterprise.
These ratios are used to judge firms ability to meet short-term obligations. These ratios give an
insight about present cash solvency of the firm and its ability to remain solvent in the event of
adversities.

CURRENT RATIO:
The current ratio is very popular financial ratio, which is used to measure the ability of a firm to
meet its current liabilities. Current assets are converted into cash for the payment of current
liabilities. Apparently higher is the current ratio; greater is the short-term solvency.
Current Assets
Current ratio is given by the formula:

Current Liabilities

QUICK RATIO (ACID TEST RATIO):


Quick ratio is much more exacting measure than the current ratio. By excluding inventories, it
concentrates on really liquid assets, with value fairly certain.
Quick Assets consist of only cash and near cash assets. Inventories are deducted from current
assets on the belief that these are not near cash assets.
Liquid Assets
Quick ratio is given by the formula:
Current liabilities

ABSOLUTE LIQUID RATIO (CASH RATIO):


This ratio measures the absolute liquidity of the business. This ratio considers only the absolute
liquidity of the business and is calculated as:
Cash + Marketable Securities
_________________________
Current Liabilities
.

Activity ratios are also called as turnover ratios or performance ratios. These ratios are employed
to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios
usually indicate the frequency of sales with respect to its assets.

CURRENT ASSETS TURNOVER RATIO:


The idea of the current assets turnover is to ascertain the contribution of the current assets to
sales. The relationship indicates efficiency or otherwise utilization of current assets to attain the
maximum turnover sales.

WORKING CAPITAL TURNOVER RATIO:


Net working capital turnover ratio indicated the velocity of the utilization of working capital. A
higher ratio indicates the effective utilization of working capital and a low ratio indicate
otherwise.

INVENTORY TURNOVER RATIO:


This ratio is also known as stock turnover ratio and establishes the relationship between the cost
of goods sold during the year and average inventory held during the year. It is calculated as
follows:

Sales
Average Inventory

DEBTORS TURNOVER RATIO:


In case firm sells goods on credit, the realization of sales is delayed and the receivables are
created. The cash is realized from these receivables later on. The speed with which these
receivables are collected affects the liquidity position of the firm. The debtors turnover ratio

throws light on the collection and credit policies of the firm. The debtors turnover ratio is
calculated as follows:
Sales
Average Accounts Receivable

CREDITORS TURNOVER RATIO:


This ratio is calculated on same lines as receivable turnover ratio is calculated. This shows the
velocity of debt payment by the firm. A low creditors turnover ratio reflects liberal terms
granted by the suppliers. While a high ratio shows the accounts are settled rapidly. It is calculated
as follows:
Credit Purchases
Average Accounts Payable

Significance Of Working Capital:


Investment in fixed assets only is not sufficient to run the business. Working capital or
investment in current assets, howsoever small it is, is a must for purchase of raw materials, and
for meeting the day-to-day expenditure on salaries, wages, rents, advertising etc., and for
maintaining the fixed assets. 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 a large body
(investment) of fixed assets.

Moreover, not only the existence of working capital is a must for the industry, but it must be
adequate also. Adequacy of the working capital is the lifeblood and controlling nerve center of a
business. Inadequate as well as redundant working capital is dangerous for the health of industry.
It is said, Inadequate working capital is disastrous; whereas redundant working capital is a
criminal waste. Both situations are not warranted in a sound organization.
The advantages of working capital or adequate working capital may be enumerated as below: 1.

Cash Discount:
If a proper cash balance is maintained, the business can avail the advantage of cash discount by
paying cash for the purchase of raw materials and merchandise. It will result in reducing the cost
of production.

2.

It creates a Feeling of Security and Confidence:


The proprietor or officials or management of a concern are quite carefree, if they have proper
working capital arrangements because they need not worry for the payment of business
expenditure or creditors.
Adequate working capital creates a sense of security, confidence and loyalty, not only throughout
the business itself, but also among its customers, creditors and business associates.

3.

Must for Maintaining Solvency and Continuing Production:


In order to maintain the solvency of the business, it is but essential that the sufficient amount t of
fund is available to make all the payments in time as and when they are due. Without ample
working capital, production will suffer, particularly in the era of cut throat competition, and a
business can never flourish in the absence of adequate working capital.

4.

Sound Goodwill and Debt Capacity:


It is common experience of all prudent businessmen that promptness of payment in business
creates goodwill and increases the debt of the capacity of the business. A firm can raise funds

from the market, purchase goods on credit and borrow short-term funds from bank, etc. If the
investor and borrowers are confident that they will get their due interest and payment of principal
in time.
5.

Easy Loans from the Banks:


An adequate working capital i.e. excess of current assets over current liabilities helps the
company to borrow unsecured loans from the bank because the excess provides a good security
to the unsecured loans, Banks favor in granting seasonal loans, if business has a good credit
standing and trade reputation.

6.

Distribution of Dividend:
If company is short of working capital, it cannot distribute the good dividend to its shareholders
inspite of sufficient profits. Profits are to be retained in the business to make up the deficiency of
working capital. On the other contrary, if working capital is sufficient, ample dividend can be
declared and distributed. It increases the market value of shares.

7.

Exploitation of Good Opportunity:


In case of adequacy of capital in a concern, good opportunities can be exploited e.g., company
may make off-season purchases resulting in substantial savings or it can fetch big supply orders
resulting in good profits.

8.

Meeting Unseen Contingency:


Depression shoots the demand of working capital because sock piling of finished goods become
necessary. Certain other unseen contingencies e.g., financial crisis due to heavy losses, business
oscillations, etc. can easily be overcome, if company maintains adequate working capital.

9.

High Morale:
The provision of adequate working capital improves the morale of the executive because they
have an environment of certainty, security and confidence, which is a great psychological, factor

in improving the overall efficiency of the business and of the person who is at the hell of fairs in
the company.

10.

Increased Production Efficiency:


A continuous supply of raw material, research programme, innovations and technical
development and expansion programmes can successfully be carried out if adequate working
capital is maintained in the business. It will increase the production efficiency, which will, in turn
increases the efficiency and morale of the employees and lower costs and create image among
the community.

Strategies to overcome the problem:

Manage working capital investment or financing such as

Holding additional cash balances beyond expected needs

Holding a reserve of short term marketable securities

Arrange for availability of additional short-term borrowing capacity

One of the ways to address the problem of fixed set-up cost may be to hold
inventory.

One or combination of the above strategies will target the problem

Factors Determining Working Capital:

1.

Nature of the Business

2.

Size of business

3.

Production policies

4.

Production cycle

5.

Credit policy

6.

Rapidity of turnover

7.

Seasonal fluctuation

8.

Price level changes

9.

Others factors

1.

Nature of the business:


Working capital also depends upon the nature of the business. Public utility concerns like
railway, electricity etc. have a very little need of working capital since most of their transaction
are on cash basis. On the other hand ordinary manufacturing and trading concerns require
sufficient working capital, since they have to invest substantially in inventories and debtors.

2.

Size of Business
Size of business is another influencing factor. As size increases, the working capital requirement
is also more and vice versa.

3.

Production policies:
The production policies pursued by the management have a significant effect on the
requirement of working capital of the business. The decision about the management regarding
automation, etc. will also have its effect on working capital. On case of labor intensive
industries

the

working

capital requirements will be more. While in the case of highly

automatic plant the requirement of long term funds will be more.


4.

Production cycle

The time lapse between feeding of raw material into the machine and obtaining the finished
goods out from the machine is what is described as the length of manufacturing process. It is
otherwise known as conversion time. Longer this time period, higher is the volume and value of
work-in-progress and hence higher the requirement of working capital and vice versa.

5.

Credit policy:
A company which allows liberal credit to its customers may have higher sales but will need
more working capital. A concern that purchases its requirements on credit and sells its
products/services on cash requires less amount of working capital.

6.

Rapidity of turnover:
A company having high rate of turnover will need lower amount of working capital as
compared to a company which has a lower turnover.

7.

Seasonal fluctuations:
In case of seasonal industries like sugar and woolen textiles, their working capital required
during the particular season will be higher than other periods.

8.

Price level changes:


Changes in the price level also affect the working capital requirements. Generally, the rising
prices will require the firm to maintain larger amount of working capital as more funds will be
required to maintain the same current assets.
The effect of rising prices may be different for different firms. Some firms may be affected
much while some others may not be affected at all by the rise in prices.

9.

Other factors:
Certain other factors such as operating efficiency, management ability, irregularities of
supply, import policy, asset structure, importance of labour, banking facilities, etc. also
influences the requirements of working capital.

Excess Or Inadequate Working Capital:


Every business concern should have adequate working capital to run its business operations. It
should have neither redundant or excess working capital nor inadequate nor shortage of working
capital. Both excess as well as shortage of working capital situations are bad for any business.
However, out of the two, inadequacy or shortage of working capital is more dangerous from the
point of view of the firm.

Disadvantages of Redundant or Excess Working Capital -

Idle funds, non-profitable for business, poor ROI.

Unnecessary purchasing & accumulation of inventories over required level.

Excessive debtors and defective credit policy, higher incidence of B/D.

Overall inefficiency in the organization.

When there is excessive working capital, Credit worthiness suffers

Due to low rate of return on investments, the market value of shares may fall

Disadvantages or Dangers of Inadequate or Short Working Capital -

Cant pay off its short-term liabilities in time.

Economies of scale are not possible.

Difficult for the firm to exploit favourable market situations

Day-to-day liquidity worsens

Improper utilization the fixed assets and ROA/ROI falls sharply

The rate of return on investments also falls with the shortage of working capital.

The need or objects of working capital:

The need for working capital cannot be over emphasized. Every business needs some amount of
working capital. The need for working capital arises due to the gap between production and
realization of cash from sales. There is an operating cycle involved in the sales and realization of
cash. There are time gaps in purchase of raw materials and production; and sales and realization
of cash. Thus, working capital is needed for the following purpose:

1. For the purchase of raw materials, components and spares.


2. To pay wages and salaries.
3. To incur day to day expenses and overheads costs such as fuel, power and office expenses, etc.
4. To meet the selling costs as packing, advertising, etc.
5. To provide credit facilities to the customers.

6. To maintain the inventories of raw material, work in progress, stores and spares and finished
stock.

Management Of Working Capital (WCM):

Management of working capital is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter-relationship that exists between
them. In other words, it refers to all aspects of administration of CA and CL. management will
use a combination of policies and techniques for the management of working capital. The
policies aim at managing the current assets (generally cash and cash equivalents, inventories
and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day
to day expenses, but reduces cash holding costs.

Inventory management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials - and minimizes reordering costs - and
hence increases cash flow. Besides this, the lead times in production should be lowered to reduce
Work in Process (WIP) and similarly, the Finished Goods should be kept on as low level as
possible to avoid over production - see Supply chain management; Just In Time (JIT);
Economic order quantity (EOQ); Economic quantity.

Debtors management. Identify the appropriate credit policy, i.e. credit terms which will
attract customers, such that any impact on cash flows and the cash conversion cycle will be offset
by increased revenue and hence Return on Capital (or vice versa); see Discounts and
allowances.

Short term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it
may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through
"factoring"

Working Capital Management Policies of a firm have a great effect on its profitability, liquidity
and structural health of the organization. In this context, working capital management is three
dimensioned in nature:

3D Nature of Working Capital Management

Dim
D
C
Coom
mpiomeennssiion
possiti on IIII
itioonn
II
&
ooffCCL& LLeevve
L
ell

I.

Dimension first is concerned with the formulation of policies with regard to profitability, risk and
liquidity.

II.

Dimension second is concerned with the decision about the composition and level of current
assets.

III.

Dimension third is concerned with the decision about the composition and level of current
liabilities.

Aims of Working Capital Management:

1.

The goal of working capital management is to manage the firms current assets and
current liabilities in such a way that a satisfactory level of working capital is maintained, to meet
the short-term obligations as and when they arise.

2.

A significant objective of working capital management is to ensure short-term liquidity


and to see that profitability is not affected by the way current assets and current liabilities are
managed.

3.

The main theme of working capital management is the interaction between the current
assets and the current liabilities and arrives at the optimum level of both. The optimum level thus
arrived must have provision for contingencies.

4.

Trade-off between Profitability and Risk: The level of a firms Net working capital has a
bearing on its profitability as well as risk. The term profitability used in this context is measured
by profits after expenses. The term risk is defined as the probability that a firm will become
technically insolvent so that it will not be able to meet its obligations when they become due for
payment. The risk of becoming technically insolvent is measured using Net Working Capital.
The greater the net working capital, the more liquid the firm is and therefore the less likelihood
of it becoming technically insolvent. The relationship between liquidity, net working capital and
risk is such that if either net working capital or liquidity increases, the firm's risk decreases.

5.

Trade-off: If a firm wants to increase its profits, it must also increase its risk. Inversely, if
it decreases risk, its profitability too tends to decrease. The trade-off between these variables is
that regardless of how the firm increases its profitability through the manipulation of working

capital, the consequence is a corresponding increase in risk as measured by the level of Net
working capital.
6.

Apart from the profitability risk trade-off, another important ingredient of the theory
of working capital management is determining the financing mix. Financing mix refers to the
proportion of current assets that would be financed by current liabilities and by long-term
resources.

Principles Of Working Capital Management /Policy:

1. Principle of risk variation:Risk here refers to the inability of a firm to meet its obligation as and
when they become due payment. Larger investment in current assets with less dependence on
short term borrowings increase liquidity, reduces dependence on short term borrowings increases
liquidity, reduces risk and thereby decrease the opportunity for gain or loss. On the other hand
less investment in current assets with dependence on short term borrowings, reduce liquidity and
increase profitability.

In other words, there is a definite inverse relationship between the degree of risk and
profitability. A conservative management prefers to minimize risk by maintaining a higher level
of current assets or working capital while a liberal management assumes greater risk by reducing
working capital. However, the goal of the management should be to establish a suitable tradeoff
between profitability and risk.

2. Principle of cost of capital:-

The various sources of raising working capital finance have different cost of capital and degree
of risk involved. Generally, higher the risk lower is the cost and lower the risk higher is the cost.
A sound working capital management should always try to achieve a proper balance between
these two.

3. Principle of Equity position:This principle is concerned with planning the total investment in current assets. According to this
principle, the amount of working capital invested in each component should be adequately
justified by a firms equity position. Every rupee invested in current 4assets should contribute to
net worth of the firm. The level of current assets may be measured with the help of two ratios:
I.

Current assets as a percentage of total assets.

II.

Current assets as a percentage of total sales.


While deciding about the composition of current assets, the financial manager may consider
the relevant industrial averages.

4. Principle of maturity of payment:This principle is concerned with planning the sources of


finance for working capital. According to this principle, a firm should make every effort to relate

maturities of payment to its flow of internally generated funds. Maturity pattern of various
current obligations is an important factor in risk assumptions and risk assessments. Generally,
shorter the maturity schedule of current liabilities in relation to expected cash inflows, the greater
inability to meet its obligations in time.

Forecasting / Estimation Of Working Capital Requirements:

Working capital is the life blood and controlling nerve centre of a business. No business can be
successfully run without an adequate amount of working capital. To avoid the shortage of
working capital at once, an estimate of working capital requirements should be made in advance
so that arrangement can be made to procure adequate working capital.

Methods of forecasting working capital requirements-

The following methods are usually followed in forecasting working capital requirements of a
firm:

Percentage of sales method


Regression analysis method (average relationship between sales and working capital)
Cash forecasting method

WORKING CAPITAL FINANCING POLICIES:-

A growing firm can be thought of as having a total assets requirement consisting of the current
assets and long term assets and long term assets for its efficient operations. The total assets
requirement may exhibit change over time for many reasons, such as general growth trend,
seasonal variations around the trend, and unpredictable day to day and month to month
fluctuations. These fluctuations are depicted in diagram. It seldom happens that net working
capital goes to zero. As discussed earlier, companies have some permanent working capital,
which is the net working capital on hand at the low point of the business cycle. Then, as sales
increase, net working capital must be increased, and this addition is the temporary part of net
working capital. The manner in which the permanent and temporary portions of net working
capital are financed is called as working capital financing policies. Broadly speaking, a company
can follow three approaches namely, maturity matching approach, aggressive approach, and
conservative approach. We briefly discuss each of these as follows:

Seasonal Variation
Rupees
Total assets
Requirement
General growth in
Long term assets &
Permanent &current assets
Time

1. Maturity Matching/ Self-Liquidating Approach:-

Maturity matching means to match asset and liability maturities. As shown in panel a of figure
the maturity matching approach focuses on matching maturity of assets and liability. This
strategy minimizes the risk that the firm will be unable to pay off its maturing obligations. To

illustrate, suppose a company arises a one year loan to and uses the funds obtained to build and
equip a plant. Obviously, cash flow from the plant (that is profits and depreciation) would not be
enough to pay off the loan at the end of only one year, therefore the firm would be force to renew
the loan. However, if the lender refuses to renew the loan, the company would be in trouble.
However, if the plant had been financed with long term debt, the required loan payments would
have been better matched with cash flows from the plant, and the renewal would not be needed.
As a limiting case, the company could try to match exactly the maturity of all of its assets and
liabilities. For example, inventory expected to be sold in 30 days could be financed with a 30
days bank loan; and a 20 year building could be financed with a 20 year mortgage and so on. In
simple words, the source of finance use has same maturity as the life of the assets for which the
financing has been done. The policy looks quite useful as it minimizes the wastage of funds.
However, the risk that this policy entails is that if the cash from the assets do not take place on
time, the firm would not be able to pay back and forced into renewal situation. The cost of funds
for the renewal case could be unattractive, and might it the profit of the company.

2. Aggressive Approach:Here, as shown in panel b of figure, a relatively aggressive company finances all of its long
term assets and a part of permanent net working capital with long term assets and rest permanent

working capital with short term debt. The term relatively has been used because there can be
different degrees of aggressiveness. For example, the dashed line in panel b could have been
drawn below the line showing long term assets, indicating that all of the permanent net working
capital even some part of long term assets have been financed with short term debt; this would be
a highly aggressive position, and the firm would be very much exposed to dangers from rising
interest rates as well as to loan renewal problems. However, because short term debt is generally
cheaper than long term debt, some companies are ready to sacrifice safety for the chance of
better profit.

3. Conservative Approach:-

As shown in panel c of figure the dashed line is above the line showing permanent net working
capital, meaning that long term sources have been employed to finance all permanent assets and
also to meet some of the temporary requirements. The peak requirements could be met out of
small amount of short term debt; but it also finances a part of the seasonal needs by putting the
money in marketable securities. The humps above the dashed line represent short term financing,
while the troughs below the dashed line represent investing in marketable securities. This

approach, as the name suggests, is a very safe, conservative working capital financing policy as
there is no risk of going out of liquidity. However, since long term debt is normally costlier,
investments in cash and marketable securities are zero net present value investments at best, the
safety comes at the cost of lower profits.

Three alternative working capital investment policies

Policy B

Policy C represents conservative approach

Policy A represents aggressive approach

Policy B represents a moderate approach

OBJECTIVES OF STUDY

To analyze the whole data of ECFL and find various opportunities to improve the working
capital of the company.

To study the needs of the working capital requirements.

To study the level of working capital in the company.

To know about the sources of finance in working capital.

To know the maintenance system of working capital.

To study the profitability ratios.

To study the liquidity position of the company.

To measure the debtors and creditors turnover ratios.

To measure the Future-plans, current plans and past performance of working capital at
(2007- 2008 to 2011-2012)

ECFL

RESEARCH
METHODOLOGY

SCOPE OF STUDY
The above project was conducted keeping in mind the components of Working capital
mentioned above i.e. inventory, receivables, and payables and further, credit terms with

suppliers; project Working Capital took its shape. The project Working Capital was started at
LUDHIANA plant of ECFL Ltd. early this year with an idea of standardization of credit period
across sites, scrutinizing the inventory holding period of raw materials, packaging materials and
finished goods and estimating the working capital thus released through these initiatives.

SOURCES OF DATA COLLECTION:


Data Collection:
1. Primary data
2. Secondary data
Primary Data:
Data that has been collected from first-hand-experience is known as primary data. Primary data
has not been published yet and is more reliable, authentic and objective. Primary data has not
been changed or altered by human beings, therefore its validity is greater than secondary data.
Sources of Primary Data:
Sources for primary data are limited and at times it becomes difficult to obtain data from primary
source because of either scarcity of population or lack of cooperation. Regardless of any
difficulty one can face in collecting primary data; it is the most authentic and reliable data
source.
The information has been collected through the primary sources like:
(1) Talking with the employees of the department.
(2) Discussion with the head of the department.
Secondary data

Data collected from a source that has already been published in any form is called as secondary
data. The review of literature in nay research is based on secondary data. MNostly from books,
journals and periodicals.

Sources of Secondary Data:


Secondary data is often readily available. After the expense of electronic media and internet the
availability of secondary data has become much easier
Published Printed Sources
Published Electronic Sources
Unpublished Personal Records
Governement Records
Public Sector Records:
Data collected through secondary sources in this project are:
(1) Annual Reports of the company
(2) Office manuals of the department.
(3) Policy documents of various departments.
ANALYSIS:
The data thus obtained was ready for analysis, interpretations and drawing conclusions out of it.
Thus the data used for conducting the project was secondary in nature. For purpose of analysis,
data was further captured in spreadsheet for better comparisons both within a site as well as
between different sites simultaneously. The results obtained after comparing it within a site and
across different sites were presented in form of power point presentation.
LIMITATIONS OF THE STUDY

Due to constraints of time & resources the present study is likely to suffer from certain
limitations some of these are mentioned below, so that study can be understood in a proper way:
From my part

1. Shortage of time available for the survey


2. The study was conducted only in LUDHIANA, District Punjab i.e. only one Plant has been
covered therefore results evolving out may not as be true at Inter-national level.
3. The use of all the accounting techniques is not possible.
4. Study depends on the availability and reliability of secondary data.

ANALYSIS

&
INTERPRETATION

RATIO ANALYSIS

CURRENT RATIO:
Current Assets
Current Liabilities

Particulars
Current Assets
Current

2012
3433.66
3301.63

Liabilities
CURRENT

2011
3076.95
3050.42

2010
2822.29
2970.84

2009
2604.70
2894.11

2008
2687.46
3089.03

1.01

0.95

0.90

0.87

1.04

RATIO

1.05
1
0.95
0.9

Series 3

0.85
0.8
0.75
2012

2011

2010

2009

2008

INTERPRETATION:
Current ratio is 0.87 in 2008, 0.90 in 2009, 0.95 in 2010, 1.01 in 2011 and 1.04 in 2012.
It is good and giving healthy signs.

QUICK RATIO ( ACID TEST OF RATIO):


Quick assets
_______________
Current liabilities
Particulars
Quick Assets
Current
Liabilities
QUICK RATIO

2012
5183.55
3301.63
1.57

2011
3782.52
3050.42

2010
4159.17
2970.84

2009
3820.22
2894.11

2008
3984.84
3089.03

1.24

1.40

1.32

1.29

1.6
1.4
1.2
1
0.8

Series 3

0.6
0.4
0.2
0
2012

2011

2010

2009

2008

INTERPRETATION:
Quick ratio is 1.29 in 2008, 1.32 in 2009 1.40 in 2010, 1.24 in 2011 and 1.57 in 2012. The
liquidity position of the company is better in comparisons with five years.

ABSOLUTE LIQUID RATIO (CASH RATIO):


Cash + Marketable Securities
_________________________
Current Liabilities
Particulars
Absolute Liquid
Assets
Current
Liabilities
ABSOLUTE

2012
132.06

2011
152.52

2010
118.83

2009
86.82

2008
92.64

3301.63

3050.42

2970.84

2894.11

3089.03

0.04

0.05

0.04

0.03

0.03

LIQUID
RATIO

0.05
0.05
0.04
0.04
0.03
0.03

Column2

0.02
0.02
0.01
0.01
0
2012

2011

2010

2009

2008

INTERPRETATION:
Super quick ratio is 2008 is 0.03,in 2009 is 0.03, in 2010 is 0.04 ,in 2011 is 0.05 ,in 2012 is 0.04
so it is good and maintained w.r.t to last five years.

CURRENT ASSETS TURNOVER RATIO:

Particulars
Cost of Good

2012
4697.17

2011
6982.95

2010
3455.14

2009
2969.36

2008
3950.57

Sold
Current Assets
TURNOVER

3433.66
1.36

3076.95
2.26

2822.29
1.22

2604.70
1.14

2687.46
1.47

RATIO

2.5

1.5
Column2
1

0.5

0
2012

2011

2010

2009

2008

INTERPRETATION:
Current asset turnover ratio is 1.36 in 2012, 2.26 in 2011, 1.22 in 2010, 1.14 in 2009.and 1.47 in
2008.

WORKING CAPITAL TURNOVER RATIO:


Particulars
Net Sale
Net
Working
Capital
WORKING
CAPITAL
TURNOVER
RATIO

2012
9253.93
132.03

2011
7987.41
26.53

2010
6289.35
-148.55

2009
5934.76
-71.82

2008
4591.03
-401.57

70.08

301.07

42.33

82.83

11.43

350
300
250
200
Series 3
150
100
50
0
2012

2011

2010

2009

2008

INTERPRETATION:
Working capital turnover ratio is less in 2012 in comparison to 2011 as it is 11.43 in 2008,82.83
in 2009, 42.33 in 2010,301.07 in 2011, 70.08 in 2012

INVENTORY TURNOVER RATIO:


Cost of Goods Sold
Average Inventory
Particulars
Cost of Good
Sold
Average
Inventory
INVENTORY
TURNOVER

2012
4697.17

2011
6982.95

2010
3455.14

1146.25

1094.03

1143.94

4.09

6.38

3.02

2009
2969.36
1027.46
2.89

2008
3950.57
1161.93
3.40

RATIO
7
6
5
4
Series 3
3
2
1
0
2012

2011

2010

2009

2008

INTERPRETATION:
By Comparing the stock turnover ratio of current year with the previous year, the management
can assess whether stock has been more efficiently used or not. Inventory turnover ratio is 4.09
in 2012, 6.38 in 2011, 3.02 in 2010, 2.89 in 2009, 3.40 in 2008.
DEBTORS TURNOVER RATIO:
Net Credit Sales
Average Accounts Receivable
Particulars
Net Credit Sales
Average Account
Receivable
DEBTOR
TURNOVER

2012
9253.93
2079.21

2011
7987.41
1776.33

2010
6289.35
1577.12

2009
5934.76
1617.10

2008
4591.03
1374.55

4.45

4.50

3.98

3.67

3.34

RATIO

4.5
4
3.5
3
2.5
Series 3

2
1.5
1
0.5
0
2012

2011

2010

2009

2008

INTERPRETATION:
Lower debtor turnover ratio indicate the inefficient credit sale policy of the management. It
means that credit sale have been made to customer who do not deserve much credit. Debtor
turnover ratio is 4.45 in 2012, 4.50 in 2011, 3.98 in 2010, 3.67 in 2009, 3.34 in 2008.
WORKING CAPITAL ANALYSIS
Particulars
(a) Current

2012
3433.66

2011
3076.95

2010
2822.29

2009
2604.70

2008
2687.46

Assets
(b) Current

3301.63

3050.42

2970.84

2894.11

3089.03

liabilities
Net WC (a-b)

132.03

26.53

-148.55

-71.82

-401.57

200
100
0
2012

2011

2010

2009

2008

-100
Series 3
-200
-300
-400
-500

INTERPRETATION:
In 2012, Working capital of the company is good as it has increased to the extent, It was 26.53
last year in comparison in 2012 it was in good state of 132.03 and following years in 2010 it was
-148.55,in 2009 it was -71.82, in 2008 it was -401.57.

NET PROFIT TURNOVER RATIO


NET PROFIT 100
NET SALES
Particulars

2012

2011

2010

2009

2008

Net Profit

455.12

212.96

124.45

109.8

74.35

Net Sale

9253.93

7987.41

6289.35

5934.76

4591.03

4.92

2.67

1.93

1.85

1.62

Net Profit
Turnover Ratio

5
4.5
4
3.5
3
2.5

Series 3

2
1.5
1
0.5
0
2012

2011

2010

2009

2008

INTERPRETATION:
Net Profit Ratio is 4.92 in 2012, 2.67 in 2011 and 1.93 in 2010, 1.85 in 2009,1.62 in 2008.
It is increasing in 2012 in comparison of 2011.

GROSS PROFIT TURNOVER RATIO


GROSS PROFIT 100
_________________
NET SALE
Particulars

2012

2011

2010

2009

2008

Gross Profit

2640.50

2277.74

1900.35

1866.48

1267.12

Net Sales

9253.93

7987.41

6289.35

5934.76

4591.03

28.53

27.89

30.21

31.45

27.6

Gross Profit
Turnover Ratio

Se
rie
2012 s
3

INTERPRETATION:

Gross Profit Ratio is 28.53 in 2012, 27.89 in 2011 and 30.21 in 2010,31.45 in 2009, 27.6 in 2008
It is Increasing in 2012 in comparison of 2011.

OPERATING CYCLE
There is a difference between current assets and fixed assets in terms of their liquidity. A firm
requires many years to recover the initial investment in fixed assets such as Plant & Machinery.
On the contrary, investment in current assets is turned over many times in a year.
Operating cycle is the time duration required to convert sales (after conversion of resources into
inventories and inventories into finished goods) into cash.
The operating cycle of a manufacturing Company involves three phases: 1.

Acquisition of resources such as raw material labor, power and fuel etc.

2.

Manufacture of the product which includes conversion of raw material into work-inprogress into finished goods.

3.

Sale of the product either for cash or on credit. Credit sales create book debts for
collection.
The length of the operating cycle of a manufacturing firm is the sum of:

Inventory conversion period (ICP) and

Book debts conversion period (BDCP).


The inventory conversion period is the total time needed for producing and selling the product. It
includes: -

1.

Raw material conversion period (RMCP)

2.

Work in progress conversion period (WIPCD)

3.

Finished goods conversion period.

The book debts conversion period is the time required collecting outstanding amount from
customer. The total of inventory conversion period and book debts conversion period is the
maximum time required to collect outstanding amount from customers and sometimes it referred
to as gross operating cycle. Generally, a firm acquires resources on credit and temporarily
postpones payment of certain expenses. The difference between operating cycle and payables
deferral period is net operating cycle. The length of
Operating cycle can be determined as: GOC =ICP+BDCP
NOC=ICP+BDCP-PDP
ICP=RMCP+WIPCP+FGCP
Where, GOC=Gross Operating Cycle; NOC=Net Operating Cycle;
ICP=Inventory Conversion Period; BDCP= Book Debts Conversion Period;
PDP= Payable Deferral Period; RMCP= Raw Material Conversion Period;
FGCP= Finished Good Conversion Period.
OPERATING CYCLE ANALYSIS
In order to understand the length of time taken to convert sales (after conversion of resources
into inventories and inventories into finished goods) into cash, operating cycle analysis has been
done. The operating cycle of a firm begins with the acquisition of raw material and ends with the
collection of receivables. There are four aspects of operating cycle, which involves commitment
of resources, a material stage, accounts finished stage and account payable stage. The operating
cycle is calculated as the sum of first three stages minus accounts payable stage.

FINDINGS
&
CONCLUSION

MAJOR FINDINGS
(1) Current ratio of 2012 is satisfactory as compared to 2011. It is 1.04 in 2012 and 1.01 in
2011.
(2) Liquidity position ratio is not satisfactory in 2012 as compared to 2011. It is 0.04 in 2010
and 0.04 in 2012.
(3) Gross profitability ratio is also satisfactory in 2012 as compared to 2011. It is 28.53 in
2012 and 27.89 in 2011.
(4) Net profit ratio is good in 2012 as compared to 2011. It is 4.92 in 2012 and 2.67 in 2011.
(5) Fixed assets turnover ratio is also good. It is 4.13 in 2011 and 5.06 in 2012.
(6) Working capital turnover ratio is not Satisfactory in 2012 as compare to 2011. It is 78.08
in 2012 and 301.07 in 2011.
(7) Debtor turnover ratio is satisfactory. It is 4.50 in 2011 and 4.45 in 2012.
(8) Creditor turnover ratio is also good. It is 5.61 in 2011 and 5.67 in 2012.
(9) Working Capital is more essential factors in ECFL.
Company is getting funds from SBI Bank only.

CONCLUSION

Working capital management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities and the interrelationship that exists between them. The
major current assets are cash, marketable securities, accounts receivable and inventory.
Current liabilities are those liabilities, which are intended, at their inception, to be paid in the
ordinary course of business, within a year, out of the current assets or earnings of the concern.
The basic current liabilities are accounts payable, bills payable, bank overdraft, and outstanding
expenses.
The goal of working capital management is to manage the firms current assets and liabilities in
such a way that a satisfactory level of working capital is maintained.
The majority of Indian companies maintain relatively lower cash/bank balances.
Marketable securities are yet to emerge as a popular means of cash management.
The excess cash is deployed to retire short-term debt/ in short-term bank deposits.
Though there is a notable decline over the years but yet inventory constitutes an important part of
total current assets.
Debtors/ receivables also constitute an important part of current assets. The collections are
required to be as quick as possible and thus corporate offer cash discounts for the purpose.
Accounts payables and short-term loan/ advances are major components of current liabilities.
The project Working Capital cardinally focuses on inventory and credit terms for the creditors
and debtors.

The approach followed in the project is to reduce the inventory so as to adhere to the standard
norms of the inventory holding thereby releasing the working capital out of it.
Secondly to revise the credit terms in such a way so as to make them uniform across all the sites.
Thus releasing the working capital at the sites where the credit terms were proposed to be
revised.

RECOMMENDATION

Recommendations
The result of the live project done at ECFL is presented in the form of following
recommendations:
Working capital can be improved by:

1. Reducing the inventory-holding period of items.

1.

Increasing the credit period of Creditors.

CREDIT
PERIOD

3. Decreasing the credit period of Debtors.

CREDIT
PERIOD
Pertaining to the above three major prerequisites of the project following key focus areas have
been suggested.
4. Eastman Cast & Forge Ltd is getting finance from SBI bank,
It should raise its sources of finance.

BIBLIOGRAPHY
BOOKS:1)

Goel, D.K., Management Accounting & Financial Management, Avichal Publishing


Company.

2)

Bhalla V.K., Working Capital Management, Anmol Publication Pvt. Ltd.,

MAGAZINE:1)

Business world

2)

Business time

NEWSPAPER:1)

Economic times.

SEARCH ENGINE:1)

www.Wikipedia.org

2)

www.Investopedia.com

3)

www.Planware.org

4)

www.Study finance.com

5)

www.Google.com