Chapter I

Study on Management of Working Capital in SUI GENERIS
INC.
CHAPTER- 1
Introduction
1.1.
1.2.
1.3.
1.4.
Problems.
Scope of the Study.
Objectives of the Study.
Limitations.
CHAPTER 1
INTRODUCTION
INSTITUTE OF COOPERATIVE MANAGEMENT, IMPHAL | BBA PROJECT WORK

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1.0.
INTRODUCTION
The project undertaken is on WORKING CAPITAL MANAGEMENT in SUI
GENERIS INC. It describes about how the company manages its working capital and the
various steps that are required in the management of working capital.
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability
to fund operations, reinvest and meet capital requirements and payments. Understanding a
company's cash flow health is essential to making investment decisions. A good way to
judge a company's cash flow prospects is to look at its Working Capital Management
(WCM).
Working capital refers to the cash a business requires for day-to-day operations or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items of working capital are levels
of inventory, accounts receivable, and accounts payable. Analysts look at these items for
signs of a company's efficiency and financial strength.
The working capital is an important yardstick to measure the companys operational and
financial efficiency. Any company should have a right amount of cash and lines of credit
for its business needs at all times.
This project describes how the management of working capital takes place at SUI
GENERIS INC.
1.1.
Problems
In the management of working capital, the firm is faced with two key problems:
1. First, given the level of sales and the relevant cost considerations, what are the
optimal amounts of cash, accounts receivable and inventories that a firm should
choose to maintain?
2. Second, given these optimal amounts, what is the most economical way to finance
these working capital investments? To produce the best possible results, firms should
keep no unproductive assets and should finance with the cheapest available sources
of funds. Why? In general, it is quite advantageous for the firm to invest in short
term assets and to finance short-term liabilities.
1.2.
Scope of the study

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This project is vital to me in a significant way. It does have some importance for the
company too. These are as follows
i. Through this project I would study the various methods of the working capital
management.
ii. The project will be a learning of planning and financing working capital.
iii. The project would also be an effective tool for credit policies of the companies.
iv. This will show different methods of holding inventory and dealing with cash and
receivables.
v. This will show the liquidity position of the company and also how do they
maintain a particular liquidity position.
1.3.
Objectives of the study

i. To understand the Size and Trends of Working Capital at SUI GENERIS
INC.
ii. To measure the financial soundness of the company by analyzing various
ratios.
iii. To study the practices of working capital and its controlling techniques.
iv. To suggest ways for better management and control of working capital at the
concern.
1.4.
Limitations
i. We cannot do comparisons with other companies unless and until we have the
data of other companies on the same subject.
ii. Due to shortage of time it is not possible to cover all the factors and details
regarding the subject of study.
CHAPTER 2

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Sui Generis An overview

1.1.
1.2.
1.3.
1.4.
1.5.
1.6.
1.7.
1.8.
1.9.
Companys Profile
The Company product
The Partners
Nature & Process
About CC Tea
Current Market Scenario
Market Potential
Scope of Growth & Expansion
Organizational Hierarchy Chart
CHAPTER 2
2.1.Companys profile
The Sui Generis Inc. bearing Regd. No. 27 of 2006-07 under the IP Act 1932 is
incorporated under the law of the state of Manipur. The firm is one of the pioneers in
starting a Green Industrial Revolution in the state where the main aim is to restore the
present economical condition which is prevailing in the state by utilizing the already
available resources and manufacture world class products. We aim for long term growth
not just for us, but for Manipur and the world. Besides this, the firm is creating avenues to
provide opportunity for the unemployed youths who are stranded and lost in the present

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economical war. As we are the manufacturing firm, we now have a product line called the
Sui Generis CC Tea, which is accepted widely in the market worldwide. The firm is
approaching in producing new product as we are coming up with more ventures in
different arena. The firm has already promoted cymbopogon citratus plantation in various
areas of Manipur and encouraging results as motivated us for further expansion of the
plantation which can generate tremendous job opportunities among the rural masses. It
may lead to a revolutionary transformation of the current gloomy economic scenario with
an era of economic boom and prosperity for all sections of society. The firm is managed by
a team of professionals having sound grounds and is backed by a team of advisers
comprised of well experienced professionals in Legal, Financial and Technical fields. We
gladly serve you through our products and welcome new ideas, discussion and advice, as
well as helping hands.
2.2.
The company product
The Sui Generis Inc. is manufacturing, developing and delivering products that are
developed under strict Research & Development in collaboration with world class
laboratories viz. FICCI Research and Analysis Centre, New Delhi, NAFA Research
Institute, Pune, etc.
Our first product line, The Sui Generis CC Tea has three varieties i.e. CC Tea Granules, CC
Tea bags and CC Tea Mini Pack. This is a medicinal green tea which has changed the
drinking habits of the users considering the improvement in their health and now it has got
a huge demand in the market worldwide. Considering the demand we are more concerned
with the quality of the product and customers satisfaction. The firm is focussing to promote
more high quality product lines and introduce a service sector industry for the betterment
towards the society with the aim of giving employment to the stranded youths.
Our first product line, The Sui Generis CC Tea has three varieties i.e.
1. CC Tea Granules
3. CC Tea Bags

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2. CC Tea Mini pack.
2.3. The partners

Mr. Ragesh Keisham Managing Partner
Aged about 37 years, Ragesh Keisham is an executive MBA and is an experienced and
innovative professional with sophisticated sales, public relation and business
administration skills. He is a highly articulated, confident and persuasive team builder, able
to motivate and communicate to achieve exceptional business performance. He is
dependable and reliable in supporting and enabling team effort to produce genuine long
term sustainable development. He has over 5 years proven expertise in Cymbopogon
Citratus plantation and CC Tea/Oil processing. He has a background in a wide range of
organisations including plantation and business process control. He has been a business
advisor and consultant for an array of organisations both in and outside the state. He is the
Managing Partner of The Sui Generis Inc. guiding the Firm for growth and expansion.
Mr. Nongmaithem Chalamba- Partner
Aged about 31 years and status single, his main priority is to excel the firm to the
maximum level. Graduate in Political Science as well as Tourism Studies with a
management training. He is well studied with the promotion and development of a new

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business. A can-do attitude, entrepreneurial, good communication skills, influential quality,

good contact network, etc are his personality which proof positive.
Not satisfied working with some companies, he return back home in 2008 with an
experience of sales and marketing, and customer care handling. He believes in a change in
his own native land where people consider with no opportunity. In 2009, he found Ragesh
Keisham as an employer and a mentor. Thereafter, he took full advantage of the
opportunity and explores the project of Ragesh Keisham.
Mr. Thokchom Ranjan Singh
Mr. Thokchom Ranjan Singh aged about 29 is a science graduate and law graduate. He will
be part of the team working on the expansion of the companys network. He comes to Sui
Generis with an experience since the beginning of CC Tea. His wide experience in the
industry and understanding human resource helps the company in becoming a truly and
highly efficient service sector of the industry.
2.4.
Nature and process
The firm has promoted Cymbopogon Citratus plantation in 200 Hectares, and is in the
process of expanding another 300 Hectares in various areas of Manipur. Once the
plantation is accomplished, the first harvesting shall be done in the fourth month and
thereafter every 3 months for 5 to 10 years depending on the fertility of the soil. The
average yield of fresh Cymbopogon Citratus leafs per Hectare is 48,000 kilograms in three
times harvesting in a year. The fresh leafs are thus harvested and transported to the
industrial site for processing.
Production Process of CC Tea:
The fresh matured leaves shall be harvested from the farm and is carried to the factory.
Once the leaves reached the factory, the healthy leaves shall be separated by the female
workers and cleaned using our three stage cleaning process.

Then the cleaned leaves are stacked properly into racks to seep down the water and also
to take out the preliminary moisture under diffused sunlight sheds.

Then the leaves are sent to the indirect air ventilating dryer for proper drying.
Once the leaves are dried accordingly, it is sent to the cutting department to cut the dried
leaves for packing granules and grinded for packing tea bags.

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Then the cut and grinded leaves are sent to the packing department for packing 200
grams of granules and 100 tea bags for one packet respectively.
The packet products are now ready for market.
Sales and marketing of our product is managed and done by various marketing agencies
namely:i. Marketing 360 degree
ii. Marketing 24x7
iii.
Spencers retail
iv. Online sale
v. Finalizing deal with IBCC for European market
vi. Finalising deal with Phoenix Outreach for PAN India market
The current production of the unit is 30,000 packets of 200 grams and 10,000 packets of
Tea Bags per month utilising some part of plantation areas. The production is targeting to
scale up to 8 times the current production of 200 grams Granules and 16 times the current
production of Tea Bags where by generating 5000 direct and indirect employment with the
expansion of an additional 300 hectares of farm areas by next year.
2.5. About CC Tea

CC Tea as the name suggest, is manufactured from a unique grass called cymbopogon
citratus. This grass, which is called lemon grass, is one of the 55 species of lemon grass.
Among all other lemon grass species, cymbopogon citratus has got the optimum medicinal
value. So, we at the Sui Generis Inc. strongly believe that it would be unwise to term
cymbopogon citratus under it common name because of its stand out properties from the
rest of lemon grass species.
Sui Generis CC Tea has a very distinct yet appeasing lemony taste. Drinking CC Tea is a
good to get the soothing benefits of this herb on a regular basis. CC Tea helps many in
relieving from their health ailments.
Helps relieve constipation.

Helps with poor digestion, stomach aches, gas, bowel spasms and diarrhoea.
A mild sedative and can calm nerves.
Helps in keeping the eyes and skin healthy and reduce hair-fall.
Helps relieve menstruation problems and nausea.
Promotes perspiration and lower fever or cool the body in high temperatures.
Helps to get rid of toxins and excess fats in the body.
Helps improve liver function and lower uric acid level.
Helps lower high blood pressure and cholesterol levels.
An ancient remedy for curing chest congestion, colds and coughs.

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These benefits are not only backed by multiple researches from some world class
laboratories and other independent laboratories but by the testimonies of our thousands of
loyal drinkers. It is those encouraging feedbacks from our loyal drinkers which is the
driving force for us to expand the horizon. So, the credit goes to our ever increasing and
ecstatic loyal drinkers.
Even though CC Tea does not contain Camellia Sinensis in its processing, it is still
categorised under the green tea segment because of its refreshing colour the tantalising
aroma and the sublime taste. Besides having all the health benefits present in other green
teas, CC Tea has marked a difference with its users by helping them bulldozing the bad and
addictive caffeine habit.
Manipur as we experience, is famous for all the wrong reasons. The outside world has a
mix impression towards Manipur because of the things we had portrayed in the past. But
with the Sui Generis CC Tea bags we would want to tell a different story to the whole
world. The very unique thing about our tea bag is its 100 tea bags in a packet with 100
different tags. Every pouch has a picture something unique to Manipur and every dip will
tell a story about Manipur. Small it maybe, but every dip will tell a beautiful story about
Manipur.
This is our way of showing respect to our motherland and a humble gift for Manipur to the
whole world.
2.6. Current Market Scenario

CC Tea is now accepted in the market not only in Manipur and other metropolitan cities of
India but also in the European Union, America, UAE and some Southeast Asian countries.
The taste of CC Tea has been described as fine and delicious. Started with only 200
products per month, the monthly production of CC Tea has now reached the humble
30,000 granules and 10,000 tea bags in average by leaps and bounds. CC Tea is a market
driven product where the ever increasing demand has forced and motivated us to go for the
kill. Until now the loud voice of demand never loses its inertia. Instead it just speeds up in
such a way that it can only be seen but hard to catch. But the undying of the spirit of the
Sui Generis inc. is trying to catch up the ever increasing demand by following a major
expansion plan.
The best part about CC Tea is the increasing numbers of our loyal users simultaneously
creating marketing instinct in their minds. We could now see a rapid increase in the

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marketing proposal that have tested and used CC Tea on regular basis. Going by the
present trend, the demand of CC Tea is expected to rise by 4 lakh packets of tea bags per
month by the end of 2015.
2.7. Market potential

Once a cup of white or black tea was enough to drown the nations sorrows, but a new
research by global Industry Analysts Inc. reports a gradual decline of this conventional bru
and a steep increase in other alternative varieties. Between 2009-2012 fruit and herbal tea
marks and increase by 10% while specialty tea and decaffeinated tea grew by 8% and 16%
respectively. But it is a green flavoured tea which is the real star performer of the home tea
sector as the sale grew a sensational 83%. China is the largest producer of green tea World
Wide and is also the leading exporter of green tea while Morocco is the leading importer.
India also is showing a notable increase in the green tea market but Europe represents the
fastest growing market for green tea, propelled by growing preference towards natural
ingredients, increased media attention and rising health consciousness. Today, as many as
12% of Europeans drink green tea. Coming to the Indian context, green tea accounts for
about 5% of the total tea market in India, and its growing at 50% annually. The green tea
market in India is presently valued at INR 500 crores and the segment is expected to grow
4 times over the next few years, say trade analysts.
According to the new report by Global Industry Analysts Inc., the global market for green
tea will exceed 1.2 million tons by 2015, which is valued at INR 84,000 crores. Growing
health consciousness, coupled with increasing incidence of obesity, is some of the factors
driving green tea market.
We at the Sui Generis Inc. believes the CC Tea will definitely be major player in the green
tea segment because of its sublime green colour, the appeasing lemon aroma, the proven
health benefits and its taste which has been described by the users as fine and delicious.
Taking full opportunity of this present trend, the Sui Generis Inc. shall definitely mark a
dent in the global green tea market. Small it maybe but the Sui Generis Inc. will never the
less create a dent of 1% of the green tea market in the next 5 years. This would mean
annual revenue of INR 840 crores 1600 hectares of plantation on unused land. And last but
the least employment for a whopping 21000 people.
2.8. Scope of growth and development
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Seeing the present market and demand for CC Tea, the scope of expansion in this industry
can never be undermined. A plantation of 1600 hectares would mean an annual revenue of
INR 840 crores and 21000 employments, but this is only 1% of the existing green tea
market.
When Pt. Jawaharlal Nehru came to Manipur and after exploring the place, he named
Manipur as the Jewel of India. Also there is an old adage in Manipuri that Manipur is a
bird which lays a golden egg. These sentences never had any meaning and sense to us
until lately we realized its real worth. It is the very fertile land of Manipur which can grow
almost everything in it and the product produced from it will be sold which will give us the
golden egg. So, what we are doing is just following the footsteps of our forefather and we
can say that we can never prove them wrong. It will be very unwise on our part if we dont
exploit this opportunity now because it is always better to make hay while the sun shines.
The existing area under cultivation of different crops in Manipur is 2,85,000 hectares as
against the available potential area of 3,25,500 hectares of good fertile land. This means we
have got around 40,500 hectares of very good fertile land for cultivation of Cymbopogon
Citratus. And above this, there are more than four lakh unemployed youths in the live
register of the Employment Exchange and more than 2.5 lakhs are educated youths who
are matriculates and above. There is therefore, adequate manpower for absorption in our
venture.
After the tea processing, the wasted leaves shall be dried and put in a Briquetting Machine
to convert into briquettes. This briquette shall be burnt in gasifier for production of
electricity. This is a proven technology and this technology for production of electricity
from biomass is approved under the Clean Development Mechanism (CMD) project,
Ministry of Environment and Forest. This technology will be supplied by NSY Energy
Engg. & Consultancy Services (p) ltd., New Delhi, including the required machinery.
According to the information given to us by the company, 1.5kg of biomass is required for
the production of 1 KW of electricity and the cost of production of 1 KW without the cost
of biomass is Re.1.25/-. Eco Securities India, one of the largest dealers of Carbon credit
have given their words that their company shall handle our CDM project starting from the
approval, getting the certified Emission Reduction (CER) and the sale of Carbon Credits.
Carbon Credit units are currently trading at $ 15-20 per point. Even though this project
being a subsidiary project of the distillation plant, but it has got tremendous opportunity to
earn revenue and also develop clean energy. The sale of carbon points can well recover the
cost of production of the electricity and other relevant costs and thus, the electricity
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produced from the project is an extra bonus without any extra expenses. And the additional
electricity generated is not to be underestimated considering the shortage of power in the
states like Manipur. Thus, this project starting from the plantation will lead various other
projects which will generate lots of employment and tremendous revenue.
2.9.
Organisational hierarchy chart
Figure 1 Organisational hierarchy
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CHAPTER- 3
3.1. Literature Review
3.2. Research Methodology
3.2.1. Sources of Data
3.2.2. Data Collection Method
3.2.3. Data Processing and Analysis
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CHAPTER 3
LITERATURE REVIEW AND RESEARCH
METHODOLOGY
3.1. Literature review
Many researchers have studied working capital from different views and in different
environments. The following ones were very interesting and useful for our research:
Pass and Pike (1984) studied that over the past 40 years major theoretical developments
have occurred in the areas of longer-term investments and financial decision making. Many
of these new concepts and the related techniques are now being employed successfully in
industrial practice. By contrast, far less attention has paid to the areas of short term finance,
in particular that of working capital management. Such neglect might be acceptable where
working capital considerations are of relatively little importance to the firm, but effective
working capital management has a crucial role to play in enhancing the profitability and
growth of the firm. Indeed, experience shows that inadequate planning and control of
working capital is one of the more common causes of business failure.
Herzfeld (1990) studied that Cash is kingso say the money managers who share the
responsibility of running this countrys businesses. And with banks demanding more from
their prospective borrowers, greater emphasis has been placed on those accountable for so
called working capital management. Working capital management refers to the
management of current or short-term assets and short-term liabilities. In essence, the
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purpose of that function is to make certain that the company has enough assets to operate
its business. Here are things you should know about working capital management.
Garcia and Martinez (1996) collected a panel of 8,872 small to medium-sized enterprises
(SMEs) from Spain covering the period 1996-2002. They tested the effects of working
capital management on SME profitability using the panel data methodology. The results,
which are robust to the presence of endogenety, demonstrated that managers could create
value by reducing their inventories and the number of days for which their accounts are
outstanding. Moreover, shortening the cash conversion cycle also improves the firms
profitability.
Maynard (1996), argued that attempts to improve working capital by delaying payment to
creditors is counter-productive to individuals and to the economy as a whole. Claims that
altering debtor and creditor levels for individual tiers within a value system will rarely
produce any net benefit. Proposes that stock reduction generates system-wide financial
improvements and other important benefits. Urges those organisations seeking
concentrated working capital reduction strategies to focus on stock management strategies
based on lean supply-chain techniques
Smith and Begemann (1997 emphasized that those who promoted working capital theory
shared that profitability and liquidity comprised the salient goals of working capital
management. The problem under investigation was to establish whether the more recently
developed alternative working capital concepts showed improved association with return
on investment to that of traditional working capital ratios or not. Results indicated that
there were no significant differences amongst the years with respect to the independent
variables. The statistical test results showed that a traditional working capital leverage
ratio, current liabilities divided by funds flow, displayed the greatest associations with
return on investment. Well known liquidity concepts such as the current and quick ratios
registered insignificant associations whilst only one of the newer working capital concepts,
the comprehensive liquidity index, indicated significant associations with return on
investment.
Shin and Soenen (1998), highlighted that efficient Working Capital Management (WCM)
was very important for creating value for the shareholders. The way working capital was
managed had a significant impact on both profitability and liquidity. The relationship
between the length of Net Trading Cycle, corporate profitability and risk adjusted stock
return was examined using correlation and regression analysis, by industry and capital
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intensity. They found a strong negative relationship between lengths of the firms net
trading Cycle and its profitability. In addition, shorter net trade cycles were associated with
higher risk adjusted stock return.
Deloof (2003), discussed that most firms had a large amount of cash is invested in working
capital. Using correlation and regression tests he found a significant negative relationship
between gross operating income and the number of days accounts receivable, inventories
and accounts payable of Belgian firms. On basis of these results he suggested that
managers could create value for their shareholders by reducing the number of days
accounts receivable and inventories to a reasonable minimum. The negative relationship
between accounts payable and profitability is consistent with the view that less profitable
firms wait longer to pay their bill.
Ghosh and Maji (2003), in this paper made an attempt to examine the efficiency of
working capital management of the Indian cement companies during 1992 1993 to 2001
2002. For measuring the efficiency of working capital management, performance,
utilization, and overall efficiency indices were calculated instead of using some common
working capital management ratios. Setting industry norms as target-efficiency levels of
the individual firms, this paper also tested the speed of achieving that target level of
efficiency by an individual firm during the period of study. Findings of the study indicated
that the Indian Cement Industry as a whole did not perform remarkably well during this
period.
Eljelly (2004) elucidated that efficient liquidity management involves planning and
controlling current assets and current liabilities in such a manner that eliminates the risk of
inability to meet due short-term obligations and avoids excessive investment in these
assets. The study found that the cash conversion cycle was of more importance as a
measure of liquidity than the current ratio that affects profitability. The results were stable
and had important implications for liquidity management in various Saudi companies.
First, it was clear that there was a negative relationship between profitability and liquidity
indicators such as current ratio and cash gap in the Saudi sample examined. Second, the
study also revealed that there was great variation among industries with respect to the
significant measure of liquidity.
Lazaridis and tryfonidis (2004), conducted a cross sectional study by using a sample of
131 firms listed on the Athens Stock Exchange for the period of 2001-2004 and found
statistically significant relationship between profitability, measured through gross
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operating profit, and the cash conversion cycle and its components (accounts receivables,
accounts payables, and inventory). Based on the results analysis of annual data by using
correlation and regression tests, they suggest that managers can create profits for their
companies by correctly handling the cash conversion cycle and by keeping each
component of the conversion cycle 9accounts receivables, accounts payables, and
inventory) at an optimal level.
Raheman and Nasr (2004), studied the effect of different variables of working capital
management including average collection period, inventory turnover in days, average
payment period, cash conversion cycle, and current ratio on the net operating profitability
of Pakistani firms. They selected a sample of 94 Pakistani firms listed on Karachi Stock
Exchange for a period of six years from 1999-2004 and found a strong negative
relationship between variables of working capital management and profitability of the firm.
They found that as the cash conversion cycle increases, it leads to decreasing profitability
of the firm and managers can create positive value for the shareholders by reducing the
cash conversion cycle to a possible minimum level.
Krueger (2005), studied distinct levels of WCM measures for different industries, which
tend to be stable over time. Many factors help to explain this discovery. The improving
economy during the period of the study may have resulted in improved turnover in some
industries, while slowing turnover may have been a signal of troubles ahead. Our results
should be interpreted cautiously. Our study takes places over short time frame during a
generally improving market. In addition, the survey suffers from survivorship bias only
the top firms within each industry are ranked each year and the composition of those firms
within the industry can be changed annually.
Gass (2006), studied Cash is the lifeblood of business is and often repeated maxim
amongst financial managers. Working capital management refers to the management of
current or short-term assets and short-term liabilities. Components of short-term assets
include inventories, loans and advances, debtors, investments and cash and bank balances.
Short-term liabilities include creditors, trade advances, borrowings and provisions. The
major emphasis is however, on short-term assets, since short-term liabilities arise in the
context of short-term assets. It is important that companies minimize risk by prudent
working capital management.
McClure (2007), Working Capital Works describes that cash is the lifeline of a
company. If this lifeline deteriorates, so does the companys ability to fund operations,
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reinvest and meet capital requirements and payments. Understanding a companys cash
flow health is essential to make investment decisions. A good way to judge a companys
cash flow prospects is to look at its Working Capital Management (WCM). Cash is king,
especially at the time when fund raising is harder than ever. Letting it slip away is an
oversight that investors should not forgive. Analyzing a companys working capital can
provide excellent insight into how well a company handles its cash, and whether it is likely
to have any on fund growth and contribute to shareholder value.
Dubey (2008), studied the Working Capital in a firm generally arises out of four basic
factors like sales volume, technological changes, seasonal, cyclical changes and policies of
the firm. The strength of the firm is dependent on the working capital as discussed earlier
but this working capital is itself dependent on the level of sales volume of the firm. The
firm requires current assets to support and maintain operational or readily into cash say
within a year such as receivables, inventories and liquid cash. If the level of sales is stable
and towards growth the level of cash, receivables and stock will also be on the high.
All the above studies provide us a solid base and give us idea regarding Working Capital
Management and its components. They also give us the results and conclusions of those
researches already conducted on the same area for different countries and environment
from different aspects. On basis of these researches done in different countries, we have
developed our own methodology for research.
3.2. Research methodology

The previous chapter discussed the objectives of this study and in this chapter I will
discuss about the research methodology which is followed to carry out this project i.e.,
Data Collection, Data Analysis and Field Experience.
As in organizations like Sui Generis Inc, working capital constitute a major portion of its
resources, a thorough study of its working capital management has been done broadly
covering: Receivables Management, Cash Management, and Inventory Management.
The research involved a cross sectional study using both qualitative and quantitative
research centred on Working Capital Management practices. The techniques were designed
in a way that would best suit quick collection of relevant data. The data was systematically
collected and presented to give exploratory analysis to particular phenomena with
emphasis to cover the extent of the problem.
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3.2.1. Sources of Data

There were mainly two major sources of data namely;
Primary data which was got from selected respondent by use of self administered
questionnaires, interviews and observations.
Secondary data was the other source of data which was got from related literature like
accounting records of Sui Generis Inc., published text books and internet.
3.2.2. Data collection methods

Data was collected by the use of Questionnaires and annual financial statements of the
firm. This was the dominant primary data collection method in the study.
Here
comprehensive self-administered questionnaires were the main instrument in the study.

Both open and closed ended questionnaires were used to let the respondent give his
opinion about the research problem.
3.2.3. Data Processing and Analysis

Upon collecting data, several methods were used to process and analyze the data. All the
data collected was checked for results on completion of the procedure, the questionnaires
were handed over to the respondent. This was compiled, sorted, edited, classified and
coded, to improve on its accuracy and relevancy. It was tabulated to reveal the frequencies
and percentage scores of different study attributes. This was then analyzed by calculating
the financial ratios to reveal the financial performance of Sui Generis Inc.
The study is qualitative in nature and not much primary data is there. So no analytical tools
have been used in the preparation. The report has been prepared after doing a qualitative
analysis of the data collected. Some bar charts and graphs are used to make the data more
understandable to the reader.
3.2.4. Research Design
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CHAPTER- 4
4.1. Introduction to Working Capital Management
4.2. Meaning of Working Capital Management
4.3. Significance of Working Capital Management
4.4. Classification of Working Capital Management
4.5. Financing Current Assets
4.6. Factors Determining Working Capital Requirement
4.7. Working Capital Cycle
4.8. Inventory management
4.9. Cash Management
4.10. Receivables Management
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CHAPTER 4
WORKING CAPITAL MANAGEMENT
4.1. Introduction to Working Capital Management
Working Capital Management is a significant fact of financial management due to the fact
that it plays a pivotal role in keeping the wheels of a business enterprise running. Working
capital management is concerned with short term financial decisions that have been
relatively neglected in the literature of finance. The non-ideal production technology and
imperfect market and distribution systems are responsible for the generation of current
assets which block the funds of an enterprise. Working Capital is needed to release such
blockage of funds.
4.2. Meaning of Working Capital Management

The Working Capital Management precisely refers to management of current assets.
A firms working capital consists of its investment in current assets, which include shortterm assets such as:
Cash and bank balance,
Inventories,
Receivables (including debtors and bills),
Marketable securities.
Working capital is commonly defined as the difference between current assets and current
liabilities.
Working Capital = Current Assets-Current Liabilities
4.3. Significance of Working Capital Management

The Management of Working Capital is important for several reasons:
For one thing, the current assets of a typical manufacturing firm account for half of
its total assets. For a distribution company, they account for even more.
Working capital requires continuous day to day supervision. Working capital has
the effect on company's risk, return and share prices.

There is an inevitable relationship between sales growth and the level of current
assets. The target sales level can be achieved only if supported by adequate working
capital Inefficient working capital management may lead to insolvency of the firm
if it is not in a position to meet its liabilities and commitments.
4.4. Classification of Working Capital

Working capital can be classified as follows:
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INC.
On the basis of time

On the basis of concept
Types of
working
capital
On the
basis of
time
On the
basis of
concepts
Temporary
working
capital
Seasonal
working
capital
Special
working
capital
Permanent
working
capital
Regular
working
capital
Gross
working
capital
Net working
capital
Reserve
working
capital
Figure 2: Classification of Working Capital
There are two major concepts of Working Capital:
Gross Working Capital

Net Working Capital
Gross Working Capital:

It refers to firm's investment in current assets. Current assets are the assets, which can be
converted into cash with in a financial year. The gross working capital points to the need of
arranging funds to finance current assets.
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INC.
Thus, Gross Working Capital = Total Current Assets.

Net Working Capital:
It refers to the difference between Current Assets and Current Liabilities. Net working
capital can be positive or negative. A positive net working capital will arise when current
assets exceed current liabilities and vice-versa for negative Net Working Capital. Net
Working Capital is a qualitative concept. It indicates the liquidity position of the firm and
suggests the extent to which Working Capital needs may be financed by permanent sources
of funds. Net working capital also covers the question of judicious mix of long-term and
short-term funds for financing current assets.
Gross Working Capital or

current assets
Net Working=Capital
=
Less
Current Liabilities
Another important aspect of Working Capital Management is to analyze the total working
capital needs of the firm in order to find out the permanent and temporary working capital.
Working capital is required because of existence of operating cycle. The lengthier the
operating cycle, greater would be the need for working capital. The operating cycle is a
continuous process and therefore, the working capital is needed constantly and regularly.
However, the magnitude and quantum of working capital required will not be same all the
times, rather it will fluctuate. The need for current assets tends to shift over time. Some of
these changes reflect permanent changes in the firm as is the case when the inventory and
receivables increases as the firm grows and the sales become higher and higher. Other
changes are seasonal, as is the case with increased inventory required for a particular
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INC.
festival season. Still others are random reflecting the uncertainty associated with growth in
sales due to firm's specific or general economic factors.
The Working Capital on the basis of time can be bifurcated as:
Permanent Working Capital
Temporary Working Capital
Permanent Working Capital:
There is always a minimum level of working capital, which is continuously required by a
firm in order to maintain its activities. Every firm must have a minimum of cash, stock and
other current assets, this minimum level of current assets, which must be maintained by
any firm all the times, is known as permanent working capital for that firm. This amount of
working capital is constantly and regularly required in the same way as fixed assets are
required. So, it may also be called fixed working capital.
Temporary Working Capital:
Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable working capital. The position of the required working capital is
needed to meet fluctuations in demand consequent upon changes in production and sales as
a result of seasonal changes.
The permanent level is constant while the temporary working capital is fluctuating
increasing and decreasing in accordance with seasonal demands as shown in the figure. In
the case of an expanding firm, the permanent working capital line may not be horizontal.
This is because the demand for permanent current assets might be increasing (or
decreasing) to support a rising level of activity. In that case line would be rising.
4.5. Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to make
investment in current assets.
Long Term Financing:
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INC.
It includes ordinary share capital, preference share capital, debentures, long term
borrowings from financial institutions and reserves and surplus.
Short Term Financing:
It is for a period less than one year and includes working capital funds from banks, public
deposits, commercial paper etc.
Depending on the mix of short and long term financing, the company can follow any of
the following approaches.
Matching Approach
In this, the firm follows a financial plan, which matches the expected life of assets with the
expected life of source of funds raised to finance assets. When the firm follows this
approach, long term financing will be used to finance fixed assets and permanent current
assets and short term financing to finance temporary or variable current assets.
Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary current assets
with long term financing. In the periods when the firm has no need for temporary current
assets, the long-term funds can be invested in tradable securities to conserve liquidity. In
this the firm has less risk of facing the problem of shortage of funds.
Aggressive Approach
In this, the firm uses more short term financing than warranted by the matching plan.
Under an aggressive plan, the firm finances a part of its current assets with short term
financing.
4.6. Factors Determining Working Capital Requirement

There are many factors that determine working capital needs of an enterprise. Some of
these factors are explained below:
Nature or Character of Business.
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INC.
The working capital requirement of a firm is closely related to the nature of its business. A
service firm, like an electricity undertaking or a transport corporation, which has a short
operating cycle and which sells predominantly on cash basis, has a modest working capital
requirement. Oh the other hand, a manufacturing concern like a machine tools unit, which
has a long operating cycle and which sells largely on credit, has a very substantial working
capital requirement. Sui Generis Inc. is a manufacturing concern so this requires them to
keep a very sizeable amount in working capital.
Size of Business/Scale of Operations.
The working capital requirements of a concern are directly influenced by the size of its
business which may be measured in terms of scale of operations. Greater the size of a
business unit, generally larger will be the requirements of working capital. However, in
some cases even a smaller concern may need more working capital due to high overhead
charges, inefficient use of available resources and other economic disadvantages of small
size.
Rate of Growth of Business.
The rate of growth of sales indicates a need for increase in the working capital
requirements of the firm. The working requirements of a concern increase with the growth
and expansion of its business activities. Although, it is difficult to determine the
relationship between the growth in the volume of business and the growth in the working
capital of a business, yet it may be concluded that for the normal rate of expansion in the
volume of business, we may have retained profits to provide for more working capital but
in fast growing concerns, we shall require larger amount of working capital.
Price Level Changes.
Changes in the price level also affect the working capital requirements. It was the reduced
margins in the price of the raw materials that had prompted them to go for bulk purchases
thus making on additions to their net current assets. They might have gone for this largescale procurement for availing discounts and anticipating a rise in prices, which would
have meant that more funds are required to maintain the same current assets.
Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal variations.
The requirements of working capital, in such cases, depend upon the production policy.
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INC.
The production could be kept either steady by accumulating inventories during slack
periods with a view to meet high demand during the peak season. If the policy is to keep
production steady by accumulating inventories it will require higher working capital.
Working capital cycle
In a manufacturing concern, the working capital cycle starts with the purchase of raw
material and with the realisation of cash from the sale of finished products. This cycle
involves purchase of raw materials and stores, its conversion of finished stock into sales,
debtors and receivables and ultimately realisation of cash and this cycle continues again
from cash to purchase of raw material and so on.
4.7. Working Capital Cycle

The upper portion of the diagram below shows in a simplified form the chain of events in a
manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow. These tanks, which are concerned with day-to-day
activities, have funds constantly flowing into and out of them.
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INC.
CASH
DEBTORS/
BILLS
RECEIVABL
ES
RAW
MATERIAL
S
SALES
WORK IN
PROGRESS
FINISHED
GOODS
Figure 3 Working Capital Cycle
The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be carried out on the
stock, and it will become part of the firms work-in-progress.

Work will continue on the WIP until it eventually emerges as the finished product.
As production progresses, labour costs and overheads need have to be met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are increased.
They will eventually pay, so that cash will be injected into the firm.
Each of the areas- Stock (raw materials, WIP, and finished goods), trade debtors, cash
(positive or negative) and trade creditors can be viewed as tanks into and from which
funds flow.
Working capital is clearly not the only aspect of a business that affects the amount of cash.
The business will have to make payments to government for taxation.

Fixed assets will be purchased and sold.
Lessors of fixed assets will be paid their rent.
Shareholders (existing or new) may provide new funds in the form of cash
Some shares may be redeemed for cash
Dividends may be paid
Long-term loan creditors (existing or new) may provide loan finance, loans will need
to be repaid from time-to-time, and
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INC.
Interest obligations will have to be met by the business
Unlike, movements in the working capital items, most of these non-working capital cash
transactions are not every day events. Some of them are annual events (e.g. tax payments,
lease payments, dividends, interest and, possibly, fixed asset purchases and sales). Others
(e.g. new equity and loan finance and redemption of old equity and loan finance) would
typically be rarer events.
4.8. Inventory management

Inventories:-Inventories constitute the most important part of the current assets of large
majority of companies. On an average the inventories are approximately 60% of the
current assets in public limited companies in India. Because of the large size of inventories
maintained by the firms, a considerable amount of funds is committed to them. It is
therefore, imperative to manage the inventories efficiently and effectively in order to avoid
unnecessary investment.
Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale and
components make up of the product. The various forms of the inventories in the
manufacturing companies are:
Raw Material: It is the basic input that is converted into the finished product
through the manufacturing process. Raw materials are those units which have been
purchased and stored for future production.
Work-in-Progress: Inventories are semi-manufactured products. They represent
product that need more work they become finished products for sale.
Finished Goods: Inventories are those completely manufactured products which
are ready for sale. Stocks of raw materials and work-in- progress facilitate
production, while stock of finished goods is required for smooth marketing
operations. Thus, inventories serve as a link between the production and
consumption of goods.
Inventory Management Techniques
In managing inventories, the firms objective should be to be in consonance with the
shareholder wealth maximization principle. To achieve this, the firm should determine the
optimum level of inventory. Efficiently controlled inventories make the firm flexible.
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INC.
Inefficient inventory control results in unbalanced inventory and inflexibility-the firm may
sometimes run out of stock and sometimes pile up unnecessary stocks.
Economic Order Quantity (EOQ):
The major problem to be resolved is how much the inventory should be added when
inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it
has to purchase on replenishment. If the firm is planning a production run, the issue is how
much production to schedule. These problems are called order quantity problems, and the
task of the firm is to determine the optimum or economic lot size. Determine an optimum
level involves two types of costs: Ordering Costs: This term is used in case of raw material and includes all the cost
of acquiring raw material. They include the costs incurred in the following activities:
Requisition
Purchase Ordering
Transporting
Receiving
Inspecting
Storing
Ordering cost increase with the number of orders placed; thus the more frequently
inventory is acquired, the higher the firms ordering costs. On the other hand, if the firm
maintains large inventorys level, there will be few orders placed and ordering costs will be
relatively small. Thus, ordering costs decrease with the increasing size of inventory.
Carrying Costs: Costs are incurred for maintaining a given level of inventory are
called carrying costs. These include the following activities:
Warehousing Cost
Handling
Administrative cost
Insurance
Deterioration and obsolescence
Carrying costs are varying with inventory size. This behaviour is contrary to that of
ordering costs which decline with increase in inventory size. The economic size of
inventory would thus depend on trade-off between carrying costs and ordering cost.
ABC (Always Better Control) System
ABC system of inventory keeping is followed in the factories. Various items are
categorized into three different levels in the order of their importance. For e.g. items such
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INC.
as memory, high capacity processors and royalty are placed in the A category. Large
number of firms has to maintain several types of inventories. It is not desirable the same
degree of control all the items. The firm should pay maximum attention to those items
whose value is highest. The firm should therefore, classify inventories to identify which
items should receive the most effort in controlling. The firm should be selective in
approach to control investment in various types of inventories. This analytical approach is
called ABC Analysis. The high-value items are classified as A items and would be
under tightest control. C items represent relatively least value and would require simple
control. B items fall in between the two categories and require reasonable attention of
management.
4.9. Cash management

Cash Management means planning, organising, directing and controlling of cash. It
provides an answer to the following basic questions:
a. How much to maintain cash balance?
It means what should be level of cash in the organisation. How much to maintain cash
balance will depend upon the cash operating cycle. Larger the operating cycle, larger the
cash balance required.
b. How to finance deficit (i.e., excess of estimated cash outflows over
estimated cash inflows)?
c. How to invest surplus (i.e., excess of estimated cash inflows over estimated
cash outflows)?
The objective of cash management is to avoid the situation of excessive and inadequate
cash and to determine and maintain the optimum level of cash after achieving a trade off
between the profitability and liquidity so as to maximise the wealth of shareholders as a
whole.
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Sources of additional working capital include the following:
Existing cash reserves

Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans
If you have insufficient working capital and try to increase sales, you can easily overstretch the financial resources of the business. This is called overtrading.
Early warning signs include:
Pressure on existing cash
Exceptional cash generating activities e.g. offering high discounts for early cash
payment
Bank overdraft exceeds authorized limit.
Part-paying suppliers or other creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay wages, pending
receipt of a cheque).
4.10. Receivables management

Receivables management means planning, organising, directing and controlling of
Receivables. It provides an answer to the following basic question:
a. To whom credit should be allowed?
It involves an identification of customers, to whom the goods can be sold on credit after
carrying out credit analysis.
b. How much credit period should be allowed?
It involves the determination of Credit Period within which the customers are required to
pay.
c. How much amount of Credit should be allowed?
It involves the determination of amount up to which the credit can be granted to the
customers.
The objective of Receivable Management is to avoid the situation of excessive and
inadequate receivables and to determine and maintain optimum level of receivables.
Whenever the situation of excessive and inadequate receivables arises, prompt and timely
action should be taken by management to correct imbalance. Then the optimum level of
receivable will lie between the two danger points of excessive and inadequate receivables.
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Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know.... who owes them money.... how much is owed....
how long it owes, for what it is owed.
Late payments erode profits and can lead to bad debts.
Slow payment has a crippling effect on business; in particular on small businesses whom
can least afford it. If you don't manage debtors, they will begin to manage your business as
you will gradually lose control due to reduced cash flow and, of course, you could
experience an increased incidence of bad debt.
The following measures will help manage debtors:

i.
Have the right mental attitude to the control of credit and make sure that it gets the
ii.
iii.
priority it deserves.
Establish clear credit practices as a matter of company policy.
Make sure that these practices are clearly understood by staff, suppliers and
iv.
v.
customers.
Be professional when accepting new accounts, and especially larger ones.
Check out each customer thoroughly before you offer credit. Use credit agencies,
vi.
vii.
bank references, industry sources etc.

Establish credit limits for each customer and stick to them.
Continuously review these limits when you suspect tough times are coming or if
viii.
ix.
x.
xi.
xii.
operating in a volatile sector.

Keep very close to your larger customers.
Invoice promptly and clearly.
Consider charging penalties on overdue accounts.
Consider accepting credit /debit cards as a payment option.
Monitor your debtor balances and aging schedules, and don't let any debts get too
old.
Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention. Look for the warning signs of a future bad debt. For example:
i.
ii.
iii.
iv.
v.
Longer credit terms taken with approval, particularly for smaller orders.
Use of post-dated checks by debtors who normally settle within agreed terms.
Evidence of customers switching to additional suppliers for the same goods.
New customers who are reluctant to give credit references.
Receiving part payments from debtors.
Here are few ways in collecting money from debtors: -
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INC.
Develop appropriate procedures for handling late payments.

Track and pursue late payers
Get external help if you own efforts fail.
Dont feel guilty asking for money, its yours and you are entitled to it.
Make that call now. And keep asking until you get some satisfaction.
In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.

When asking for your money, be hard on the issue but soft on the person.
Dont give the debtor any excuses for not paying.
Make that your objective is to get the money, not to score points or get even.
4.11. Working Capital Analysis or Measuring the Working Capital

We have already studied in this chapter that working is the life blood and nerve centre of a
business. Just as circulation of blood is essential in the human body for maintaining life,
working capital is very essential to maintain the smooth running of a business. No business
can run successfully without an adequate amount of working capital. However, it must also
be noted that working capital is a means to run the business smoothly and profitably, and
not an end.
The analysis of working capital can be conducted through a number of devices, such as:
i.
ii.
iii.
Ratio Analysis
Funds Flow Analysis
Budgeting
Ratio Analysis: A ratio is a simple arithmetical expression of the relationship of one

number to another. The technique of ratio analysis can be employed for measuring short
term liquidity or working capital position of the firm. The ratio may be calculated for this
purpose:
a.
b.
c.
d.
e.
f.
Current ratio
Liquid ratio
Absolute liquid ratio or cash position ratio
Inventory turnover ratio
Receivables turnover ratio
Working capital turnover ratio
Funds Flow Analysis: Funds flow analysis is a technical device designated to study the
sources from which additional funds were derived and the use to which these sources were
put. It is an effective management tool to study changes in the financial position (working
capital) of a business enterprise between beginning and ending financial statements dates.
The funds flow analysis consists of:
i.
ii.
Preparing schedule of changes in working capital

Statement of sources and application of funds.
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INC.
Working capital budget: working capital budget, as a part of total budgeting process of a
business, is prepared estimating future long term and short term working capital needs and
the sources to finance them. The objective of a working capital budget is to ensure
availability of funds as and when needed, and to ensure effective utilisation of these
resources.
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INC.
CHAPTER- 5
Working Capital Analysis and Data Interpretation
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
5.7.
Size and Trend in Net Working Capital

Liquidity Analysis
Efficiency of Working Capital
Inventory Management Analysis
Accounts Receivables Analysis
Cash Management Analysis
Working Capital practises in Sui Generis Inc.
Chapter 5
Working Capital Analysis and Interpretation
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INC.
5.1.
Size and Trend in Net Working Capital
The working capital management precisely refers to management of current assets.

A firms working capital consists of its investment in current assets, which include shortterm assets such as:
Cash and bank balance,
Inventories,
Receivables (including debtors and bills),
Working capital is commonly expressed as the difference between current assets and
current liabilities.
Table 1:
Size and Trend of Net Working Capital in Sampled Company
Year
Current Assets
(CA)
Current
Liabilities (CL)
Gross Working
Capital(GWC)
Net Working
Capital (NWC)
2011-12
Rs.47,87,401.00
Rs.15,45,514.4
Rs.47,87,401.00
Rs.32,41,886.6
2012-13
Rs.26,26,636.6
Rs.2,10,000.00
Rs.26,26,636.6
Rs.24,16,636.6
2013-14
Rs.27,25,272.00
Rs.2,00,000.00
Rs.27,25,272.00
Rs.25,25,272.00
Sources: Computed from Annual Audited Financial Statement from 2011-12 to 2013-14.
Note: Net Working Capital (NWC) = CA CL.
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INC.
5000000
4500000
4000000
3500000
3000000
2011-12
2500000
2012-13
2000000
2013-14
1500000
1000000
500000
0
CA
CL
GWC
NWC
Figure 4: Working Capital Analysis
Interpretation
Current assets for Sui Generis for the year 2011-12 was Rs. 47,87,401.00 but it decreased
to Rs 26,26,636.6 in 2012-13 and slightly increases to Rs 27,25,272.00 in 2013-14. It
shows that the company has a fluctuating trend in the current assets during the period of
study.
Current liabilities for the year 2011-12 was Rs.15,45,514.4 and its decreases to
Rs.2,10,000.00 in 2012-13 and slightly decreases to Rs 2,00,000.00 in 2013-14. It is being
observed that similar trend in the current liabilities is also found in the company with the
current assets.
Gross working capital implies the current asset of the company. So the gross working
capital is the current assets of the company for the year 2011-12, 2012-13 and 2013-14.
Net working capital is the difference between current assets and current liabilities. So the
net working capital of Sui Generis for the year 2011-12 is Rs. 32,41,886.6 and it decreases
to Rs 24,16,636.6 in 2012-13 and the later year it increases to Rs.25,25,272.00. It is found
that the company shows a decreasing trend in net working capital during the period of
study.
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INC.
5.2.
Liquidity Analysis
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short term are met by realising amounts from current, floating or
circulating assets. The current assets should either be liquid or near liquidity. The
sufficiency and insufficiency of current assets should be assessed by comparing them with
short term liabilities.
To measure the liquidity of a firm, the following two ratios can be calculated:i.
ii.
Current ratio
Liquid ratio
Current ratio: Current ratio is calculated by dividing current assets by current liabilities:
Current Ratio=
Current Assets
Current Liabilities
Current assets include cash and those assets that can be converted into cash within a year,
such as marketable securities, debtors, inventories. All the obligations maturing within a
year are included in current liabilities.
Current liabilities include creditors, bills payable, accrued expenses, short term bank loan,
income tax liability and long-term debt maturing in the current year.
Significance
It indicates the availability of current assets in rupees for every one rupee of current
liability. A ratio of greater than one means that the firm has more current assets than
current claims against them. The conventional rule is to have a ratio of 1.33.
The current ratio represents the margin of safety for the creditors. The higher the
current ratio, the greater the margin of safety; the larger the amount of current assets
in relation to current liabilities, the more the firms ability to meet its current
obligations.
Liquid ratio: This ratio establishes the relationship between quick or liquid assets and
current liabilities. An asset is liquid if it can be converted into cash immediately without a
loss of value, e.g., Cash, Debtors, Bills Receivable and Marketable Securities. Inventories
are considered to be less liquid as it requires time for realizing into cash, their value also has
tendency to fluctuate.
Liquid ratio is expressed as:
Liquid Ratio=
Current AssetsInventory
Current Liabilities
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INC.
Significance
Generally a quick ratio of 1:1 is considered to represent a satisfactory current financial
condition. This test is more significant as compare to current ratio to fulfil the firms
obligations.
Table 2
Position of Liquid Ratio in Sui Generis Inc.
Year
2011-12
2012-13
2013-14
Current Assets
Current Liabilities
Current
Liquid Ratio
(Rs.)
47,87,401.00
26,26,636.6
27,25,272.00
(Rs.)
15,45,514.4
2,10,000.00
2,00,000.00
Ratio
3.1:1
12.5:1
13.6:1
1.88:1
3.1:1
1.5:1
14
12
10
2011-12
2012-13
2013-14
4
2
0
Current Ratio
Liquid Ratio
Figure 5: Current Ratio and Liquid Ratio
Interpretation
Current ratio shows the liquidity position of every business firms. The above table shows
that the sampled company has maintained the standard ratio of 2:1.
In the year 2011-12, it recorded 3.1:1 Current Ratio and in the subsequent years, it shows
an increasing trend in the current ratio. Hence the firm has maintained a satisfactory
current ratio as it shows an increasing trend of the current ratio during the period of the
study.
Liquid ratio indicates the ability of the firm to meet short term liquid liabilities in time. The
firm has maintained the satisfactory quick/liquid ratio by recording 1.88:1 in the year
2011-12 and in the later year of ratio 3.1:1 times. But in the year 2013-14 the firms liquid
ratio has decreased to 1.5:1 which shows a decreasing trend of the liquid ratio.
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INC.
5.3. Efficiency of Working Capital Management

Working capital of a concern is directly related to sales. The current assets like debtors,
bills receivables, cash, stock etc. change with the increase or decrease in sales. The
working capital is taken as:
Working Capital = Current Assets Current Liabilities
Net Working Capital is sometimes used as a measure of a firms liquidity.
Net WorkingCapital Ratio=
Net Working Capital

Current Assets
Net working capital measures the firms potential reservoir of funds.

Table 3
Efficiency of Working Capital Analysis
Year
GWC
NWC
NWCR
WCTR
2011-12
2012-13
2013-14
(Rs.)
47,87,401.00
26,26,636.6
27,25,272.00
(Rs.)
32,41,886.00
24,16,636.6
25,25,272.00
0.67:1
0.9:1
0.9:1
2.3:1
5.1:1
12.8:1
Notes:
Working Capital Turnover Ratio=
Net sales
working capital
5000000
4000000
3000000
GWC
2000000
NWC
1000000
0
2011-12
2012-13
2013-14
Figure 6: Gross and Net Working Capital of Sui Generis Inc.
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INC.
WCTR
14
12
10
8
6
4
2
0
2011-12
WCTR
2012-13
2013-14
Figure 7: Working Capital Turnover Ratio
NWCR
1
0.8
NWCR
0.6
0.4
0.2
0
2011-12
2012-13
2013-14
Figure 8: Net Working Capital Ratio
Analysis:
Working Capital turnover ratio indicates the velocity of the utilisation of net working
capital. This ratio indicates the number of times the working capital is turned over in the
course of a year. This ratio measures the efficiency with which the working capital is being
used by the firm. A higher ratio indicates efficient utilisation of working capital and a low
ratio indicates otherwise.
Interpretation:
As it is shown in the graph, the following observations can be made:
A company having a higher NWC ratio has a greater ability to meet its current obligations.
In the year 2011-12 where the ratio was 0.67, it has later settled at 0.9 which is slightly on
the higher side. As this ratio represents a firms potential reservoir of funds, it shows an
increasing trend. The firm has an efficient reservoir of funds.
43

INC.
It is being observed from the table that the company recorded 2.3:1 times of WCTR in
2011-12. It increases to 5.1 in 2012-13 and also considerably increases to 12.8:1 in 201314. It shows a continuous trend in WCTR. It indicates efficient Working Capital
Management for the company during the period of study.
5.4.
Inventory Management Analysis
Every firm has to maintain a certain level of inventory of finished goods so as to be able to
meet the requirements of the business. But the level of inventory should neither be too high
nor too low.
Inventory turnover is calculated by dividing the cost of goods sold by the average
inventory. This ratio indicates the efficiency of the firm in producing and selling its
product, by indicating the number of times the inventory has been converted into sales
during the period.
Average inventory= Inventory at the beginning of the year + End of the year
2
Inventory turnover ratio= Cost of goods sold
Average inventory
This ratio indicates the efficiency of the firm with which it manages and utilises its assets,
the speed with which the assets are converted into sales.
Table 4
Position of Inventory in Sui Generis Inc.
Year
2011-12
2012-13
2013-14
Inventory
Average
Cost of goods
(Rs.)
Inventory
Sold
18,78,000.00
19,76,000.00
24,25,000.00
(Rs.)
11,55,050.00
19,27,000.00
22,00,500.00
(Rs.)
83,74,500.00
81,92,200.00
1,02,94,639.00
ITR
7.2:1
4.2:1
4.6:1
Sources: Computed from Annual Audited Financial Statement from 2011-12 to

Note: Cost of Goods Sold=Sales Gross Profit
44
2013-14.

INC.
12000000
10000000
8000000
6000000
4000000
2011-12
2000000
2012-13
2013-14
Figure 9: Inventory Analysis
ITR
8
6
ITR
4
2
0
2011-12
2012-13
2013-14
Figure 10: Inventory Turnover Ratio
Interpretation:
It is found that the company shows a declining trend in the ITR during the period of study.
It recorded ITR of 7.2:1 times in 2011-12 but it suddenly decreased to 4.2:1 and 4.6:1 in
2012-13 and 2013-14 respectively. Thus, it can be concluded that the company needs to
manage Inventory by using different technique of controlling inventory.
45

INC.
5.5. Accounts Receivables Management

A Firm sells goods for cash and credit. Credit is used as a marketing tool by a no. of
companies. When the firm extends credits to its customers, accounts receivables are
created. Receivables are convertible into cash over a short period of time, therefore
included in the current assets.
Since the information about opening and closing balances of receivables and credit sales
are not provided in the given Financial Statement, the receivables turnover ratio are
calculated by dividing the total sales by the balance of receivables given.
Receivables ratio can be computed as:Receivables ratio=
Total Sales
Receivables
Note: The analysis cannot be done with the available data. It is also found that the
company did not sell their goods in credit during this particular year. There is no credit sale
in the year 2011-13 and 2013-14
5.6.
Cash Analysis
Cash is one of the current assets of a business. It is needed at all times to keep the business
going. A business concern should always keep sufficient cash for meeting its obligations.
Cash ratio shows the relationship between absolute liquid or super quick current assets and
liabilities.
Table 5
Position of Cash in Sui Generis Inc
Year
Cash (in hand + bank)
Cash to sales ratio
Cash to W.C Ratio
2011-12
2012-13
2013-14
(Rs.)
20,19,301.00
6,50,636.6
2,97,113.62
18.3
0.49
0.84
42.2
24.8
11
Note:
Cash Sales Ratio=
Cash
100
sales
46

INC.
Cash Working Capital=
Cash
100
Sales
Cash to W.C
50
40
cash to W.C
30
20
10
0
2011-12
2012-13
2013-14
Figure 11: Cash to Working Capital Ratio
25
20
15
10
cash to sales ratio
5
0
2011-12
2012-13
2013-14
Figure 12: Cash to Sales Ratio
Interpretation
Cash to Sales Ratio: It is being observed from the above table and graph that cash to sales
ratio of Sui Generis Inc was 18.3:1 in 2011-12. It shows higher cash to sales ratio but in
2012-13 and 2013-14, it decreased to 0.49 and 0.84 respectively. The sudden fall in the
ratio was due to low cash balance. It indicates inefficient management of working capital.
Cash to Working Capital Ratio shows a declining trend during the period of study. It is
observed that the firm maintained 42% of Cash to working capital in the year 2011-12,
however in the later year it falls to 24.3% and then to 11% in 2012-13 and 2013-14
respectively.
47

INC.
5.7. Working capital management practices in Sui Generis Inc.

Working capital management
The overall management of the company is looked after by the Chairman and
working capital management is looked after by the Finance Manager of the
company.
The Working Capital of the concerned company is determined by making detailed

estimates of various components of working capital such as cash, marketable
securities, receivables, and inventory.
Sui Generis Inc controls the working capital by periodical report.
Reviewing of working capital is done at regular intervals, i.e., monthly.
Working capital is financed by ploughing back of profits.
In case its working capital is found to be inadequate, it is because of no/under

investment in marketable securities.
In case the working capital is found excessive, it is because of excess cash balance.
Inventory management
The company determines the minimum level of inventory on the basis of

consumption during the lead period plus safety margin.
The safety stock is maintained throughout the year.
They review the minimum and maximum level of inventory after every 6 months.
The company prepares inventory report on a monthly basis and also maintain the
optimum level of inventory.
The function of inventory control is performed by the production and planning

department.
Receivables Management
The Sui Generis Inc. prepares accounts receivables report monthly.
The average duration of credit allowed to the customers is 1 to 25 days and their
collection policy is strict.
48

INC.
If the company does not receive the amount on due time, they prefer to
compromise with the debtors.
Cash management
The reason for keeping cash in the enterprise is for meeting daily obligations.
The company determine the optimum level of cash balance by means of cash
budget.
Cash report is prepared daily.
The company managed to meet the requirement of cash when cash balance goes
below the minimum desirable level of cash by raising loans or deposits from
institutions or persons other than bank.
49

INC.
CHAPTER- 6
6.1. Findings of the project
6.2. Conclusion
6.3. Suggestion
50

INC.
Chapter 6
Findings of the Project
6.1.
Findings of the Working Capital Components

After doing the analysis, now in a stage to provide a clear picture of how well or worse the
company is managing the working capital and the financial soundness.
The following table provides us with information regarding the results in a tabulated
manner.
The results for the above analysis are highlighted below:
Current assets for Sui Generis show that the company has a fluctuating trend in the
current assets during the period of study since it has hugely decreased its current
assets in the year 2012-13 and 2013-14 as compared to current assets of the year
2011-12. This is due to decreased in the position of cash and no receivables in the
subsequent years.
Current liabilities of the concern has been observed that similar trend in the current
liabilities is also found in the company with the current assets. Current Liabilities
has decreased by Rs. 13,35,514.4 in 2012-13 as compared to 2011-12. This is
because the firm had paid out the partners share who has already retired in that
period of time.
It is found that the company shows a decreasing trend in net working capital during
2011-12 and 2012-13. However it has further increased slightly in the later year
2013-14.
The investment f inventory in Sui Generis Inc shows an increasing trend during the
period of study. It is found that the investment was Rs. 18,78,000.00 and 2011-12
and increased to Rs. 24,25,000.00 in 2013-14.
The position of cash in Sui Generis Inc. shows a declining trend during the period
of study. It is found that the cash in hand and at bank for the company was Rs.
51

INC.
20,19,301.00 in 2011-12. However, it has decreased to Rs. 2,95,181.6 in 2013-14

which shows a bad cash position of the firm.
It is being observed and found that the company had receivables only in the first
year of study. Its investment was Rs.8,90,100.00 but there was no receivables
during the next two years. Thus, the company restricted the credit sales and
investment.
6.2.
Findings of Working Capital Ratio
The sampled company has maintained the standard ratio of 2:1 by recording 3:1,
12.5 and 13.6 from the year 2012 to 2014 respectively. It shows an increasing trend
in the current ratio during the period of study.
The firm has maintained the satisfactory quick/liquid ratio by recording 1.88:1 in
the year 2011-12 and in the later year of ratio 3.1:1 times. But in the year 2013-14
the firms liquid ratio has decreased to 1.5:1 which shows a decreasing trend of the
liquid ratio.
In the year 2011-12 where the Net Working Capital Ratio was 0.67, it has later
settled at 0.9 which is slightly on the higher side. As this ratio represents a firms
potential reservoir of funds, it shows an increasing trend. The firm has an efficient
reservoir of funds.
There is an increasing trend in the Working Capital Turnover Ratio by recording 2.3
to 5.1 and later to 12.8 from the year 2011-12 to 2103-14 respectively. It shows a
continuous trend in WCTR. It indicates efficient Working Capital Management for
the company during the period of study.
The Inventory Turnover Ratio of the company shows a declining trend during the
period of study. It recorded ITR of 7.2:1 times in 2011-12 but it suddenly declared
to 4.2:1 and 4.6:1 in 2012-13 and 2013-14 respectively.
Cash to Sales ratio was declining suddenly to 0.49:1. It shows that the company
need to maintain adequate cash balance in hand and at the bank.
52

INC.
Cash to Working Capital ratio shows a declining trend during the period of study. It
shows that the company needs to improve cash position in order to operate the
business continuously.
6.3.
Conclusions
Management of working capital in Sui Generis Inc. is more significant since it is required
in the day to day administration of the business. Sui Generis Inc. under study has shown a
decreasing trend of current assets. They carry heavy stock of inventory and finished
products and hold a bad cash position which decreases the working of the firm. The firm
showed excess current assets over current liabilities and thus positive net working capital.
The working capital turnover analysis indicated strong performance in Sui Generis Inc. it
indicates better efficient management of working capital under study.
It also reveals the selling process is short and working capital turnover ratio tends to be
higher in the concerned company.
53

Chapter I

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Study on Management of Working Capital in SUI GENERIS

Study on Management of Working Capital in SUI GENERIS

Scope of the study

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Study on Management of Working Capital in SUI GENERIS

Objectives of the study

Study on Management of Working Capital in SUI GENERIS

Sui Generis An overview

Study on Management of Working Capital in SUI GENERIS

The company product

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Study on Management of Working Capital in SUI GENERIS

2. CC Tea Mini pack.

2.3. The partners

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business. A can-do attitude, entrepreneurial, good communication skills, influential quality,

Nature and process

workers and cleaned using our three stage cleaning process.

to take out the preliminary moisture under diffused sunlight sheds.

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Study on Management of Working Capital in SUI GENERIS

2.5. About CC Tea

Helps relieve constipation.

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Study on Management of Working Capital in SUI GENERIS

2.6. Current Market Scenario

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Study on Management of Working Capital in SUI GENERIS

2.7. Market potential

2.8. Scope of growth and development

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Study on Management of Working Capital in SUI GENERIS

Study on Management of Working Capital in SUI GENERIS

Organisational hierarchy chart

Figure 1 Organisational hierarchy

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Study on Management of Working Capital in SUI GENERIS

INSTITUTE OF COOPERATIVE MANAGEMENT, IMPHAL | BBA PROJECT WORK

Study on Management of Working Capital in SUI GENERIS

INSTITUTE OF COOPERATIVE MANAGEMENT, IMPHAL | BBA PROJECT WORK

Study on Management of Working Capital in SUI GENERIS

INSTITUTE OF COOPERATIVE MANAGEMENT, IMPHAL | BBA PROJECT WORK

Study on Management of Working Capital in SUI GENERIS

INSTITUTE OF COOPERATIVE MANAGEMENT, IMPHAL | BBA PROJECT WORK

Study on Management of Working Capital in SUI GENERIS

INSTITUTE OF COOPERATIVE MANAGEMENT, IMPHAL | BBA PROJECT WORK

Study on Management of Working Capital in SUI GENERIS

3.2. Research methodology

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Study on Management of Working Capital in SUI GENERIS

3.2.1. Sources of Data

3.2.2. Data collection methods

comprehensive self-administered questionnaires were the main instrument in the study.

3.2.3. Data Processing and Analysis

3.2.4. Research Design

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Study on Management of Working Capital in SUI GENERIS

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Study on Management of Working Capital in SUI GENERIS

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Study on Management of Working Capital in SUI GENERIS

4.2. Meaning of Working Capital Management

4.3. Significance of Working Capital Management