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A SUMMER TRAINING PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT AT ZILLIOUS PVT LTD

SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE AWARD OF


DEGREE OF MASTER IN BUSINESS ADMINISTRATION 2015-2017
UNDER THE GUIDANCE OF:
Ms. Neetu Chadha
Assistant Professor, DIAS
SUBMITTED BY:
Himanshu Sharma
Enrollment No. 04212303915
MBA, Semester 3rd
Batch 2015 - 2017

DELHI INSTITUTE OF ADVANCED STUDIES


(NAAC Accredited A Grade Institute)
Approved by AICTE and Affiliated to
Guru Gobind Singh Indraprastha University, Delhi

STUDENT DECLARATION

I do hereby declare that this the project report entitled A DEEP INSIGHT
INTO WORKING CAPITAL MANAGEMENT for partial fulfillment of the
requirements for the award of the degree of MASTER IN BUSINESSS
ADMINISTRATION is a record of original work done by me under the
supervision and guidance of Prof. NEETU CHADHA, Delhi Institute Of
Advanced Studies .This project work is my own and has neither been submitted
nor published elsewhere.

Date:
HIMANSHU SHARMA
Enroll No. 04212303915

ACKNOWLEDGEMENT

A work is never a work without the assistance of NEETU CHADHA. I owe a sense of
gratitude and helpfulness of those of my Teachers, Mentor , company who had been so easy
to let me understand what I needed from time to time for completion of this exclusive
project.I am greatly indebted to my guides Prof. NEETU CHADHA ,faculty guide for
Finance (summer internship), DELHI INSTITUTE OF ADVANCED STUDIES & Mr.
HARSH AZAD , HEAD , Finance Department ,corporate office ,ZILLIOUS , DELHI for
their constant guidance ,advice and help which enabled me to finish this project report
properly in time .
I am also grateful to Prof. N.MALTI, PRINCIPAL and Mr. S N MAHESHWARI,
ACADEMIC ADVISOR, DELHI INSTITUTE OF ADVANCED STUDIES, for permitting
me to undertake this study. Last but not the least, I would like to forward my gratitude to my
friends & other faculty members who always endured me and stood with me and without
whom I could not have completed the project.

HIMANSHU SHARMA

TABLE OF CONTENTS

S. No.

Topic

Page No.

2.

Declaration

4.

Acknowledgement

5.

Abstract

6.

Chapter 1
1.1
1.2

7.

Industry Profile
Company Profile

3
6

Chapter 2. Introduction
2.1 About the topic

13

2.2 Objective

24

2.3 Research Methodology

24

2.4 Data Collection

25

2.5 Statistical techniques

26

8.

Chapter 3. Review of Literature

27

9.

Chapter 4. Analysis

30

4.1 Key findings

47

10.

Chapter 5. Conclusions and


Recommendations

49

11.

Chapter 6. Limitations of the study

53

12.

References

55

13.

Annexure

57

EXECUTIVE SUMMERY

To start any corporate house, We with all capability we need finance and the success of that
business entirely depends on the correct management of day-to-day financial instruments and
the management of this short-term capital or finance of the business is called Working
capital Management.
Working Capital is the currency used to pay for the day to day trading activities carried out by
the business - stationery needs, staff salaries and wages, rent, energy bills, payments for
supplies and so on.
The major objective of the study is to proper understanding the working capital of ZILLIOUS
& to suggest measures to overcome the shortfalls if any.
Funds needed for short term needs for the purpose like raw materials, payment of Salary and
other day to day expenses are known as working capital. Decisions relating to working
capital (Current assets-Current liabilities) and short term financing are known as working
capital management. It involves the relationship between a firms short-term assets and its
short term liabilities. By definition, working capital management entails short-term
definitions, generally relating to the next one year period.
The goal of working capital management is to ensure that the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
Working capital is primarily concerned with inventories management, Receivable
management, cash management & Payable management.

Chapter 1
COMPANY OVERVIEW

INTRODUCTION TO THE INDUSTRY

Indian Economy

In the beginning of the year 2008 the economy was on a higher growth path with the macroeconomic fundamentals inspiring confidence and a general optimism about the medium to
long term prospects of the economy. The economy was expected to slow down marginally
from the three years of 9% plus growth in real GDP reflecting a cyclical downturn in the
global economy and expectations were that the growth would be around 8.5%. High oil prices
and domestic inflation and worsening of international financial crisis which had surfaced in
2007 have been definite areas of concern. But the global situation deteriorated massively after
mid-September 2008 following collapse of series of investment banks in the US. This
resulted in choking of credit and global crash in stock markets. Crisis of this magnitude in
industrialized countries has impact around the world especially in the emerging market
countries like India. The Indian economy which started with a strong economic performance
lost the momentum once the ripple effects of the gloom in the global economy set in. Sensex
in January 2008 was all time high at 21206, came down to around 9000 towards the end. The
high cost of crude oil around US$ 150 per barrel in August, 2008 added to the countrys woes
in terms of higher import bill. Rupee weakened against dollar sliding down from Rs.39 in the
beginning of the year to Rs.48 towards the end.
According to the estimates released by Central Statistical Organization (CSO) the real GDP
growth was 7.6% in the second quarter of 2016-17 as compared to 7.9% of the corresponding
quarter of 20016-17, reflecting deceleration in growth of industry and services. The
agricultural production was below the estimate. Indias balance of payments position
witnessed widening of trade deficit. The crisis in global financial markets deepened since mid
September, 2015 exerting pressure on financial markets and crashing of equity markets
leading to wide spread volatility. The global turmoil in the financial markets spilled over the
emerging markets. This has finally affected the manufacturing sector. As a result, authorities
in several countries embarked upon an unprecedented way of policy initiatives to contain
systematic risk, arrest the plunge in asset prices and shore of the confidence in the
international banking system. This has brought about some level of stability. The Indian
Government has not lagged behind. It has been successful in bringing down inflation from

Upgrading infrastructure such as energy, roads, inflation management, promoting growth of


industrial sector, stability in financial market, containing deficit, both domestic and external,
promoting exports amidst global recession are the major challenges that are faced by Indian
economy.
The services sector is not only the dominant sector in Indias GDP, but has also attracted
significant foreign investment flows, contributed significantly to exports as well as provided
large-scale employment. Indias services sector covers a wide variety of activities such as
trade, hotel and restaurants, transport, storage and communication, financing, insurance, real
estate, business services, community, social and personal services, and services associated
with construction.

Market Size
The services sector is the key driver of Indias economic growth. The sector contributed
around 66.1 per cent of its Gross Value Added growth in 2015-16, thereby becoming an
important net foreign exchange earner and the most attractive sector for FDI (Foreign Direct
Investment) inflows.
According to a report by leading research firm Market Research Store, the Indian
telecommunication services market is expected to grow by 10.3 per cent year-on-year to
reach US$ 103.9 billion by 2020.
The Indian digital classifieds industry is expected to grow three-fold to reach US$ 1.2 billion
by 2020, driven by growth in horizontal classifieds like online services, real estate and
automobiles.#
Out of overall services sector, the sub-sector comprising financial services, real estate and
professional services contributed US$ 305.8 billion or 20.5 per cent to the GDP. The subsector of community, social and personal services contributed US$ 188.2 billion or 12.6 per
cent to the GDP.

Investments

The Indian services sector has attracted the highest amount of FDI equity inflows in the
period April 2000-March 2016, amounting to about US$ 50.79 billion which is about 17.6 per
cent of the total foreign inflows, according to the Department of Industrial Policy and
Promotion (DIPP).
Some of the developments and major investments by companies in the services sector in the
recent past are as follows:
Gadget wood, an on-demand repair services & refurbishment company, has raised US$ 6
million from private equity fund Carpediem Capital, which will be used for expanding its
presence to other geographies, starting with the metros and moving to set up a presence
across 10 cities by 2017, and broaden the scope of its repairs capabilities to include, laptops,
wearable tech and LEDTVs.
Online food ordering and delivery service firm Swiggy, owned by Bundl Technologies
Private Limited, has raised US$ 15 million in a fresh funding round led by Bessemer Venture
Partners along with existing investors SAIF Partners, Norwest Venture Partners, Accel
Partners, and Apoletto Asia.
Fact set, a US-based financial data and analytics firm, plans set up its largest global office at
Divyasree Orion Special Economic Zone (SEZ) in Gachibowli, Hyderabad.
LogixHealth Private Limited, a wholly-owned subsidiary of LogixHealthInc, USA, plans to
invest around US$ 15 million and hire 1,000 people for its upcoming facility in Coimbatore.
Meru Cab Company Pvt Ltd, the Mumbai-based radio cab service, has raised Rs 150 crore
(US$ 22.37 million) from Brand Capital, the investment arm of Bennett Coleman and Co,
which will be used to fund advertising and provide user incentives including discounts and
loyalty schemes.
SSG Capital Management Group, a Hong Kong based Private Equity (PE) investor, has
acquired a 40 per cent stake in the logistics company Future Supply Chain Solutions (FSC),
for Rs 580 crore (US$ 86.5 million) from existing shareholders including Future Retail (FRL)
and Fung Group, promoted by billionaire Victor Fung.
Vistra Group Ltd, a Hong Kong-based professional services provider, has acquired IL&FS
Trust Company Ltd, Indias largest independent corporate trust services provider, which will

enable Vistra to expand the platform to provide a broader suite of corporate and fiduciary
services and thereby gain a foothold in the Indian corporate services market.
Pink Blue Supply Solutions Pvt. Ltd, a clinical supplies provider, has raised Rs 1.5 crore
(US$ 0.22 million) in a seed round of funding from TermSheet.io, a transaction-focused
service provider for start-ups and investors, which will be used to ramp up technology,
improve customer experience and operational capabilities, put in place smart supply chain
management across hospitals and clinics, and hire larger teams.
IcertisInc, a contract management software maker for enterprises based out of Pune and
Mumbai in India, has raised US$ 15 million in series B round of funding from Ignition
Partners and Eight Roads Ventures, which will be used to invest in marketing and expand its
global operations.
OfBusiness, an online marketplace for business-to-business (B2B) commerce, has raised US$
5 million in series A funding round led by Matrix Partners India, which will be used to
expand the team and build a technology platform for small and medium enterprises (SMEs).
Credit Analysis and Research (CARE Ratings) has signed Memorandum of Understanding
(MoU) with Japan Credit Rating Agency, Ltd (JCR) to collaborate with each other as
strategic business partners.
Shuttle, an Indian bus aggregator platform headquartered in Gurgaon, has raised US$ 20
million in Series a funding from Light speed, Sequoia India and Times Internet Ltd.
Indian logistics platform Rovigo has raised US$ 30 million in debt and equity in Series B
financing round, led by SAIF Partners. The firm aims to use the raised funds to achieve its
target of scaling 10 times in the next 12 months.
Taxi service aggregator Ola plans to double operations to 200 cities in current fiscal year. The
company, which is looking at small towns for growth, also plans to invest in driver ecosystem, such as training centers and technology upgrade, besides adding 1,500 to 2,000
women drivers as part of its pink cab service by women for women.

ZILLIOUS SERVICES PVT LIMITED

Zillious is a technology solution provider & business process consulting firm for the travel
industry. We provide innovative technology products and services for travel suppliers, travel
agencies and tour operators.
At Zillious, we are always striving to achieve value for our customers. Our cost efficient
approach coupled with early adoption of leading edge yet effective technologies help us
deliver quick-to-market solutions that drive up the bottom-line of our customers. Our
collaborative style of working encourages active involvement of client at every stage of the
product life cycle through its inception, design and development to implementation.
Specialties
Indias leading Travel Technology solutions provider, Service 6 out of the top 10 Travel
Management Companies in the Country today, Young and energetic team, Direct Client
Interaction, Work on cutting-edge Technologies, Empowerment and Accountability
Zillious is Indias leading Travel Technology solution provider. Our innovative technology
products for Travel Management companies have enabled us to get many satisfied customers.
Our cost efficient approach & adoption of cutting edge technologies help us deliver quick-tomarket solutions that drive up the bottom-line of our customers.
Zillious Solutions Private Limited is a Private incorporated on 11 December 2008. It is
classified as Non-govt Company and is registered at Registrar of Companies, Delhi. Its
authorized share capital is Rs. 100,000 and its paid up capital is Rs. 100,000.It is inolved in
Software publishing, consultancy and supply [Software publishing includes production,
supply and documentation of ready-made (non-customized) software, operating systems
software, business & other applications software, computer games software for all platforms.
Consultancy includes providing the best solution in the form of custom software after
analyzing the users needs and problems. Custom software also includes made-to-order
software based on orders from specific users. Also, included are writing of software of any
kind following directives of the users; software maintenance, web-page design].
Zillious Solutions Private Limited's Annual General Meeting (AGM) was last held on 29
September 2015 and as per records from Ministry of Corporate Affairs (MCA), its balance
sheet was last filed on 31 March 2015.
Directors of Zillious Solutions Private Limited are Rohit Gaddi, Mohan Kumar, Ashok Azad
and Harsh Azad.
Zillious Solutions Private Limited's Corporate Identification Number is (CIN)
U72200DL2008PTC185688 and its registration number is 185688.Its Email address is
vjainca@rediffmail.com and its registered address is 35 Godavari Apartments Alaknanda
Delhi DL 110019 IN , - , .

MANAGEMENT OF SERVICES AT ZILIIOUS:

ZILLIOUS is a small scale service company involved in providing solutions for travel
arrangement... Booking interfaces for Back office Consultants, Implants, and Self Booking
Tool Clients & APIs. All these with unified client-wise policy and compliance configurations.

Powerful Reporting
Captures more than 100 unique & custom reporting parameters per transaction. Custom Dashboard,
Instant download & auto scheduled MIS Reports.

Billing & Settlement


Detailed commercial configuration with supplier & client reconciliation. Automated instant
invoicing and integration with accounting systems through live feeds.

Audit & Security


Fine grained User Roles & Privileges with detailed audit log. PCI DSS Level 1 certified
solution & infrastructure to protect sensitive data.

Multi Device
Responsive & modern website with customizable UI. Mobile Website & Mobile Applications
with push alerts, so that the users can transact anytime & anywhere.

Unified Trip & Expense


Create a single trip with multiple products from various suppliers. Unified approval & policy
enforcement. Integrated expense reports.

Multi Product & Vendor


Cross-sell & up sell across products like: air, rail, bus, hotel, sight-seeing, transfers, packages,
visa & other combinable services from multiple "plug & play" suppliers.

Multichannel
Booking interfaces for Back office Consultants, Implants, Self Booking Tool Clients & APIs.
All these with unified client-wise policy and compliance configurations.

Powerful Reporting
Captures more than 100 unique & custom reporting parameters per transaction.
Custom Dashboard, Instant download & auto scheduled MIS Reports.

Billing & Settlement


Detailed commercial configuration with supplier & client reconciliation. Automated instant
invoicing and integration with accounting systems through live feeds.

Revolution for B2B Consolidators


Audit & Security
Fine grained User Roles & Privileges with detailed audit log. Select PCI DSS Level 1
certified solution & infrastructure to protect sensitive data.

Multi Device
Responsive & modern website with customizable UI. Mobile Website & Mobile Applications
with push alerts, so that the users can transact anytime & anywhere.

Chapter 2
INTRODUCTION

Working Capital
Every business needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called Long term Funds or Fixed Capital.
Business also needs funds for short-term purposes to finance current operations. Investment
in short term assets like cash, inventories, debtors etc., is called Short-term Funds or
Working Capital. The Working Capital can be categorized, as funds needed for carrying
out day-to-day operations of the business smoothly. The management of the working capital
is equally important as the management of long-term financial investment.

Significance Of Working Capital Management

PAYMENT
TO
SUPPLIERS
EASY LOAN
FROM
BANKS

SIGNIFICAN
--CE OF
WORKING
CAPITAL

INCREASE
EFFECIENY
INCREASE
IN FIX
ASSETS

DIVIDEND
DISTRIBUTION

INCREASE
DEBT
CAPACITY

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.
Liquidity Vs Profitability: Risk - Return trade off
Another important aspect of a working capital policy is to maintain and provide sufficient
liquidity to the firm. Like the most corporate financial decisions, the decision on how much
working capital be maintained involves a trade off- having a large net working capital may
reduce the liquidity risk faced by a firm, but it can have a negative effect on the cash flows.
Therefore, the net effect on the value of the firm should be used to determine the optimal
amount of working capital.
Sound working capital involves two fundamental decisions for the firm. They are the
determination of:
The optimal level of investments in current assets.
The appropriate mix of short-term and long-term financing used to support this
investment in current assets, a firm should decide whether or not it should use
short-term financing. If short-term financing has to be used, the firm must
determine its portion in total financing. Short-term financing may be preferred over
long-term financing for two reasons:
The cost advantage
Flexibility

But short-term financing is more risky than long-term financing. Following table will
summarize our discussion of short-term versus long-term financing

Maintaining a policy of short term financing for short term or temporary assets needs (Box
1) and long- term financing for long term or permanent assets needs (Box 3) would
comprise a set of moderate risk profitability strategies

CLASSIFICATION OF WORKING CAPITAL


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

Types of Working Capital Needs


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 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 needs 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.

FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS

There are many factors that determine working capital needs of an enterprise. Some of these factors are
explained below:

Nature or Character of Business.


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. Company is a
manufacturing concern so this requires them to keep a very sizeable amount in
working capital.
Size of Business/Scale of Operations.
company has a good position in its segment and they are also spending their
operations in the domestic market as well as in foreign market. The scale of
operations and the size it holds in the market makes it a must for them to hold their
inventory and current asset at a huge level.
Rate of Growth of Business.
The rate of growth of sales indicates a need for increase in the working capital
requirements of the firm. As the firm is projected to increase their sales by 69% from
what it was in 2009, it is required to guard them against the increasing requirements of
the net current asset by way of efficient working capital management. The sales and
projected sales level determine the investment in inventories and receivables.
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 large-scale 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.

SOURCES OF WORKING CAPITAL

Zillious has the following banks available for the fulfillment of its working capital requirements in order
to carry on its operations smoothly:

Banks:
These include the following banks
o Indian Bank
o Syndicate Bank

NAME OF THE BANK

FUND BASED

NON-FUND BASED

HDFC BANK

300

250

ICICI BANK

200

100

TOTAL

500

350

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.

CASH

DEBTORS &
BILLS
RECEIVABLES

RAW
MATERIAL

OPERATING CYCLE
WORK IN
PROGRESS

SALES

FINISH
GOODS

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, labor 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
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.
Every running business needs working capital. Even a business which is fully equipped with all
types of fixed assets required is bound to collapse without
o adequate supply of raw materials for processing;

o cash to pay for wages, power and other costs;


o creating a stock of finished goods to feed the market demand regularly; and,
o The ability to grant credit to its customers.
All these require working capital. Working capital is thus like the lifeblood of a business. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital.
Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get
converted into work in process and then into finished goods. When sold on credit, the finished
goods assume the form of debtors who give the business cash on due date. Thus cash assumes
its original form again at the end of one such working capital cycle but in the course it passes
through various other forms of current assets too. This is how various components of current
assets keep on changing their forms due to value addition. As a result, they rotate and business
operations continue. Thus, the working capital cycle involves rotation of various constituents of
the working capital.
While managing the working capital, two characteristics of current assets should be kept in mind
viz. (i) short life span, and (ii) swift transformation into other form of current asset.
Each constituent of current asset has comparatively very short life span. Investment remains in a
particular form of current asset for a short period. The life span of current assets depends upon
the time required in the activities of procurement; production, sales and collection and degree of
synchronization among them. A very short life span of current assets results into swift
transformation into other form of current assets for a running business
WORKING CAPITAL represents the excess of CURRENT ASSETS over CURRENT
LIABILITIES
The same may be designated in the following equation:

WORKING CAPITAL= CURRENT ASSETS CURRENT LIABILITIES:

Funds thus invested in current assets keep revolving fast and are being constantly converted in to
cash and this cash flows out again in exchange for other current assets. Thus it is known as
revolving or circulating capital or short term capital.

These are two concepts of working capital


a.
b.

Gross Working Capital.


Net Working Capital.

Gross working capital is the total of all current assets. Net working capital is the difference
between current assets and current liabilities. Though the later concept of working capital is
commonly used it is an accounting concept with little sense to say that a firm manages its net
working capital. What a firm really does is to take decisions with respect to various current assets
and current liabilities. The constituents of current assets and current liabilities are shown in table
A.

Constituents of Current Assets and Current Liabilities


Current Assets

Inventories Raw materials and components, Work in progress, Finished goods, other.

Trade Debtors.

Loans and Advances.

Investments.

Cash and Bank balance.

Current Liabilities

Sundry Creditors.
Trade Advances.

Borrowings.

Provisions.

The working capital needs of a business are influenced by numerous factors. The important ones
are discussed in brief as given below:
Nature of Enterprise
The nature and the working capital requirements of an enterprise are interlinked. While a
manufacturing industry has a long cycle of operation of the working capital, the same would be
short in an enterprise involved in providing services. The amount required also varies as per the
nature; an enterprise involved in production would require more working capital than a service
sector enterprise.
Manufacturing/Production Policy
Each enterprise in the manufacturing sector has its own production policy, some follow the
policy of uniform production even if the demand varies from time to time, and others may follow
the principle of 'demand-based production' in which production is based on the demand during
that particular phase of time. Accordingly, the working capital requirements vary for both of
them.

Working Capital Cycle


In manufacturing concern, working capital cycle starts with the purchase of raw materials and
ends with realization of cash from the sale of finished goods. The cycle involves the purchase of
raw materials and ends with the realization of cash from the sale of finished products. The cycle
involves purchase of raw materials and stores, its conversion in to stock of finished goods
through work in progress with progressive increment of labor and service cost, conversion of
finished stick in to sales and receivables and ultimately realization of cash and this cycle
continuous again from cash to purchase of raw materials and so on.

Operations
The requirement of working capital fluctuates for seasonal business. The working capital needs
of such businesses may increase considerably during the busy season and decrease during the
slack season. Ice creams and cold drinks have a great demand during summers, while in winters
the sales are negligible.
Market Condition
If there is high competition in the chosen product category, then one shall need to offer sops like
credit, immediate delivery of goods etc. for which the working capital requirement will be high.
0Otherwise, if there is no competition or less competition in the market then the working capital
requirements will be low.
Credit Policy
The credit policy is concerned in its dealings with debtors and creditors influence considerably
the requirements of the working capital. A concern that purchases its requirements on credit and
sells its products/services on cash requires lesser amount of working capital. On the other hand a
concern buying its requirements for cash and allowing credit to its customers, shall need larger
amount of funds are bound to be tied up in debtors or bills receivables.
Business Cycle
Business Cycle refers to alternate expansion and contraction in general business activities. In a
period of born i.e. when the business is prosperous there is a need for larger amount of working
capital due to increase in sales, rise in prices, optimistic expansion of business etc. On the
country at he time of depression i.e. when there is a down swing of the cycle, business contracts,
sales decline, difficulties are faced in collections from debtors and firms may have a large
amount of working capital lying ideal
Availability of Raw Material

If raw material is readily available then one need not maintain a large stock of the same, thereby
reducing the working capital investment in raw material stock. On the other hand, if raw material
is not readily available then a large inventory/stock needs to be maintained, thereby calling for
substantial investment in the same.

Financing Working Capital


Now let us understand the means to finance the working capital. Working capital or current
assets are those assets, which unlike fixed assets change their forms rapidly. Due to this nature,
they need to be financed through short-term funds. Short-term funds are also called current
liabilities. The following are the major sources of raising short-term funds:

I. Suppliers Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material is paid
after some time, i.e. upon completion of the credit period. Thus, without having an outflow of
cash the business is in a position to use raw material and continue the activities. The credit given
by the suppliers of raw materials is for a short period and is considered current liabilities. These
funds should be used for creating current assets like stock of raw material, work in process,
finished goods, etc.

ii. Bank Loan for Working Capital


This is a major source for raising short-term funds. Banks extend loans to businesses to help
them create necessary current assets
The loans are available for creating the following current
Assets:

Stock of Raw Materials

Stock of Work in Process

Stock of Finished Goods

Debtors

Banks give -term loans against these assets, keeping some security margin.
The advances given by banks against current assets are short-term in nature and banks have the
right to ask for immediate repayment if they consider doing so. Thus bank loans for creation of
current assets are also current liabilities.

iii. Promoters Fund


It is advisable to finance a portion of current assets from the promoters funds. They are longterm funds and, therefore do not require immediate repayment.
These funds increase the liquidity of the business.

Management of Inventory
Inventories constitute the most significant part of current assets of a large majority of companies
in India. On an average, inventories are approximately 60 % of current assets in public limited
companies in India.
Because of the large size of inventories maintained by firms maintained by firms, a considerable
amount of funds is required to be committed to them. It is, therefore very necessary to manage
inventories efficiently and effectively in order to avoid unnecessary investments. A firm
neglecting a firm the management of inventories will be jeopardizing its long run profitability
and may fail ultimately.
The purpose of inventory management is to ensure availability of materials in sufficient quantity
as and when required and also to minimize investment in inventories at considerable degrees,
without any adverse effect on production and sales, by using simple inventory planning and
control techniques.

Needs to hold inventories:There are three general motives for holding inventories:

Transaction motive emphasizes the need to maintain inventories to facilitate smooth


production and sales operation.

Precautionary motive necessities holding of inventories to guard against the risk of


unpredictable changes in demand and supply forces and other factors.

Speculative motive influences the decision to increases or reduce inventory levels to take
advantage of price fluctuations and also for saving in re-ordering costs and quantity
discounts etc.

Objective of Inventory Management:The main objectives of inventory management are operational and financial. The operational
mean that means that the materials and spares should be available in sufficient quantity so that
work is not disrupted for want of inventory. The financial objective means that investments in
inventories should not remain ideal and minimum working capital should be locked in it.
The following are the objectives of inventory management:o To ensure continuous supply of materials, spares and finished goods.
o To avoid both over-stocking of inventory.
o To maintain investments in inventories at the optimum level as required by the
operational and sale activities.
o To keep material cost under control so that they contribute in reducing cost of production
and overall purchases.
o -To eliminate duplication in ordering or replenishing stocks. This is possible with the help
of centralizing purchases.
o To minimize losses through deterioration, pilferage, wastages and damages.
o To design proper organization for inventory control so that management. Clear cut
account ability should be fixed at various levels of the organization.
o To ensure perpetual inventory control so that materials shown in stock ledgers should be
actually lying in the stores.
o To ensure right quality of goods at reasonable prices.

o To facilitate furnishing of data for short-term and long term planning and control of
inventory

Management of cash
Cash is the important current asset for the operation of the business. Cash is the basic input
needed to keep the business running in the continuous basis, it is also the ultimate output
expected to be realized by selling or product manufactured by the firm.
The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firms
manufacturing operations while excessive cash will simply remain ideal without contributing
anything towards the firms profitability. Thus a major function of the financial manager is to
maintain a sound cash position.
Cash is the money, which a firm can disburse immediately without any restriction. The term cash
includes coins, currency and cheques held by the firm and balances in its bank account.
Sometimes near cash items such as marketing securities or bank term deposits are also included
in cash. Generally when a firm has excess cash, it invests it is marketable securities. This kind of
investment contributes some profit to the firm.

Components of working capital are calculated as follows:


1) Raw Materials Storage Period=Average stock of raw materials/Average cost of raw material
consumption per day.
2.) W-I-P Holding period=Average w-i-p in inventory/Average cost of production per day.

3.) Stores and spares conversion period= Average stock of Stores and spares/ Average
consumption per day.
4.) Finished goods conversion period= Average stock of finished goods/Average cost of goods
sold per day.
5.) Debtors collection period=Average book debts/Average credit sales per day.
6.) Credit period availed=Average trade creditors/Average credit purchase per
day.

Management of Receivables
A sound managerial control requires proper management of liquid assets and inventory. These
assets are a part of working capital of the business. An efficient use of financial resources is
necessary to avoid financial distress. Receivables result from credit sales.
A concern is required to allow credit sales in order to expand its sales volume. It is not always
possible to sell goods on cash basis only. Sometimes other concern in that line might have
established a practice of selling goods on credit basis. Under these circumstances, it is not
possible to avoid credit sales without adversely affecting sales.
The increase in sales is also essential to increases profitability. After a certain level of sales the
increase in sales will not proportionately increase production costs. The increase in sales will
bring in more profits. Thus, receivables constitute a significant portion of current assets of a firm.
But for investment in receivables, a firm has to insure certain costs. Further, there is a risk of bad
debts also. It is therefore, very necessary to have a proper control and management of
receivables.

Key Working Capital Ratios

The following, easily calculated, ratios are important measures of working capital utilization.

Ratio

Formulae

Result

Interpretation
On average, you turn over the value of your entire
stock every x days. You may need to break this

Stock
Turnover
(in days)

Average Stock *
365/
Cost of Goods

down into product groups for effective stock


= x days

Sold

management.
Obsolete stock, slow moving lines will extend
overall stock turnover days. Faster production,
fewer product lines, just in time ordering will
reduce average days.
It takes you on average x days to collect monies

Receivables
Ratio
(in days)

due to you. If youre official credit terms are 45


Debtors * 365/
Sales

= x days

day and it takes you 65 days... why?


One or more large or slow debts can drag out the
average days. Effective debtor management will
minimize the days.
On average, you pay your suppliers every x days.
If you negotiate better credit terms this will
increase. If you pay earlier, say, to get a discount

Payables

Creditors * 365/

Ratio

Cost of Sales (or = x days

(in days)

Purchases)

this will decline. If you simply defer paying your


suppliers (without agreement) this will also
increase - but your reputation, the quality of
service and any flexibility provided by your

Current Ratio

Total Current

=x

Assets/

times

suppliers may suffer.


Current Assets are assets that you can readily turn
in to cash or will do so within 12 months in the

Total Current

course of business. Current Liabilities are amount

Liabilities

you are due to pay within the coming 12 months.


For example, 1.5 times means that you should be
able to lay your hands on $1.50 for every $1.00
you owe. Less than 1 times e.g. 0.75 means that
you could have liquidity problems and be under
pressure to generate sufficient cash to meet

oncoming demands.
(Total Current
Assets Quick Ratio

Inventory)/
Total Current

=x
times

Similar to the Current Ratio but takes account of


the fact that it may take time to convert inventory
into cash.

Liabilities
(Inventory +
Working

Receivables -

Capital Ratio

Payables)/

As % A high percentage means that working capital


Sales needs are high relative to your sales.

Sales

Other working capital measures include the following:

Bad debts expressed as a percentage of sales.

Cost of bank loans, lines of credit, invoice discounting etc.

Debtor concentration - degree of dependency on a limited number of customers.

Once ratios have been established for your business, it is important to track them over time and
to compare them with ratios for other comparable businesses or industry sectors.
When planning the development of a business, it is critical that the impact of working capital be
fully assessed when making cash flow forecasts.

RESEARCH METHODLOGY

RESEARCH METHODLOGY

OBJECTIVES OF THE PROJECT:


To study the factors that needs to be considered while managing working capital.
To see the level of operational efficiencies the organization have

RESEARCH PROCEDURE:

Research is an organized and systematic way of finding answers to questions. It is systematic as


there is a definite set of procedure and stages which one follows. There are certain things in the
research process which are always done in order to get the most accurate results. It is organized
in the sense that there is a structure or method in going about doing research. It is a planned
procedure.
Same goes for my research as it was planned and properly organized so that accurate answers to
the questions in hand could be found out. The research aimed at the study of the factors that need
to be considered while managing financial resources in the company that are essential for the
proper utilization of the resources. Questionnaire was prepared on factors that were studied
which cover the questions related to the factors of financial importance and it was presented to
the finance manager. The questionnaire contains all the relevant questions related to the topic so
that the accurate analysis can be done.

DATA COLLECTION:
Primary and Secondary data- Primary data is that which is collected by the researcher for the
first time solely for the purpose of research problem in hand whereas secondary data is one
which is collected by somebody else and which has to be modified according to the problem
before using it.
The type of primary data used was questionnaires. This phase involved the design of the
questionnaire on the basis of the potential factors identified as influencing the best practices.
Research problems were listed and then the information needed was identified. The questions
were then prepared in order to fulfill the information requirements as identified earlier.
There were many approach was used for developing the questionnaire, which implies that in
initial stage of questionnaire there is very general question has been asked to the respondent and
then the specific questions had been asked by the respondent. In order to accomplish accuracy,
attention was paid on framing the questions right and placing the questions correctly in order to
form a logical and presentable questionnaire. Closed ended questions were framed. Close ended
questions limit respondents answers to the survey. The participants bare allowed to choose from
answer such as yes/no, true /false or ranking scale response options. The most common of the
ranking scale questions is called the likert scale question. This kind of question asks the

respondents to look at a statement and then rank this statement according to the statement to
which they strongly agree, agree, neither agree nor disagree, disagree and strongly disagree. The
type of secondary data used was mainly from encyclopedia, books journals and internet.

STATISTICAL TECHNIQUES:
SAMPLE SIZE: The sample size was 30.
RESEARCH METHOD: The method of research was Descriptive, i.e. through
questionnaire filled up by sales manager of the company.

ANALYSIS METHOD The analysis is done by using SPSS software and EXCEL. The data
collected by the questionnaire were feed in the SPSS software and analyzed using descriptive
statistics (pie charts). Some of the questions which have multiple answers were analyzed in
EXCEL.

REVIEW OF
LITERATURE

CHAPTER 4
DATA ANALYSIS

FINANCIAL RATIO ANALYSIS FOR WORKING


CAPITAL MANAGEMENT
Current assets of Zillious Solution Pvt Ltd
Current Assets
Current Assets

2015

2014

Current investments

50,113,253

28,000,200

Inventories

Trade receivables

23,175,613

9,264,633

Cash and cash equivalents


Short

term

loans

15,030,076

17,458,671

and 23,451,934

4,747,721

Other current assets

10,819,818

9,416,372

Total

122,590,694

68,887,597

2015

2014

Trade Payables

605,012

102,352

Other current liabilities

5,174,470

1,426,926

Short term provisions

20,700,000

11,690,654

Total

7,849,482

13,219,932

advances

Current Liabilities
Liabilities
Short term borrowings

Total working capital =current assets - current liabilities


current assets

current liabilities

2015

125,90,694

78,49,482

2014

688,87,597

132,19,932

working capital

47,41,212

556,67,665

Return on Working Capital (ROWC) =

PBIT /
Capital

Table2: Return on Working Capital


Return on Working Capital

Return on Working
Capital:

Working

* 100

2014 63243993/ 55667665*100

113.60%

2015 35132556/55667665*100

63.11%

Analysis:
There has been a decline in ROWC between the two years it declines up to 63.11% during
2015-16. This situation arises because of increase in current liabilities in past years as company
is having proposal of lots of investment due to which company is financing its project and there
is less tendency of free cash flow.
LIQUIDITY RATIOS:
Snapshot of Liquidity Ratios:
Table 3: Liquidity ratios
Basic Ratios

2014

2015

Current ratio

2.17

2.43

Acid test ratio

1.28

1.57

Cash ratio

0.01

0.30

Current Ratio:

The current ratio is also known as the working capital ratio and is normally presented as a real
ratio.
Table4: Current Ratio
2014 Current Asset: Current Liability 2.60:1

2015 Current Asset: Current Liability 2.17:1


Analysis:
The current ratio is the measure of whether a company has enough short-term assets to cover its
short-term debt and is index of strength of working capital. Anything below 1 indicates negative
W/C (working capital). While anything over 2 means that the company is not investing excess
assets. A ratio of greater than one means that the firm has more current assets then current
claims. The company has sufficient liquidity as the ratio is increasing.

Cash Ratio:

Table 7: Cash ratio


Cash Ratio
2014

Cash: Current

46.32/867.00

0.05:1

17.59/965.73

0.01:1

Liabilities
2015

Cash: Current
Liabilities

As cash is being the most liquid asset, quoted investment has been taken as marketable
securities. In our case the company is showing an increasing trend but still it is not a favorable
cash ratio. From the above calculation, companys cash ratio had remained very low. It is the
notable point for the company as its current liabilities are much higher than the cash in hand. It
can create problems in the future payments of current liabilities. Major portion of companys
current assets goes to inventory and debtors, which only increase the carrying cost. Company
need to reduce these assets to their optimum level.

Working Capital Management: Stock/Debtors/Creditors

Debtors Turnover:
Sales
Debtors Turnover =
Debtors

Table 13: Debtors turnover ratio for Zillious Solution


Debtors Turnover Ratio

2014 6038/1167.56

5.17 times

2015 6400/1007.38

6.35 times

Analysis:
Firstly, the ratio seems to have change by going from 5.17 to 6.35 times in the two years; and it
means that, on average, the companys debtors are taking fewer days to pay their accounts.
Soundness of this ratio is more dependent on the business policy and the terms with the clients.
On the other side turnover is increasing over the years, which implies higher the turnover, shorter
the time between sales and collecting cash. It shows the companys debt-collecting machinery
has improved through years.

Average Collection Period:


Avg. Collection Period =

360
Debtor Turnover

Average Collection Period


2009-10

360 / 5.17

69.61days

2010-11

360 / 6.35

56.69 days

Analysis:
The average collection period measures the quality of debtors since it indicates the speed of their
collection. The shorter the average collection period, the better the quality of debtors, as a short
collection period implies the prompt payment by debtors.

Creditors Turnover:

Creditors Turnover

Purchases
Creditors

Creditors Turnover Ratio


2014

1378/413.69

2.65

2015

1390.10/523.95

3.36

Analysis:
creditors turnover ratio increased from 2.65 to 3.36 times that shows company was having
improved credit paying ability through proper working capital management.

Chapter 5

Conclusion and recommendations

LIMITATIONS

LIMITATIONS
Some of the limitations of the project are listed below:
The time period of just two months was the major limitation.
The sample size was too small; hence proper analysis was not done.
Due to time constraint other branches of company were not surveyed.
To convince the people for filling up the questionnaire was also a big daunting task.

REFERENCES

WEBSITES:
www.futuregenerali.in
http://en.wikipedia.org/wiki/motivation
http://en.wikipedia.org/wiki/insurance
www.irdaindia.org

BOOKS:
Approaches to Training and Development by D. Laird (2001), Indian
House of Publications, New Delhi, 5th Edition.
Human

Resource

Management

by

Ghanekar

A.(2007),Rajesh

Publishing House, New Delhi,7th Edition.


Human Resource Management by Ricky W. Griffin (2004), Harper
Collins Publications, 3rd Edition.

ANNEXURE