1st Pages (3 Files Merged) PDF

ACKNOWLEDGMENT
I take the occasion to thanks “PLASTO MECH INDUSTRY”. For giving me an

opportunity to work on this project, which has immensely helped in gaining and
developing my knowledge and experience. I would like to thanks my institute, PVPIT to
provide me such a wonderful opportunity.
I specially want to thanks Mr.YUVRAJ BORATE to help me in my work. I will always

remain indebted to My Family for their constant moral support and advice, which has
helped me in every way of life. I am grateful to Mr. S.K.BORATE (PROPRITOR), for
providing their valuable thoughts and inputs throughout the project and kindly accepting
our suggestion and recommendations.
I express my sincere thanks to Dr. A. A. Deshmukh (HOD,MBA Dept., P.V.P.I.T.)

especially thanks my internal project guide Prof. AJIT THITE for his valuable guidance,
co-operation and encouragement throughout the project.
Lastly I would like to specially thanks the subordinates and my all friends for their
Valuable support.
Place- Pune
Date- RAJESH R. DESHMUKH
MBA- FINANCE
DECLARATION
I Rajesh Ramesh Deshmukh hereby declare that this report is a result of our intensive
study during a period of 2 months at “Plasto-Mech Industry”, Bhosari. This work is an
original one and has not been submitted earlier either to this university or to any other
institution for fulfillment of the requirement of a course of study to the best of our
knowledge.
Under the Guidance of

Mr. YUVRAJ BORATE
Proprietor
S. K. BORATE
Date:
Place: Pune RAJESH R. DESHMUKH
MBA- FINANCE
List of Tables
Sr. No. Particulars Page No.
1 Current Ratio
2 Liquid Ratio
3 Debt-equity Ratio
4 Net Profit Ratio
5 Working Capital turnover ratio
6 Debtors Turnover Ratio
7 Creditors Turnover Ratio
8 Stock Turnover Ratio

INDEX
Chapter Page No.
PARTICULARS
No.
I. Executive Summary
II. Company Profile
III. Objectives of the Study
IV. Research Methodology
V. Data Analysis
VI. Findings
VII. Suggestions and Conclusions
VIII. Limitations
IX. Bibliography
A Project Report
On
“STUDY OF WORKING CAPITAL MANAGEMENT”
For
PLASTO-MECH INDUSTRY
By
Rajesh R. Deshmukh
Under the guidance of
Prof. Ajit Thite
Submitted To
University of Pune
In partial fulfillment of the requirement for the award of the degree of

Master of Business Administration (MBA)
Through
TSSM’S PADMABHOOSHAN VASANTDADA PATIL

INSTITUTE OF TECHNOLOGY, MBA DEPARTMENT,
BAVDHAN, PUNE-21.
Batch2010-2012
EXECUTIVE SUMMARY
We have undergone my summer training at PLASTO-MECH INDUSTRIES,
which is one of the growing manufacturing units.
During the training period we got the practical knowledge of working capital
management. We had noted that these big manufacturing units having many decisions
related to inventory management, receivables management and cash management
which affects largely on the working capital requirement of the company therefore it
is necessary to analysis all the elements of the elements of the working capital i.e.
currents and currents liabilities.
This project gave me great learning experience and at the same time it gave
me enough scope to implement my analytical ability. The analysis and advice
presented in this report is based on the last three years financial statements i.e. annual
reports of PLASTO-MECH INDUSTRY.
The project gives in insight about interpretation and analysis of working
capital management, and various aspects such as proper understanding the working
capital of PLASTO-MECH INDUSTRY to suggest measures to overcome the
shortfalls if any. We got an opportunity to learn what is really meant by working
capital management and its implementation in day to day life.
Decisions related to working capital (current assets -current liabilities) and
short term financing are known as working capital management for this analysis it
requires depth study of live charts changing as per the requirements which 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.
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To analyze the financial position of the company, the information was collected
through the various annual of the company which is as follows.
a) Annual report of 2008-2009
b) Annual report of 2009-2010
c) Annual report of 2010-2011
Also facts and figures were collection from discussion held with higher authorities
of the company and also company and also through various records, booklets,
research, and reports of PLASTO-MECH INDUSTY.
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COMPANY PROFILE
Introduction:
The company is an ISO/TS 16949:2009 certified engineering industry
established in 1974 (since 35 years). main aim behind targeting plastic
fields is to meet the emerging needs of plastics and sub-assemblies in
automotives, electronics, defense and many other sectors.
Elite Group is a core team of management including the people from
different fields like design, tool development, production, mold analyst etc.
There are highest priority is to take the customer's covers the customers
comes up with concept of component and demands complete assembly in
hand.
Step by step they are including each processing facility in house to fulfill the
customer’s requirements like screen printing, lead casting, atomized sub
assemblies etc. during the period of last 35 years they have covered
maximum renowned customers in almost all sectors. In 2002 Plasto-mech
industry established in Bhosari.
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 Four wheelers crates
 Two wheelers paint packaging
 Battery parts
MISSION
 Industry’s mission is to serve the industry with world class plastic products
fulfilling their needs and giving value for money, always moving up the value
chain.
 They shall constantly upgrade there facilities, systems and peoples to meet
global challenges.
VISSION
 To become a global player in the field of plastic parts and products.
 To always be in synchronization with contemporary technology.
 To reach Rs.100 crore sales turnover annually by the year 2014-15.
 To constantly move up the food chain and find own place in rationalization
and globalization.
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VALUES
 Human: they treasure there people.
 Social: they care for the society has formed a trust and donate generously.
 Ethical & moral: they promote highest business ethics and moral values
amongst there employees.
 Environment: they care for the environment & try to conserve it & protect it.
INFRASTRUCTURE
Product & Tool Designing
Elite’s strength lies in its ability to strategically manage the entire program
management of OEMs– concept to production hard tooling. An efficient approach
produces complete and cost effective designs and manufacturing solutions in the
shortest possible time frames. They dedicated program management team is involved
from design to customer PPAP approval. Design stations include hi-end software’s
such as Unigrapics, Pro-E, DelCAM.
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Services Offered: Part Digitizing, Prototyping, Plastic Products Moulding
Feasibility Analysis, Design Review and Alternative Design Solution, Value
Engineering
In-house Tool Development
In-house tool development is one of the core strengths of Elite Group. Tool Room
consists of Vertical Machining Center (VMC), Electric Discharge Machining (EDM),
Surface Grinders, and all other conventional tooling machines which can fabricate
moulds ranging from 80T to 750T within a span of less than 30 days.
Apart from this, we have dedicated teams for moulds preventive and preductive which
maintain there plant
OEE > 80%
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Inspection/Testing/Validation
They have a separate standard room for inspection of newly manufactured
/ under-development tools. The standard room includes Coordinate Measurement
Machine (CMM), Profile Projector, Colour Calorimeter with Delta-E software and
other checking instruments.
Apart from this they have strategic tie-up external agencies for automotive validation
and testing like ARAI.
Production
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The plastic molding capability covers wide range of polymer processing technologies.
Elite group facilitated with over 24 molding machines ranging from 80T to 750T of
Ferromatics and Windsor make. Total consumption is about 150 MT per month.
Consumption material includes a wide variety of materials like POM, PC, ABS, Nylo
GF, PC +ABS, HD, PP, LD. So the combination of highly precise machines has
resulted in impressive list of satisfied customers.
Elite team has always adopted advanced manufacturing technologies with the growing
needs of the industry. As per the strategic planning of the group, all machines would
be automized step by step by installing robotic arms, SPMs resulting in lower
manufacturing time and high efficiency level
Secondary Operations / Assemblies
They have printing facilities for plastic components. They are having the
team working in this division for last 12 years. This service includes creating the
impressive artwork till printing on plastic component. They have automatic machines
of five colors printing to covering high volumes and control quality sharpness.
Sub assemblies includes the component size starting from 3mm to 10 mm.
Assemblies includes Metal Inserts, Rubber O-rings and Filters etc. The current
capacity for per month volume is 20 lacs units.

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Logistics
They have a separate logistic team to support domestic as well as overseas customers
with cost effective packaging standards and solutions. They also have logistic partners
worldwide to support customer JIT (Just In Time) systems.
PRODUCTS
4 Wheeler Interior Parts
Instrument Cluster
Center Facia Cluster
Steering Column Assembly
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Defrost Grill
Driver/Co-Driver Side Pad
Compartment Box Parts
Glove Box Assemblies
IP Hangon Parts
4 Wheeler Exterior Parts
Front Grills
Bumper Brackets
Bumper Child Parts
Power Train Plastic Parts
Air Guide Sets
Bonnet Cowl Assembly
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Mud Guard
Wiper Panel
Wheel Liners
2 Wheeler Parts
Air Filter Cases
Fender (Front & Rear)
Mud Cover
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Automotive Batteries
Battery Containers
Battery Covers
Battery Handles
Vent Plugs
Level Indicators
Spacers
QUALITY
Advance Product Quality Planning (APQP)
Elite Group is having dynamic Programme management team which includes New
product development Team (NPD) to take the customer's concept from design to
development by prioritizing the requirements through Advance product Quality
Planning (APQP). During APQP Stage Review of Customer Drawing, Customer
requirements regarding Raw material, appearance, fitment testing’s & Potential
failures during product launch are identified by CFT (Cross functional Team) .
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APQP Stage is the guide for the product from development to PPAP (Production
Part Approval Process) with a strigent timeline.
Phase 1: Plan & Define Program
Phase 2: Product Design & Development Verification
Phase 3: Process Design & Development Verification
Phase 4: Product & Process Validation
Phase 5: Feedback Assessment & Corrective Action
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PROCESS FLOW OF NPD
Quality Control for Regular Supply
After PPAP signup from customer, the project is handed over to regular Quality
Team. Quality department continuously focuses on controlling key parameters like :-
- In-house PPM
- Customer End PPM
- No. of Kaizens
- COPQ (Cost of Poor Quality), etc.
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CLIENTS
 WHIRLPOOL.
 BHARAT ELECTRONICS.
 HAIER.
 FABER.
 LEAR CORPORATION.
 General Motors.
 TATA MOTORS.
 EXIDE BATTERIES.
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OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottle necks if any the objective of the
study, the following further objectives are framed for a depth analysis.
 To study the working capital management of Plasto-mech industry.
 To study the optimum level of current assets and current liabilities of the
company.
 To study the liquidity position through various working capitals related ratios.
 To study the working capital components such as receivable accounts, cash
management, inventory position.
 To analysis companies performance.
 To study the operating cycle and cash cycle of the company.
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RESEARCH METHODOLOGY
Research Methodology consists of Inductive (simulation), qualitative and
Quantitative research procedures and employing triangulation (comparing real world
Effective teams to interrogate the social network organizational model).
Research Methodology is a way to systematically solve the research problem.
We can say that the research methodology has many dimensions and research
Methods do constitute a part of research methodology. When we talk about research
Methodology we not only talk of the research methods but also the logic behind the
Methods we use in the context of the research study and explain why we are using a
Particular method or technique and why we are not using others so that research
Results are capable of being evaluated either by the researcher himself or by others.
QED Baton has its own methodology to go about the report preparation which
Eventually formed the research methodology for my project work.
”Research concerns itself with obtaining information through observation that
can be used to systematically develop logically related proportion so as to
attempt to establish casuals relationship among variables.”
-By Black and champion.
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COLLECTION OF DATA
The data necessary for the completion of the project working capital management was
collected through the primary as well as secondary sources.
o Primary data:
The primary data was collected through such sources and
the places where actual information was provided about working capital in the
company. The source includes manager and his assistance of the company’s
finance department.
o Secondary data:
Secondary data was generated from various references
such as books, various documents & articles from finance department. The
main objective behind this data was to know the plans & procedures followed
for effective and efficient management of working capital.
The data also includes financial statements, balance sheet and profit and
Loss accounts of the company. These statements of the company are audited.
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MEANING OF WORKING CAPITAL:
Capital required for a business can be classifies under two main categories:
 Fixed Capital
 Working Capital
Every business needs funds for two purposes for its establishments and to carry out
day to day operations. Long term funds are required to create production facilities
through purchase of fixed assets such as plant and \ machinery, land and building,
furniture etc. Investments in these assets are representing that part of firm’s capital
which is blocked on a permanent or fixed basis and is called fixed capital. Funds are
also needed for short term purposes for the purchasing of raw materials, payments of
wages and other day to day expenses etc. These funds are known as working capital.
In simple words, Working capital refers to that part of the firm’s capital which is
required for financing short term or current assets such as cash, marketable securities,
debtors and inventories.
CONCEPTS OF WORKING CAPITAL:
There are two concepts of working capital:
 Balance Sheet concepts
 Operating Cycle or circular flow concept
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BALANCE SHEET CONCEPT:
There are two interpretation of working capital under the balance sheet
concept:
 Gross Working Capital
 Net Working Capital
The term working capital refers to the Gross working capital and represents
the amount of funds invested in current assets. Thus, the gross working capital
is the capital invested in total current assets of the enterprises. Current assets
are those assets which are converted into cash within short periods of normally
one accounting year. Example of current assets is:
Constituents of Current Assets:
 Cash in hand and Bank balance
 Bills Receivable
 Sundry Debtors
 Short term Loans and Advances
 Inventories of Stock as:
 Raw Materials
 Work in Process
 Stores and Spaces
 Finished Goods
 Temporary Investments of Surplus Funds
 Prepaid Expenses
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 Accrued Incomes
The term working capital refers to the net working capital. Net working capital
is the excess of current assets over current liabilities or say:
Net Working Capital = Current Assets – Current Liabilities.
NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:
When the current assets exceed the current liabilities, the working capital is positive
and the negative working capital results when the current liabilities are more than the
current assets. Current liabilities are those liabilities which are intended to be paid in
the ordinary course of business within a short period of normally one accounting year
of the current assets or the income of the business. Examples of current liabilities are:
CONSTITUENTS OF CURRENT LIBILITIES:
 Bills Payable
 Sundry Creditors or Account Payable
 Accrued or Outstanding Expenses
 Short term Loans, Advances and Deposits
 Dividends Payable
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 Bank Overdraft
 Provision for Taxation, If does not amount to appropriation of profits
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital.
OPERATING CYCLE OR CIRCULATING CASH FORMAT:
Working Capital refers to that part of firm’s capital which is required for financing
short term or current assets such as cash, marketable securities, debtors and
inventories. Funds thus invested in current assets keep revolving fast and being
constantly converted into cash and these cash flows out again in exchange for other
current assets. Hence it is also known as revolving or circulating capital. The circular
flow concept of working capital is based upon this operating or working capital cycle
of a firm. The cycle starts with the purchase of raw material and other resources.
And ends with the realization of cash from the sales of finished goods. It involves
purchase of raw material and stores, its conversion into stocks of finished goods
through work in progress with progressive increment of labour and service cost,
conversion of finished stocks into sales, debtors and receivables and ultimately
realization of cash and this cycle continuous again from cash to purchase of raw
materials and so on. The speed/ time of duration required to complete one cycle
determines the requirements of working capital longer the period of cycle, larger is
the requirement of working capital.
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CLASSIFICATION OR KIND OF WORKING CAPITAL:
Working capital may be classified in two ways:
 On the basis of concept
 On the basis of time
Om the basis of concept, working capital is classified as gross working capital and net
working capital. The classification is important from the point of view of the financial
manager.
On the basis of time, working capital may be classified as:
 Permanent or Fixed working capital
 Temporary or Variable working capital.
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Kinds of Working Capital
On the basis of concept On the basis of time
Permanent or Temporary or
Gross Working Net Working
Fixed Working Variable Working
Capital Capital
Capital
Regular Reserve Working

Special Working
Working Capital Capital
Capital
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1. PERMANENT OR FIXED WORKING CAPITAL:
Permanent or fixed working capital is the minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets. There is always a minimum level of current assets which is
continuously required by the enterprises to carry out its normal business operations.
2. TEMPRORAY OR VARIABLE WORKING CAPITAL:
Temporary or variable working capital is the amount of working capital which is
required to meet the seasonal demands and some special exigencies. Variables
working capital can be further classified as second working capital and special
working capital. The capital required to meet the seasonal needs of the enterprises is
called the seasonal working capital.
Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the
business.
IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:
Working capital is the life blood and nerve centre of a business. Just a circulation of a
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. The main advantages of
maintaining adequate amount of working capital are as follows:
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 Solvency of the Business
 Goodwill
 Easy Loans
 Cash discounts
 Regular supply of Raw Materials
 Regular payments of salaries, wages & other day to day commitments.
 Exploitation of favourable market conditions
 Ability of crisis
 Quick and regular return on investments
 High morals
THE NEED OR OBJECTS OF WORKING CAPITAL:
The need for working capital cannot be emphasized. Every business needs some
amount of working capital. The need of working capital arises due to the time gap
between production and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps in purchase of raw
materials and production, production and sales,
And sales, and realization of cash, thus, working capital is needed for the following
purposes:
 For the purchase of raw materials , components and spaces
 To pay wages and salaries
 To incur day to day expenses and overhead costs such as fuel, power and
office expenses etc.
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 To meet the selling costs as packing, advertising etc.
 To provide credit facilities to the customers.
 To maintain the inventories of raw materials, work –in- progress, stores and
spares and finished stock.
THEORY OF RATIOS
 CURRENT RATIO OR WORKING CAPITAL RATIO
Current ratio is a relationship of current assets to current liabilities. ‘current
assets’ means the assets that are either in the form of cash or cash equivalents
or can be converted into cash or cash equivalents in short time(say within a
year) like cash, bank balances, marketable securities, sundry debtors, stock,
bills receivables, prepaid expenses.
‘Current liabilities’ means liabilities repayable in as short time like sundry
creditors, bills payable, outstanding expenses, bank overdraft.
Computation. The ratio is calculated as follows:
Current Assets
Current ratio = -------------------------
Current Liabilities
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 LIQUID RATIO OR QUICK RATIO OR ACID TEST RATIO
Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly
stringent measure of liquidity.
Liquid assets are those assets which are either in the form of cash or cash
equivalents or can be converted into cash within a short period. Liquid assets
are computed by deducting stock and prepaid expenses from the current assets.
Stock is excluded from liquid assets because it may take some time before it is
converted into cash. Similarly, prepaid expenses do not provide cash at all and
are thus, excluded from liquid assets.
Computation the ratio is calculated is as under:
Liquid current assets
Liquid ratio= -------------------------------
Liquid liabilities
DEBT-EQUITY RATIO:
The debt-equity ratio is worked out to ascertain soundness of the long term
financial policies of the firm. This ratio expresses a relationship between debt
(external equities) and the equity (internal equities).
Debt means long-term loans, i.e., debentures, public deposits, loans (long
term) from financial institutions. Equity means shareholder’s funds, i.e.,
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preference share capital, equity share capital, reserves less losses and fictitious
assets like preliminary expenses.
Computation The ratio is calculated as under:
Debt (Long-term Loans)
Debt-Equity Ratio = -----------------------------------
Equity (shareholder’s funds)
PROFITABILITY RATIOS
Profit as compared to the capital employed indicated profitability of the
concern. A measure of ‘profitability’ is the overall measure of efficiency. The
different profitability ratios are as follows:
Net Profit ratio
The Net profit ratio establishes the relationship between net profit and net
sales, expressed in percentage form.
Net Profit is derived by deducting administrative and marketing expenses,
finance charges and making adjustments for non-operating expenses and
incomes.
Computation this ratio is calculated as follows:
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Net Profit after taxes x 100
Net Profit ratio = ------------------------------------
Net Sales
Working Capital Turnover Ratio
The working capital turnover ratio indicates the number of times a unit
invested in working capital produces sale. In other words, this ratio shows the
efficiency in the use of short-term funds for achieving sales.
Working capital is computed by deducting current liabilities from current
assets. A careful handling of the short-term assets and funds will mean a
reduction in the amount of capital employed thereby improving turnover.
Computation The ratio is calculated as follows:
DEBTORS TURNOVER RATIO:
Net Sales
Working Capital Turnover Ratio = --------------------------------
Working Capital
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Computation: The ratio will be computed as:
Net credit sales
Debtors Turnover ratio = -----------------------------------
Average A/C receivable
This ratio indicates the speed at which the sundry debtors are converted in the
form of cash. However this intention is not correctly achieved by making the
calculations in this way.
CREDITORS TURNOVER RATIO:
Credit Purchases
Credit Turnover Ratio = --------------------------
Average accounts payable
A high turnover ratio indicates that payment to creditor is quite prompt but it also
implies that full advantage of credit allowed is not taken. A low ratio indicates that the
payment to the creditor is not quite prompt and it needs to improve.
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THE STATEMENT OF CHANGE IN WORKING CAPITAL
OF PLASTO-MECH INDUSTRY
TABLE NO- I
Particulars 2009-10 2010-11 Increase Decrease

A) Current Assets
Cash in Hand 113,683.17 9,342.11 104,341.06
Sundry Debtors 12,482,253.69 17,806,382.56 5,324,128.87
Loans& Advances 26,300.00 40,000.00 13,700.00
Bank Accounts 11,417.05 1,767,005.54 1,755,588.49
Prepaid Insurance 36,151.00 62,177.00 26,026.00
Other current assets 3,833,958.09 8,326,657.79 4,492,699.70
TOTAL A 16,503,763.00 28,011,565.00 11,612,143.06 104,341.06
B) Current Liability
provision for taxes 374,350.00 541,490.00
167,140.00
Sundry Creditors 5,506,360.98 15,191,766.92 9,685,405.94
Other current liability 10,710,340.24 1,469,899.00 9,240,441.24
TOTAL B 16,591,051.22 17,203,155.92 9,240,441.24 9,852,545.94

NET Working Capital(A- (87,288.22) 10,808,409.08 20,852,584.30 9,956,887.00
B)
NET Increase In Working 10,895,697.30
Capital 10,895,697.30
Total 10,808,409.08 10,808,409.08 20,852,584.30
20,852,584.30
Interpretation:-
The above table states the two years statement of change in working
capital from the above we can say that there is increase in working
capital in the year 2010-2011 due to increase in the components of
current assets.
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RATIO ANALYSIS
CURRENT RATIO:-
Information for last 3 years
Table No.1: CURRENT RATIO
Year 2008-2009 2009-2010 2010-2011
Current Assets Rs. 85,74,689.46/- Rs.1,65,03,763.46/- Rs.2,80,11,565.20/-
Current Liabilities Rs.1,15,75,128.63/- Rs.1,65,91,051.22/- Rs.1,72,03,155.92/-
Current Ratio 0.740 0.994 1.628
Graphical Representation
Current Ratio
Current Ratio
1,628
0,994
0,74
2008-2009 2009-2010 2010-2011
GRAPH No.1
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Interpretation:-
Current Ratio express relationship between current asset and current liabilities, for
sound business the current ratio of the company should be 2:1.In case of the current
ratio for the year2008- 09, 2009-10, and 2010-11 is 0.740:1, 0.994:1, and 1.628:1
respectively. The current ratio is lower than ideal ratio and hence it needs to be
improved.
LIQUID RATIO:
Liquid Current Assets
Liquid ratio = -----------------------
Liquid Liabilities
TABLE NO.2: LIQUID RATIO
YEARS 2008-2009 2009-2010 2010-2011
Liquid Assets Rs. 75,25,356.46/- Rs. 15187438.91/- Rs. 24899388.20/-
Liquid Liabilities Rs.1,01,34,559.45/- Rs. 14908708.26/- Rs. 8093309.18/-
Liquid Ratio 0.742 1.018 3.076
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Liquid Ratio
Liquid Ratio
3,076
0,742 1,018
2008-2009 2009-2010 2010-2011
GRAPH No.2
Interpretation:-
The Quick Ratio shows Constancy throughout the last 3 years. Quick Ratio
establishes the relationship between quick assets and quick liabilities. The ideal quick
Ratio is 1:1 in this case the quick Ratios for the 2008, 2009, and 2010 is 1.28:1,
1.09:1, 1.34:1 respectively. The general liquidity position of the business is
satisfactory.
In this case it is clear that from above chart the company under observation has
always maintained the ratio above 1.
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DEBT EQUITY RATIO:
Debt-Equity Ratio = -----------------------------------------
Equity (shareholder’s funds)
YEARS 2008-2009 2009-2010 2010-2011
Long Term Debt Rs. 10241380.85/- Rs. 8870743.77/- Rs.19218566.55/-
Owner Capital Rs. 5493005.94/- Rs.8440708/- Rs. 8400708/-
Debt Equity Ratio 1.86 1.05 2.28
Table No.3: Debt Equity Ratio
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Debt Equity Ratio
Debt Equity Ratio
2,28
1,86
1,05
2008-2009 2009-2010 2010-2011
GRAPH No.3:
Interpretation:-
Debt Equity Ratio is the relationship between the debt and equity. This ratio is very
important from the creditor’s point of views. This ratio provides the information
regarding coverage of debt by equity. In this case the Debt Equity for the year 2008,
2009, and 2010 is 1.90:1, 1.75:1, and 0.87:1 respectively. Low debt equity ratio is
considered favorable from management point of view.
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NET PROFIT RATIO:
Net Profit ratio = ------------------------------------
Net Sales
Table No.4: Net Profit Ratio

YEARS 2008-2009 2009-2010 2010-2011
Net Profit Rs.2024178.52/- Rs.3406233.06/- Rs.7095229.87/-
Net Sales Rs. 51166660.76/- Rs. 51236052.42/- Rs. 101749914.01/-
Net Profit Ratio 3.95% 6.64% 6.97%
Net Profit Ratio

Net Profit Ratio
6,64% 6,97%
3,95%
2008-2009 2009-2010 2010-2011
GRAPH No.4
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Interpretation:-
The Net Profit Ratio established relationship between net profit and sales to measures
the overall efficiency of firm. In this case the Net Profit Ratio for year 2008, 2009,
and 2010 is 3.56%, 2.47%, 3.00% respectively. The high ratio is an indication of good
management or high selling price.
WORKING CAPITAL TURNOVER RATIO:
Net Sales
Working Capital Turnover Ratio = --------------------
Working Capital
Table no.5: working capital turnover ratio
Year 2008-09 2009-10 2010-11
Sales 51166660 51236052 101749914
Working Capital -3000439.63 -87288.22 10808409.08
Working Capital
Turnover -17.05 -586.97 9.41
39
Working Capital Turnover
100
0
2008-09 2009-10 2010-11
-100
-200 Working Capital Turnover

-300
-400
-500
-600
GRAPH No.5:
Interpretation:-
The ratio is an importance indicator about the working capital position now if we
analysis the data, we find that it follows increasing trends which means investment in
working capital is low. In year 2008-09 and 2009-10 working capital is negative this
is due to delay in payment of liabilities.
40
DEBTORS TURNOVER RATIO:
Net Credit Sales
Debtors Turnover Ratio = ------------------------------------
Average A/C Receivable
Table no.6: Debtors turnover ratio
Year 2008—09 2009-10 2010-11
Credit Sales 5758889 12482253.69 17806382.56
Average Trade Debtors 6256752.19 9120571.345 15144318.13
Debtors Turnover Ratio 0.920427855 1.36858243 1.175779749
Debtors Turnover Ratio

1,36858243
1,175779749
0,920427855
2008—09 2009-10 2010-11
GRAPH No.6:
41
Interpretation:-
It indicates the number of times the debtors are turned over during a year. Generally,
the higher the value of debtor’s turnover the more efficient is the management of
debtors. In year 2009-2010 Ratio is increased from 0.92 to 1.36 to previous year
2008-2009. Out in year 2010-2011 it reduced from 1.36 for 1.17 to previous year
2009-2010.
CREDITORS TURNOVER RATIO:-
Creditor’s turnover ratio as describes or indicates the credit period allowed by the creditors
to the firm. In other words, it is exactly opposite the debtor’s turnover ratio.
FORMULA
Credit Purchase
Creditors turnover Ratio = ----------------------------------------
Average Accounts Payable
Opening Bal. of Creditors + Closing Bal. of Creditors
Average Accounts Payable = ------------------------------------------------------------------
42
Table No. 7: Creditors Turnover Ratio
YEARS 2008-2009 2009-2010 2010-2011
Credit Purchase Rs.21186206/- Rs. 27553018.04/- Rs. 65392422.21/-
Avg. Creditors Rs.10257165.63/- Rs. 5506360.98/- Rs. 15191766.92/-
Creditors Turnover Ratio 2.06 5.00 4.30
Stock Turnover Ratio

44,29
37,43
33,92
2008-2009 2009-2010 2010-2011

’
Graph No. 7
Interpretation:-
This ratio indicates the average credit allowed by the suppliers. Higher ratio is favorable
from the company’s point of view. In this Case the creditors turnover ratio for the year 2008,
2009, 2010 is 4.45, 2.81, 4.10 times respectively.
43
STOCK TURNOVER RATIO :
This ratio indicates number of times inventory or stock is replaced during the year. It
measures the relationship between goods & inventories level. By dividing the cost of goods
by the average inventory.
FORMULA
Cost of goods sold
Inventory Turnover = -------------------------
Average Inventory
Table No. 8: Stock Turnover Ratio
YEARS 2008-2009 2009-2010 2010-2011
Cost of Goods Sold Rs.40293708.68/- Rs.38608647.81/- Rs. 81040358.31/-
Average Inventory Rs. 909665/- Rs. 1137976.77/- Rs. 2165086.77/-
Stock Turnover Ratio 44.29 33.92 37.43
44
44,29
37,43
33,92
2008-2009 2009-2010 2010-2011
Graph No. 8
Interpretation:-
The stock turnover Ratio is the relationship between Costs of goods sold and
average stock. In this case the stock turnover ratios for the year 2008, 2009, and 2010 are
22.45, 12.93, and 10.24 respectively.
45
FINDINGS
 Company’s working capital requirement has increased drastically in 2010-11
because of bad credit management.(Refer table I)
 Sales are increasing rapidly due to High creditors.(Refer table I)
 Debt to equity ratio was declined in year 2008-2009. This is because of bad credit
management.
 Overall companies finance management seems to be well, but in 2009-10 it
showed some distractions.
 Company has consistently increased its credit period for past three years. This
could lead to reduction in the working capital but company has increased the
collection period hence the advantages of this increase credit have got no effect on
working capital reduction.
 DTR-collection period is continuously increasing this indicates the company is
giving more credit to customer this period was highly increased in 2009-10 but
was controlled in 2010-11. Indicating poor credit management in between, the
Company maybe focusing more on the growth and less on working capital and
credit management.
 The operating efficiency of the management in the company has stable net profit
ratio but it is less than average industry.
 Debt by equity ratio is very important from creditor’s point of view. This ratio
provides the information of coverage of debt by equity ideal value is 0.5 but this
companies average debt by equity ratio is 1.5% which is not good at all this means
management has not made any strategy for capital structure.
46
SUGGESTIONS
 Plasto-mech Industry should control its current liabilities so that working
capital requirement becomes positive.
 They should focus on collection from Debtors which seems to be weak in the
year 2009-10 and also in 2010-11.
 Plasto-mech Industry should bring down Debt to Equity ratio which is very
high during year 2010-11
 Plasto-mech Industry should venture in some manufacturing activity related to
their field.
 This will improve the gross margin and also the valuation of the company.
47
CONCLUSIONS
Working capital management is an important aspect of any business. Every
business concern should have adequate working capital to run its business operation.
Every concern should have neither redundant of excess working capital nor
inadequate or shortage of working capital. Both excess as well as short working
capital positions are bad for any business.
The three elements of working capital management are cash management
receivable management and inventory management. If a finance manager maintains
these three elements of working capital management properly means the concern will
get dramatic improvement in their sales volume and also in business. Working capital
policies of a firm have a great effect on its profitability, liquidity and structured health
of the organization.
Every concern should adopt some new tread management strategies that will
help in greater productivity, inventory optimization and also better working capital
management. So, it is noted that working capital is a means to run business smoothly
and profitability. Thus, the concept of working capital has its own important in a
going concern. Good management of working capital is part of good finance
management effective use of working capital will contribute to the operational
efficiency of a department; optimum use will help to generate maximum return.
48
Plasto-mech Industry is a small company. Ratios are inconsistent. Capital has
increased drastically but the sale has also increased in proportion. They have potential
to grow phenomenal because they have a strong technical and execution abilities.
They enjoy good will of customers, suppliers and employees.
Though some of the ratios like Debt to equity and working capital requirement
go against them otherwise all other ratios are as per the benchmark requirements.
49
LIMITATIONS OF THE STUDY
Following limitations was encountered while preparing this project:
1) Limited data
This project has completed with annual reports; it just constitutes one part of
data collection i.e. secondary .there were limitation for primary data collection
because of confidentiality.
2) Limited period
This project is based on three year annual reports. Conclusions and
recommendation are based on such limited data. The trends of last three year
may or may not reflect the real working capital position of the company.
3) Limited area
Also it was difficult to collect the data regarding the competitions and their
financial information. Industry figure were also difficult to get.
1) The time for the detail project study is very short.
2) The study is limited only last year confidential maters .
3) The ratio are generally calculated from past financial statements the
studies limited only for last 3 years 2008-2009,2009-2010,2010-2011.
4) Every organization having their some confidential matters because of that
they provide limited information.
50
BOOKS REFFERED:
 PRASANNA CHANDRA (NINTH EDITION 2007); FINANCIAL
MANAGENENT, TATA Mc GRAW HILL PUBLISING.
 I.M.PANDEY (NINTH EDITION 2005); FINANCIAL MANAGEMENT,
VIKAS PUBLISING HOUSE.
 SATISH INAMDAR (SIX EDITION 2009); PRICNCIPAL OF FINANCIAL
MANAGEMENT, MRS. JYOTI DEEPAK BHIVPATHAKI PUBLISHED,
41-50.
 C.R. KOTHARI (SECOND EDITION 2004); RESEARCH
METHEDOLOGY NEW AGE INTERNATIONAL PUBLISHER.
ANNUAL REPORTS OF PLASTO-MECH INDUSTRY
1. YEAR 2008-2009
2. YEAR 2009-2010
3. YEAR 2010-2011
WEBSITES REFERENCES
 <http:www.google.com/WORKING CAPITAL>assessed on Monday 1st august
2011,6.00pm
 <http:www.google.com/ratio analysis>assessed on 15th august 2011,6.00pm
 <http:info@elite-group.co.in> assessed on 5 th
august on Friday 2011,5.00pm.
51
CHAPTER-1
EXECUTIVE SUMMERY
1
EXECUTIVE SUMMERY
I have undergone my summer training at PLASTO-MECH INDUSTRIES,

which is one of the growing manufacturing units.
During the training period I got the practical knowledge of working capital
management. We noted that these big manufacturing units having many decisions
related to inventory management, receivables management and cash management
which affects largely on the working capital requirement of the company therefore it
is necessary to analysis all the elements of the elements of the working capital i.e.
currents and currents liabilities.
This project gave me great learning experience and at the same time it gave
me enough scope to implement my analytical ability. The analysis and advice
presented in this report is based on the last three years financial statements i.e. annual
reports of PLASTO-MECH INDUSTRY.
The project gives in insight about interpretation and analysis of working

capital management, and various aspects such as proper understanding the working
capital of PLASTO-MECH INDUSTRY & to suggest measures to overcome the
shortfalls if any. I got an opportunity to learn what is really meant by working capital
management and its implementation in day to day life.
Decisions related to working capital (current assets -current liabilities) and

short term financing are known as working capital management for this analysis it
requires depth study of live charts changing as per the requirements which 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.
2
Research methodology
To analyze the financial position of the company, the information was collected
through the various annual of the company which are as follows.
a) Annual report of 2008-2009

b) Annual report of 2009-2010
c) Annual report of 2010-2011
Also facts and figures were collection from discussion held with higher authorities of
the company and also company and also through various records, booklets, research,
and reports of PLASTO-MECH INDUSTY.
3
Chapter -2
Objective of the study
4
INTRODUCTION
One of the most important areas in a day to day management is the functional area of
finance that covers all the current assets of the firm. It is concerned with the
management of individual’s current assets as well as management of total working
capital. Financial management means procurement of funds and effective utilization
of those procure funds. Procurement of funds is firstly concerned for financing
working capital requirements of the firm and secondly for financing fixed asset.
MEANING AND CONCEPT
The net working capital of business is its current assets less its current liabilities.
Current assets include:
 Stock of raw material

 Work in progress
 Finished goods
 Trade debtors
 Repayments
 Cash & bank balances
Current liabilities include:
 Trade creditors
 Accruals
 Taxation payable
 Dividends payable
 Short term loans
5
Every business needs adequate liquid resources in order to maintain day to day cash
flows. It needs enough cash to pay wages & salaries as they fall due and to pay
creditors if it is to keep its work force and ensure its supplies. Maintaining adequate
working capital; is not just important in the short term.
Sufficient liquidity must be maintained in order to ensure the survival of business in

the long term as well. Even a profitable business may fail if it does not have adequate
cash flows to meet its liability as they fall due. Therefore when business make
investment decisions they must not only consider the financial outlay involved with
acquiring the new machine or the new building etc, but must also take account of the
additional current assets that are usually involved with any expansion of activity.
Increase production tends to engender a need to hold additional stocks of raw material
& work in progress. Increased sales usually mean that the level of debtors will
increase. A general increase in the firm’s scales of operation tends to imply a need for
greater level of cash.
The goal of working capital management is to manage the firms current assets &
current liabilities in such a way that the satisfactory level of working capital is
maintained. The current assets should be large enough to cover its current liabilities in
order to ensure a reasonable margin of the safety.
DEFINITION:-
1. According to Guttmann & Doug all:-

“Excess of current assets over current liabilities”
2. According to Park & Gladson:-
“The excess of current assets of a business in (i.e. cash, accounts receivables,

inventories) over current items owned to employees and others (such as
salaries & wages payable, accounts payable, taxes owned to Government)”.
6
OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottle necks if any the objective of the
study, the following further objectives are framed for a depth analysis.
 To study the working capital management of Plasto-mech industry.
 To study the optimum level of current assets and current liabilities of the
company.
 To study the liquidity position through various working capitals related ratios.
 To study the working capital components such as receivable accounts, cash

management, inventory position.
 To study the way and means of working capitals finance of the Plasto-mech
industry.
 To do analysis of companies performance.
 To study the operating cycle and cash cycle of the company.
7
Need of working capital management
The need for working capital gross or current assets can not be over
emphasize. As already observed, the objective of financial decision making is to
maximize the share holders wealth. To achieve this, it is necessary to generate
sufficient profits can be earned will naturally depend up on the magnitude of the sales
amount other things but sells can not convert into cash.
There is a need for working capital in the form of current assets to deal with
the problem arising out of lack of immediate realization of cash again goods sold.
There for sufficient working capital is necessary to sustain sales activity. Technically
this is refers to operating or cash cycle. If the company has certain amount of cash, it
will be required for purchasing the raw material may be available on credit basis.
Then the company has spend some amount for labour and factory overhead to convert
the raw material in work in progress, and ultimately finished good. These finished
goods convert into sales on credit basis in the form of sundry debtors. Sundry debtors
are converting cash after expiry of finished goods and sundry debtors and day to day
cash requirements. However some parts of current assets may be financed by
liabilities also. The amount required to be invested in these current assets is always
higher then the funds available from current liabilities. This is the precise reason why
the needs for working capital arise.
8
Chapter:2
Company profile
9
COMPANY PROFILE
Introduction:
We wish to introduce our self as an ISO/TS 16949:2009 certified

engineering industry established in 1974 (since 35 years) . Our main aim
behind targeting plastic fields is to meet the emerging needs of plastics and
sub-assemblies in automotives, electronics, defense and many other sectors.
Elite Group is a core team of management including the people from

different fields like design, tool development, production, mold analyst etc.
Our highest priority is to take the customer's covers the customers comes up
with concept of component and demands complete assembly in hand.
Step by step we are including each processing facility in house to fulfill the
customer’s requirements like screen printing, lead casting, atomized sub
assemblies etc. during the period of last 35 years we have covered maximum
renowned customers in almost all sectors.
 Four wheelers crates

 Two wheelers paint packaging
 Battery parts
MISSION
 Our mission is to serve the industry with world class plastic products fulfilling
their needs and giving value for money, always moving up the value chain.
 We shall constantly upgrade our facilities, systems and peoples to meet global
challenges.
10
VISSION
 To become a global player in the field of plastic parts and products.

 To always b in synchronization with contemporary technology.
 To reach Rs.100 crore sales turnover annually by the year 2014-15.
 To constantly move up the food chain and find own place in rationalization
and globalization.
VALUES
 Human: we treasure our people.

 Social : we care for the society have formed a trust and donate generously.
 Ethical &moral : we promote highest business ethics and moral values
amongst our employees.
 Environment : we care for the environment & try to conserve it & protect it.
INFRASTRUCTURE
Product & Tool Designing
Elite’s strength lies in its ability to strategically manage the entire program
management of OEMs– concept to production hard tooling. An efficient
approach produces complete and cost effective designs and manufacturing
solutions in the shortest possible time frames. Our dedicated program
management team is involved from design to customer PPAP approval.
11
Design stations includes hi-end softwares such as Unigrapics, Pro-E,
DelCAM.
Services Offered: Part Digitizing, Prototyping, Platic Products Moulding

Feasibility Analysis, Design Review and Alternative Design Solution,
Value Engineering
In-house Tool Development
In-house tool development is one of the core strengths of Elite Group. Tool
Room consists of Vertical Machining Center (VMC) , Electric Discharge
Machinig (EDM), Surface Grinders, and all other conventional tooling
machines which can fabricate moulds ranging from 80T to 750T within a span
of less than 30 days.
Apart from this, we have dedicated teams for moulds preventive and
preductive which maintain our plant
OEE > 80%
12
Inspection/Testing/Validation
We have a separate standard room for inspection of newly

manufactured / under-development tools. The standard room includes
Coordinate Measurement Machine (CMM), Profile Projector, Colour
Calorimeter with Delta-E software and other checking instruments.
Apart from this we have a strategic tie-up external agencies for automotive
validation and testing like ARAI.
Production
The plastic molding capability covers wide range of polymer processing

technologies. Elite group facilitated with over 24 molding machines ranging
from 80T to 750T of Ferromatics and Windsor make. Total consumption is
13
about 150 MT per month. Consumption material includes a wide variety of
materials like POM, PC, ABS, Nylo GF, PC +ABS, HD, PP, LD. So the
combination of highly precise machines has resulted in impressive list of
satisfied customers.
Elite team has always adopted advanced manufacturing technologies with the
growing needs of the industry. As per the strategic planning of the group, all
machines would be automized step by step by installing robotic arms, SPMs
resulting in lower manufacturing time and high efficiency level
Secondary Operations / Assemblies
We have printing facilities for plastic components. We are having

the team working in this division for last 12 years. This service includes
creating the impressive artwork till printing on plastic component. We have
automatic machines of five color printing to covering high volumes and control
quality sharpness.
Sub assemblies includes the component size starting from 3mm to 10 mm.
Assemblies includes Metal Inserts, Rubber O-rings and Filters etc. The
current capacity for per month volume is 20 lacs units.
14
Logistics
We have a separate logistic team to support domestic as well as overseas

customers with cost effective packaging standards and solutions. We also
have logistic partners worldwide to support customer JIT (Just In Time)
systems.
PRODUCTS
4 Wheeler Interior Parts
Instrument Cluster
Center Facia Cluster
Steering Column Assembly
Defrost Grill
15
Driver/Co-Driver Side Pad
Compartment Box Parts
Glove Box Assemblies
IP Hangon Parts
4 Wheeler Exterior Parts
Front Grills
Bumper Brackets
Bumper Child Parts
Power Train Plastic Parts
Air Guide Sets
Bonnet Cowl Assembly
Mud Guard
Wiper Panel
Wheel Liners
16
2 Wheeler Parts
Air Filter Cases

Fender (Front & Rear)
Mud Cover
Automotive Batteries
Battery Containers
Battery Covers
Battery Handles
Vent Plugs
Level Indicators
17
Spacers
QUALITY
Advance Product Quality Planning (APQP)
Elite Group is having dynamic Programme management team which includes
New product development Team (NPD) to take the customer's concept from
design to development by prioritizing the requirements through Advance
product Quality Planning (APQP). During APQP Stage Review of Customer
Drawing, Customer requirements regarding Raw material, appearance,
fitment testing’s & Potential failures during product launch are identified by
CFT (Cross functional Team) .
APQP Stage is the guide for the product from development to PPAP
(Production Part Approval Process) with a strigent timeline .
Phase 1: Plan & Define Program
Phase 2: Product Design & Development Verification
Phase 3: Process Design & Development Verification
Phase 4: Product & Process Validation
Phase 5: Feedback Assessment & Corrective Action
18
PROCESS FLOW OF NPD
19
Quality Control for Regular Supply
After PPAP signup from customer, the project is handed over to regular
Quality Team. Quality department continuously focuses on controlling key
parameters like :-
- Inhouse PPM
- Customer End PPM
- No. of Kaizens
- COPQ (Cost of Poor Quality), etc.
20
CLIENTS
 WHIRLPOOL.
 BHARAT ELECTRONICS.
 HAIER.
 FABER.
 LEAR CORPORATION.
 General Motors .
 TATA MOTORS.
 EXIDE BATTERIES.
21
Chapter-3
22
Research Methodology consists of Inductive (simulation), qualitative and

Quantitative research procedures and employing triangulation (comparing real world
Effective teams to interrogate the social network organizational model).
Research Methodology is a way to systematically solve the research problem.

We can say that the research methodology has many dimensions and research
Methods do constitute a part of research methodology. When we talk about research
Methodology we not only talk of the research methods but also the logic behind the
Methods we use in the context of the research study and explain why we are using a
Particular method or technique and why we are not using others so that research
Results are capable of being evaluated either by the researcher himself or by others.
QED Baton has its own methodology to go about the report preparation which
Eventually formed the research methodology for my project work.
”Research concerns itself with obtaining information through observation that

can be used to systematically develop logically related proportion so as to
attempt to establish casuals relationship among variables.”
-By Black and champion.
23
Collection of Data
The data necessary for the completion of the project working capital management was
collected through the primary as well as secondary sources.
o Primary data:
The primary data was collected through such sources and
the places where actual information was provided about working capital in the
company. The source includes manager and his assistance of the company’s
finance department.
o Secondary data:
Secondary data was generated from various references
such as books, various documents & articles from finance department. The
main objective behind this data was to know the plans & procedures followed
for effective and efficient management of working capital.
The data also includes financial statements, balance sheet and profit and
Loss accounts of the company. These statements of the company are audited.
24
Chapter -4
THEROTICAL BACKGROUND
25
MEANING OF WORKING CAPITAL:
Capital required for a business can be classifies under two main categories:
 Fixed Capital
 Working Capital
Every business needs funds for two purposes for its establishments and to
carry out day to day operations. Long term funds are required to create
production facilities through purchase of fixed assets such as plant and \
machinery, land and building, furniture etc. Investments in these assets are
representing that part of firm s capital which is blocked on a permanent or
fixed basis and is called fixed capital. Funds are also needed for short term
purposes for the purchasing of raw materials, payments of wages and other
day to day expenses etc. These funds are known as working capital. In simple
words, Working capital refers to that part of the firm s capital which is
required for financing short term or current assets such as cash, marketable
securities, debtors and inventories.
CONCEPTS OF WORKING CAPITAL:
There are two concepts of working capital:
 Balance Sheet concepts

 Operating Cycle or circular flow concept
26
BALANCE SHEET CONCEPT:
There are two interpretation of working capital under the balance sheet
concept:
 Gross Working Capital

 Net Working Capital
The term working capital refers to the Gross working capital and represents
the amount of funds invested in current assets. Thus, the gross working
capital is the capital invested in total current assets of the enterprises.
Current assets are those assets which are converted into cash within short
periods of normally one accounting year. Example of current assets is:
Constituents of Current Assets:
 Cash in hand and Bank balance

 Bills Receivable
 Sundry Debtors
 Short term Loans and Advances
 Inventories of Stock as:
 Raw Materials
 Work in Process
 Stores and Spaces
 Finished Goods
 Temporary Investments of Surplus Funds
 Prepaid Expenses
 Accrued Incomes
27
The term working capital refers to the net working capital. Net working
capital is the excess of current assets over current liabilities or say:
Net Working Capital = Current Assets – Current Liabilities.
NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:
When the current assets exceed the current liabilities, the working capital is positive
and the negative working capital results when the current liabilities are more than
the current assets. Current liabilities are those liabilities which are intended to be
paid in the ordinary course of business within a short period of normally one
accounting year of the current assets or the income of the business. Examples of
current liabilities are:
CONSTITUENTS OF CURRENT LIBILITIES:
 Bills Payable
 Sundry Creditors or Account Payable
 Accrued or Outstanding Expenses
 Short term Loans, Advances and Deposits
 Dividends Payable
 Bank Overdraft
 Provision for Taxation, If does not amount to appropriation of profits
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital.
28
OPERATING CYCLE OR CIRCULATING CASH FORMAT:
Working Capital refers to that part of firm s capital which is required for financing
short term or current assets such as cash, marketable securities, debtors and
inventories. Funds thus invested in current assets keep revolving fast and being
constantly converted into cash and these cash flows out again in exchange for other
current assets. Hence it is also known as revolving or circulating capital. The circular
flow concept of working capital is based upon this operating or working capital cycle
of a firm. The cycle starts with the purchase of raw material and other resources.
And ends with the realization of cash from the sales of finished goods. It involves
purchase of raw material and stores, its conversion into stocks of finished goods
through work in progress with progressive increment of labour and service cost,
conversion of finished stocks into sales, debtors and receivables and ultimately
realization of cash and this cycle continuous again from cash to purchase of raw
materials and so on. The speed/ time of duration required to complete one cycle
determines the requirements of working capital longer the period of cycle, larger is
the requirement of working capital.
29
Receivable conversion period Raw material
storage
(RCP) conversion period (RMSCP)
Cash received form
Debtors and paid to suppliers
Of raw materials
Sales of finished Raw

materials
Goods introduced
into
process
Finished Goods
Produced
Finished goods conversion Work in

process
Period (FGCP) Conversion period
(WIPCP)
30
The gross operating cycle of a firm is equal to the length of the inventories and receivables
conversion periods. Thus,
Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP
Where,
RMCP = Raw Material Conversion Period
WIPCP = Work –in- Process Conversion Period
FGCP = Finished Goods Conversion Period
RCP = Receivables Conversion Period
However, a firm may acquire some resources on credit and thus defer payments for certain
period. In that case, net operating cycle period can be calculated as below:
Net Operating Cycle Period = Gross Operating Cycle Period
– Payable Deferral period

Further, following formula can be used to determine the conversion periods.
 Raw Material Conversion Period = Average Stock of Raw Material.

Raw Material Consumption per day
 Work in process Conversion Period = Average Stock of Work-in-Progress

Total Cost of Production per day
 Finished Goods Conversion Period = Average Stock of Finished Goods

Total Cost of Goods sold per day
 Receivables Conversion Period = Average Accounts Receivables

Net Credit Sales per day
 Payable Deferral Period = Average Payable

Net Credit Purchase per day
31
CLASSIFICATION OR KIND OF WORKING CAPITAL:
Working capital may be classified in two ways:
 On the basis of concept

 On the basis of time
Om the basis of concept, working capital is classified as gross working capital and net
working capital. The classification is important from the point of view of the financial
manager.
On the basis of time, working capital may be classified as:
 Permanent or Fixed working capital

 Temporary or Variable working capital.
Kinds of Working Capital
On the basis of concept On the basis of time
Permanent or
Temporary or
Gross Working Net Working
Fixed Working
Variable Working
Capital Capital
Special Working
Regular Reserve Working
Capital
Working Capital Capital
32
1. PERMANENT OR FIXED WORKING CAPITAL:
Permanent or fixed working capital is the minimum amount which is required to

ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets. There is always a minimum level of current assets which is
continuously required by the enterprises to carry out its normal business operations.
2. TEMPRORAY OR VARIABLE WORKING CAPITAL:
Temporary or variable working capital is the amount of working capital which is

required to meet the seasonal demands and some special exigencies. Variables
working capital can be further classified as second working capital and special
working capital. The capital required to meet the seasonal needs of the enterprises is
called the seasonal working capital.
Temporary working capital differs from permanent working capital in the sense that
is required for short periods and cannot be permanently employed gainfully in the
business
IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:
Working capital is the life blood and nerve centre of a business. Just a circulation of a
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. The main advantages of
maintaining adequate amount of working capital are as follows:
 Solvency of the Business

 Goodwill
 Easy Loans
 Cash discounts
 Regular supply of Raw Materials
 Regular payments of salaries, wages & other day to day commitments.
 Exploitation of favourable market conditions
 Ability of crisis
33
 Quick and regular return on investments
 High morals
THE NEED OR OBJECTS OF WORKING CAPITAL:
The need for working capital cannot be emphasized. Every business needs some
amount of working capital. The need of working capital arises due to the time gap
between production and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps in purchase of raw
materials and production, production and sales,
And sales, and realization of cash, thus, working capital is needed for the following
purposes:
 For the purchase of raw materials , components and spaces

 To pay wages and salaries
 To incur day to day expenses and overhead costs such as fuel, power and
office expenses etc.
 To meet the selling costs as packing, advertising etc.
 To provide credit facilities to the customers.
 To maintain the inventories of raw materials, work –in- progress, stores and
spares and finished stock.
34
FACTORS DETERMING THE WORKING CAPITAL REQUIRMENT:
The working capital requirements of a concern depend upon a large number of

factors such as nature and size of the business, the characteristics of their
operations, the length of production cycle , the rate of stock turnover and the state
of economic situation. However the following are the important factors generally
influencing the working capital requirements.
NATURE OR CHARACTERSTICS OF A BUSINESS:
 The nature and the working capital requirement of enterprises are interlinked.
While a manufacturing industry has a long cycle of operation of the working
capital, the same would be short in an enterprises involve in providing services.
The amount required also varies as per the nature, an enterprises involved in
production would required more working capital then a service sector
enterprise.
 MANAFACTURE PRODUCTION POLICY:
Each enterprises 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 other may follow the principles of demand based production in
which production is based on the demand during the particular phase of time.
Accordingly the working capital requirements vary for both of them.
35
 OPERATIONS:
The requirement of working capital fluctuates for seasonal business. The working
capital needs of such business may increase considerably during the busy season
and decrease during the
 MARKET CONDITION:
If there is a high competition in the chosen project category then one shall need to
offer sops like credit, immediate delivery of goods etc for which the working capital
requirement will be high. Otherwise if there is no competition or less competition in
the market then the working capital requirements will be low.
 AVABILITY 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 the raw material
stock .On other hand if raw material is not readily available then a large
inventory stocks need to be maintained, there by calling for substantial
investment in the same.
36
 GROWTH AND EXAPNSION:
Growth and Expansions in the volume of business result in enhancement of the

working capital requirements. As business growth and expands it needs a larger
amount of the working capital. Normally the needs for increased working capital
funds processed growth in business activities
 PRICE LEVEL CHANGES :

Generally raising price level require a higher investment in the working capital. With
increasing prices, the same levels of current assets needs enhanced investments.
 MANAFACTURING CYCLE:
The manufacturing cycle starts with the purchase of raw material and is
completed with the production of finished goods. If the manufacturing cycle
involves a longer period the need for working capital would be more. At time
business needs to estimate the requirement of working capital in advance for
proper control and management. The factors discussed above influence the
quantum of working capital in the business. The assessment of the working
capital requirement is made keeping this factor in view. Each constituents of the
working capital retains it form for a certain period and that holding period is
determined by the factors discussed above. So for correct assessment of the
working capital requirement the duration at various stages of the working
capital cycle is estimated. Thereafter proper value is assigned to the respective
current assets, depending on its level of completion. The basis for assigning
value to each component is given below
37
COMPONENTS OF WORKING CAPITAL BASIS OF VALUATION
Stock of Raw Material Purchase of Raw Material
Stock of Work -in- Process At cost of Market value which is lower
Stock of finished Goods Cost of Production
Debtors Cost of Sales or Sales Value
Cash Working Expenses
Each constituent of the working capital is valued on the basis of valuation.

Enumerated above for the holding period estimated. The total of all such valuation
becomes the total estimated working capital requirement.
The assessment of the working capital should be accurate even in the case of small
and micro enterprises where business operation is not very large. We know that
working capital has a very close relationship with day-to-day operations of a
business. Negligence in proper assessment of the working capital, therefore, can
affect the day-to-day operations severely. It may lead to cash crisis and ultimately to
liquidation. An inaccurate assessment of the working capital may cause either under-
assessment or over-assessment of the working capital and both of them are
dangerous.
38
PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY:
The following are the general principles of a sound working capital management
policy:
PRINCIPLES OF WORKING CAPITAL MANAGEMNT POLICY
PRINCIPLES OF PRINCIPLES OF
PRINCIPLES OF COST OF EQUITY PRINCIPLES OF

MATURITY OF
RISK PAYMENTS
1. PRINCIPLE OF RISK VARAITAION (CURRENT ASSETS POLICY):
Risk here refers to the inability of a firm to meet its obligations as and when they
become due for payment. Larger investment in current Assets with less dependence
on short term borrowings, increase liquidity, reduces risk and thereby decreases the
opportunity for gain or loss. On the other hand less investments in current assets
with greater dependence on short term borrowings, reduces liquidity and increase
profitability. In other words there is a definite inverse relationship between the
degree of risk and profitability. In other words, there is a definite inverse
relationship between the risk and profitability. A conservative management prefers
to minimize risk by maintaining a higher level of current assets or working capital
while a liberal management assumes greater risk by reducing working capital.
39
However, the goal of management should be to establish a suitable trade off
between profitability and risk.
2. PRINCIPLES OF COST OF CAPITAL:
The various source of raising working capital finance have different cost of capital
and the degree of risk involved. Generally, higher and risk however the risk lower is
the cost and lower the risk higher is the cost. A sound working capital management
should always try to achieve a proper balance between these two.
3.PRINCIPLE OF EQUITY POSITION:
The principle is concerned with planning the total investments in current assets.
According to this principle, the amount of working capital invested in each
component should be adequately justified by a firm s equity position. Every rupee
invested in current assets should contribute to the net worth of the firm. The level of
current assets may be measured with the help of two ratios:
1. Current assets as a percentage of total assets and
2. Current assets as a percentage of total sales
While deciding about the composition of current assets, the financial manager may
consider the relevant industrial averages.
4. PRINCIPLES OF MATURITY OF PAYMENT:
The principle is concerned with planning the source of finance for working capital.
According to the principles, a firm should make every effort to relate maturities of
payment to its flow of internally generated funds. Maturity pattern of various
current obligations is an important factor in risk assumptions and risk assessments.
40
Generally shorter the maturity schedule of current liabilities in relation to expected
cash inflows, the greater the inability to meet its obligations in time.
CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL:
 Growth may be stunted. It may become difficult for the enterprises to

undertake profitable projects due to non availability of working capital.
 Implementations of operating plans may brome difficult and consequently
the profit goals may not be achieved.
 Cash crisis may emerge due to paucity of working funds.
 Optimum capacity utilization of fixed assets may not be achieved due to non
availability of the working capital.
The business may fail to honour its commitment in time thereby adversely affecting
its creditability. This situation may lead to business closure.
The business may be compelled to by raw materials on credit and sell finished goods
on cash. In the process it may end up with increasing cost of purchase and reducing
selling price by offering discounts . Both the situation would affect profitable
adversely.
Now availability of stocks due to non availability of funds may result in production
stoppage. While underassessment of working capital has disastrous implications on
business over assessments of working capital also has its own dangerous.
CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:
 Excess of working capital may result in unnecessary accumulation of

inventories.
 It may lead to offer too liberal credit terms to buyers and very poor recovery
system & cash management.
 It may make management complacent leading to its inefficiency.
 Over investment in working capital makes capital less productive and may
reduce return on investment.
41
Working Capital is very essential for success of business & therefore needs efficient
management and control. Each of the components of working capital needs proper
management to optimize profit.
INVENTORY MANAGEMNT:
Inventory includes all type of stocks. For effective working capital management,
inventory needs to be managed effectively. The level of inventory should be such
that the total cost of ordering and holding inventory is the least. Simultaneously
stock out costs should be minimized. Business therefore should fix the minimum
safety stock level reorder level of ordering quantity so that the inventory costs is
reduced and outs management become efficient.
42
RECEIVABLE MANAGEMENT:
Given a choice, every business would prefer selling its produce on cash basis.
However, due to factors like trade policies, prevailing market conditions etc.
Business are compelled to sells their goods on credit. In certain circumstances a
business may deliberately extend credit as a strategy of increasing sales. Extending
credit means creating current assets in the form of debtors or account receivables.
Investment in the type of current assets needs proper and effective management as,
it gives rise to costs such as :
 Cost of carrying receivables

 Cost of bad debts losses
Thus the objective of any management policy pertaining to accounts receivables
would be to ensure the benefits arising due to the receivables are more then the
costs incurred for the receivables and the gap between benefit and costs increased
resulting in increase profits. An effective control of receivables
Help a great deal in properly managing it. Each business should therefore try to find
out coverage credit extends to its clients using the below given formula:
Average Credit = Total amount of receivable
(Extend in days) Average credit sale per day
Each business should project expected sales and expected investments in receivable
based on various factor, which influence the working capital requirement. From this
it would be possible to find out the average credit days using the above given
formula. A business should continuously try to monitor the credit days and see that
the average. Credit offer to clients is not crossing the budgeted period otherwise the
requirement of investment in the working capital would increase and as a result,
activities may get squeezed. This may lead to cash crisis.
43
CASH BUDGET:
Cash budget basically incorporates estimates of future inflow and outflows of

cash cover a projected short period of time which may usually be a year, a half or
a quarter year. Effective cash management is facilities if the cash budget is
further broken down into months, weeks or even a daily basis.
There are two components of cash budget are:
1. Cash inflows
2. Cash outflows
The main sources for these flows are given here under:
1. Cash Sales
2. Cash received from debtors
3. Cash received from Loans, deposits etc.
4. Cash receipts other revenue income
5. Cash received from sale of investment or assets.
CASH OUTFLOWS:
1. Cash Purchase
2. Cash payments to Creditors
3. Cash payment for other revenue expenditure
4. Cash payment for assets creation
5. Cash payments for withdrawals, taxes.
6. Repayments of Loan etc.
44
SOURCE OF WORKING CAPITAL
The sources of long-term financing include ordinary share Capital, preference

share capital, debentures, long-term borrowings from financial
Institutions and reserves and surplus (retained earnings).
 Short-Term Financing. The short-term financing is obtained for a period

less
than one year. It is arranged in advance from banks and other surplus of
short- term finance in the money market. It includes working capital funds from
banks, Public deposits, commercial paper, factoring of receivables etc
 Spontaneous Financing. It refers to the automatic sources of short-term funds

arising in the normal course of a business. Trade (supplier s) credit and
Understanding expenses are examples of spontaneous financing.
The real choice of financing current assets, once the spontaneous sources of
financing have been fully utilized, is between the long-term and short-term sources
of finance.
45
THEORY OF RATIOS
 CURRENT RATIO OR WORKING CAPITAL RATIO
Current ratio is a relationship of current assets to current liabilities. current

assets means the assets that are either in the form of cash or cash
equivalents or can be converted into cash or cash equivalents in short
time(say within a year) like cash, bank balances, marketable securities,
sundry debtors, stock, bills receivables, prepaid expenses.
Current liabilities means liabilities repayable in as short time like sundry

creditors, bills payable, outstanding expenses, bank overdraft.
Computation. The ratio is calculated as follows:
Current Assets
Current ratio = -------------------------
Current Liabilities
46
Objective.
 The ratio is mainly used to give an idea of the company's ability to pay
back its short-term liabilities with its short-term assets.
 The higher the current ratio, the more capable the company is of paying its
obligations. A ratio under 1 suggests that the company would be unable to pay
off its obligations if they came due at that point.
 While this shows the company is not in good financial health, it does not
necessarily mean that it will go bankrupt - as there are many ways to access
financing - but it is definitely not a good sign.
 The current ratio can give a sense of the efficiency of a company's operating
cycle or its ability to turn its product into cash.
 An acceptable current ratio varies by industry. For most industrial companies
1.5 is an acceptable CR. A standard CR for a healthy business is close to 2.
 However, a blind comparison of actual current ratio with the standard current
ratio may lead to unrealistic conclusions. A very high ratio indicates idleness
of funds, poor investment policies of the management and poor inventory
control, while a lower ratio indicates lack of liquidity and shortage of working
capital.
47
 LIQUID RATIO OR QUICK RATIO OR ACID TEST RATIO
Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly

stringent measure of liquidity.
Liquid assets are those assets which are either in the form of cash or cash
equivalents or can be converted into cash within a short period. Liquid assets
are computed by deducting stock and prepaid expenses from the current
assets. Stock is excluded from liquid assets because it may take some time
before it is converted into cash. Similarly, prepaid expenses do not provide
cash at all and are thus, excluded from liquid assets.
Computation The ratio is calculated is as under:
Liquid current assets
Liquid ratio= -------------------------------
Liquid liabilities
Objective.
 The ratio of current assets less inventories to total current liabilities. This ratio
is the most stringent measure of how well the company is covering its short-
term obligations, since the ratio only considers that part of current assets
which can be turned into cash immediately (thus the exclusion of inventories).
 The ratio tells creditors how much of the company's short term debt can be
met by selling all the company's liquid assets at very short notice. also called
acid-test ratio.
 The current ratio does not indicate adequately the ability of the enterprise to
discharge the current liabilities as and when they fall due. Liquid ratio is
48
considered as a refinement of current ratio as non-liquid portion of current
assets is eliminated to calculate the liquid assets. Thus it is a better indicator of
liquidity.
 A quick ratio of 1:1 is considered standard and ideal, since for every rupee of
current liabilities, there is a rupee of quick assets. A decline in the liquid ratio
indicates over-trading, which, if serious, may land the company in difficulties.
 SOLVENCY/LEVERAGE RATIOS (LONG-TERM SOLVENCY)
The term solvency implies ability of an enterprise to meet its long term in
debt and thus, solvency ratios convey the long term financial prospects of the
company. The shareholders, debenture holders and other lenders of the
long-term finance/term loans may be basically interested in the ratios falling
under this group.
Following are the different solvency ratios:
Debt-equity Ratio
The debt-equity ratio is worked out to ascertain soundness of the long term
financial policies of the firm. This ratio expresses a relationship between debt
(external equities) and the equity (internal equities).
Debt means long-term loans, i.e., debentures, public deposits, loans (long
term) from financial institutions. Equity means shareholder s funds, i.e.,
preference share capital, equity share capital, reserves less losses and
fictitious assets like preliminary expenses.
Computation The ratio is calculated as under:
49
Debt-Equity Ratio = -----------------------------------
Equity (shareholder s funds)
Objective.
 The objective of this ratio is to arrive at an idea of the amount of capital

supplied to the concern by the proprietors and of asset ‘cushion’ or cover
available to its creditors on liquidation of the organization.equity.
 It also indicates the extent to which the firm depends upon outsiders for its
existence. In other words, it portrays the proportion of total funds acquired by
a firm by way of loans.
 A high debt-equity ratio may indicate that the financial stake of the creditors is
more than that of the owners. A very high debt-equity ratio may make the
proposition of investment in the organization a risky one.
 While a low ratio indicates safer financial position, a very low ratio may mean
that the borrowing capacity of the organization is being underutilized.
 The debt/equity ratio also depends on the industry in which the company
operates. For example, capital-intensive industries such as auto manufacturing
tend to have a debt/equity ratio above 2, while personal computer companies
have a debt/equity of under 0.5.
 The readers of financial management may remember that to borrow the funds
from outsiders is one of the best possible ways to increase the earnings
available to the equity shareholders, basically due to two reasons:
1. The expectations of the creditors in the form of return on their

investment are comparatively less as compared to the returns
expected by the equity shareholders.
50
2. The return on investment paid to the creditors is a tax-deductible
expenditure.
PROFITABILITY RATIOS
Profit as compared to the capital employed indicated profitability of the

concern. A measure of profitability is the overall measure of efficiency. The
different profitability ratios are as follows:
Net Profit ratio
The Net profit ratio establishes the relationship between net profit and net
sales, expressed in percentage form.
Net Profit is derived by deducting administrative and marketing expenses,

finance charges and making adjustments for non-operating expenses and
incomes.
Computation This ratio is calculated as follows:
Net Profit ratio = ------------------------------------
Net Sales
Objective
 The net profit ratio determines the overall efficiency of the business.It
indicates that proportion of sales available to the owners after the
consideration of all types of expenses and costs – either operating or non-
operating or normal or abnormal.
 A high net profit indicates profitability of the business. Hence, higher the
ratio, the better the business is.
51
Working Capital Turnover Ratio
The working capital turnover ratio indicates the number of times a unit
invested in working capital produces sale. In other words, this ratio shows the
efficiency in the use of short-term funds for achieving sales.
Working capital is computed by deducting current liabilities from current

assets. A careful handling of the short-term assets and funds will mean a
reduction in the amount of capital employed thereby improving turnover.
Computation The ratio is calculated as follows:
Objective
 A company uses working capital (current assets - current liabilities) to fund

 Operations and purchase inventory. These operations and inventory are then
converted into sales revenue for the company.
 The working capital turnover ratio is used to analyze the relationship between
the money used to fund operations and the sales generated from these
operations.
 In a general sense, the higher the working capital turnover, the better because
it means that the company is generating a lot of sales compared to the money
it uses to fund the sales.
Net Sales
Working Capital Turnover Ratio = --------------------------------
Working Capital
52
 A high, or increasing Working Capital Turnover is usually a positive sign,
showing the company is better able to generate sales from its Working
Capital. Either the company has been able to gain more Net Sales with the
same or smaller amount of Working Capital, or it has been able to reduce its
Working Capital while being able to maintain its sales.
 As such, higher this ratio, the better will be the situation. However, a very high
ratio may indicate overtrading – the working capital being meager for the scale
of operations.
Net credit sales
Debtors Turnover ratio = -----------------------------------
Computation: The ratio will be

computed as:
Average A/C receivable
Objective
 This ratio indicates the speed at which the sundry debtors are converted in the
form of cash. However this intention is not correctly achieved by making the
calculations in this way.
53
Creditors Turnover Ratio
Credit Purchases
Credit Turnover Ratio = --------------------------
Average accounts payable
A high turnover ratio indicates that payment to creditor is quite prompt but it also
implies that full advantage of credit allowed is not taken. A low ratio indicates that
the payment to the creditor is not quite prompt and it needs to improve.
54
CHAPTER-5
Data Analysis
55
WORKING CAPITAL ESTIMATION
Particulars 2009-10 2010-11 Increase Decrease

A) Current Assets
Cash in Hand 113,683.17 9,342.11 104,341.06
Sundry Debtors 12,482,253.69 17,806,382.56 5,324,128.87
Loans& Advances 26,300.00 40,000.00 13,700.00
Bank Accounts 11,417.05 1,767,005.54 1,755,588.49
Prepaid Insurance 36,151.00 62,177.00 26,026.00
Other current assets 3,833,958.09 8,326,657.79 4,492,699.70
TOTAL A 16,503,763.00 28,011,565.00 11,612,143.06 104,341.06
B) Current Liability
provision for taxes 374,350.00 541,490.00
167,140.00
Sundry Creditors 5,506,360.98 15,191,766.92 9,685,405.94
Other current liability 10,710,340.24 1,469,899.00 9,240,441.24
TOTAL B 16,591,051.22 17,203,155.92 9,240,441.24 9,852,545.94

NET Working Capital(A-B) (87,288.22) 10,808,409.08 20,852,584.30 9,956,887.00
NET Increase In Working 10,895,697.30
Capital 10,895,697.30
Total 10,808,409.08 10,808,409.08 20,852,584.30 20,852,584.30
56
RATIO ANALYSIS
CURRENT RATIO
Year 2008-2009 2009-2010 2010-2011
Current Assets Rs. 85,74,689.46/- Rs.1,65,03,763.46/- Rs.2,80,11,565.20/-
Current Liabilities Rs.1,15,75,128.63/- Rs.1,65,91,051.22/- Rs.1,72,03,155.92/-
Current Ratio 0.740 0.994 1.628
Current Ratio
Current Ratio
1.628
0.994
0.74
2008-2009 2009-2010 2010-2011
Interpretation
Current Ratio express relationship between current asset and current liabilities, for sound
business the current ratio of the company should be 2:1.In case of the current ratio for the
year2008- 09, 2009-10, and 2010-11 is 0.740:1, 0.994:1, and 1.628:1 respectively. The
current ratio is lower than ideal ratio and hence it needs to be improved.
57
Liquid Ratio
Liquid Current Assets
Liquid ratio = -----------------------
Liquid Liabilities
Information for past last 3 years
YEARS 2008-2009 2009-2010 2010-2011
Liquid Assets Rs. 75,25,356.46/- Rs. 15187438.91/- Rs. 24899388.20/-
Liquid Liabilities Rs.1,01,34,559.45/- Rs. 14908708.26/- Rs. 8093309.18/-
Liquid Ratio 0.742 1.018 3.076
Table No. 2: Liquid Ratio or Quick Ratio
Liquid Ratio
Liquid Ratio
3.076
1.018
0.742
2008-2009 2009-2010 2010-2011
58
Inference:
The Quick Ratio shows Constancy throughout the last 3 years. Quick Ratio establishes the
relationship between quick assets and quick liabilities. The ideal quick Ratio is 1:1 in this case
the quick Ratios for the 2008, 2009, and 2010 is 1.28:1, 1.09:1, 1.34:1 respectively. The
general liquidity position of the business is satisfactory.
In this case it is clear that from above chart the company under observation has always
maintained the ratio above 1.
59
Debt-Equity Ratio:
Debt-Equity Ratio = -----------------------------------------
Equity (shareholder s funds)
YEARS 2008-2009 2009-2010 2010-2011
Long Term Debt Rs. 10241380.85/- Rs. 8870743.77/- Rs.19218566.55/-
Owner Capital Rs. 5493005.94/- Rs.8440708/- Rs. 8400708/-
Debt Equity Ratio 1.86 1.05 2.28
Table No.3: The Debt Equity Ratio
Debt Equity Ratio

Debt Equity Ratio
2.28
1.86
1.05
2008-2009 2009-2010 2010-2011
60
Inference:
Debt Equity Ratio is the relationship between the debt and equity. This ratio is very
important from the creditor s point of views. This ratio provides the information regarding
coverage of debt by equity. In this case the Debt Equity for the year 2008, 2009, and 2010 is
1.90:1, 1.75:1, and 0.87:1 respectively. Low debt equity ratio is considered favorable from
management point of view.
Net Profit ratio:
Net Profit ratio = ------------------------------------
Net Sales
YEARS 2008-2009 2009-2010 2010-2011
Net Profit Rs.2024178.52/- Rs.3406233.06/- Rs.7095229.87/-
Net Sales Rs. 51166660.76/- Rs. 51236052.42/- Rs. 101749914.01/-
Net Profit Ratio 3.95% 6.64% 6.97%
Table No. 7: Net Profit Ratio
61
Net Profit Ratio
Net Profit Ratio
6.64% 6.97%
3.95%
2008-2009 2009-2010 2010-2011
Inference:
The Net Profit Ratio established relationship between net profit and sales to measures the
overall efficiency of firm. In this case the Net Profit Ratio for year 2008, 2009, and 2010 is
3.56%, 2.47%, 3.00% respectively. The high ratio is an indication of good management or
high selling price.
62
Working capital turnover ratio:
Net Sales
Working Capital Turnover Ratio = --------------------
Working Capital
Year 2008-09 2009-10 2010-11

Sales 51166660 51236052 101749914
Working Capital 3000439.63 87288.22 10808409.08
Working Capital
Turnover 17.0530543 586.9755621 9.413958451
Diagrammtitel
120000000
100000000
Achsentitel
80000000
60000000 Sales
Working Capital
40000000
Working Capital Turnover
20000000
0
2008-09 2009-10 2010-11
Achsentitel
63
Interpretation
The ratio is an importance indicator about the working capital position

now if we analysis the data, we find that it follows increasing trends
which means investment in working capital is low.
Net Credit Sales
Debtors Turnover Ratio = ------------------------------------
Average A/C Receivable
Year 2008—09 2009-10 2010-11

Credit Sales 5758889 12482253.69 17806382.56
Average Trade Debtors 6256752.19 9120571.345 15144318.13
Debtors Turnover Ratio 0.920427855 1.36858243 1.175779749
Average Collection Period(days) 44.63286346 64.97394727 54.3261011
64
Diagrammtitel
20000000
15000000
10000000
5000000
0
Credit Sales Average Trade Debtors Average
Debtors Turnover Ratio Collection
Period(days)
2008—09 2009-10 2010-11
Interpretation
65
Creditors Turnover Ratio
Credit Purchases
Credit Turnover Ratio = --------------------------------
Average Accounts Payable
Year 2008-09 2009-10 2010-11

Credit Purchase 10257165.63 5506360.98 15191766.92
Average Accounts Payable 13968944.77 10634943.8 17944947.41
Creditors Turn Over Ratio 0.734283498 0.517761174 0.846576285
Average Payment Period(months) 16.34246177 23.1767089 14.17474149
Diagrammtitel
20000000
15000000
10000000
5000000
0
2008-09 2009-10 2010-11
Interpretation
Current Assets Turnover Ratio :-
Sales
Current assets turnover Ratio = -------------------------
Current Assets
66
Year 2008-09 2009-10 2010-11
Sales 51166660 51236052 101749.914
Current Assets 8574689 16503763 28011565
Current Assets Turnover Ratio 5.97 3.1 3.64
Diagrammtitel
60000000
50000000
40000000
30000000
20000000
10000000
0
2008-09 2009-10 2010-11
Sales Current Assets Current Assets Turnover Ratio
Inference:-
67
CHAPTER-6
FINDING
68
FINDINGS
 Company s working capital requirement has increased drastically in 2010-11 because of

bad credit management.
 Sales is increasing Rapidly due to High creditors.
 Debt to equity ratio was declined in year 2009. This is because of bad credit
management..
 Overall companies finance management seems to be well, but in 2009-10 it showed
some distractions.
 Average payment period is 18days.
 Company has consistently increased its credit period for past three years. This could lead
to reduction in the working capital but company has increased the collection period
hence the advantages of this increase credit has got no effect on working capital
reduction.
 DTR-collection period is continuously increasing this indicates the company is giving
more credit to customer this period was highly increased in 2009-10 but was controlled
in 2010-11. Indicating poor credit management in between, the Company maybe
focusing more on the growth and less on working capital and credit management.
 Higher the better .it indicates operating efficiency of the management .the company has
stable net profit ratio but it is less than average industry.
 Debt by equity ratio is very important from creditor s point of view. This ratio provides
the information of coverage of debt by equity ideal value is 0.5 but this companies
average debt by equity ratio is 1.5% which is not good at all this means management has
not made any strategy for capital structure.
69
CHAPTER-6
SUGGESTIONS AND CONCLUCTION
70
Conclusions:
Working capital management is an important aspect of any business. Every

business concern should have adequate working capital to run its business
operation. Every concern should have neither redundant of excess working capital
nor inadequate or shortage of working capital. Both excess as well as short working
capital positions are bad for any business.
The three elements of working capital management are cash management

receivable management and inventory management. If a finance manager maintains
these three elements of working capital management properly means the concern
will get dramatic improvement in their sales volume and also in business. Working
capital policies of a firm have a great effect on its profitability, liquidity and
structured health of the organization.
Every concern should adopt some new tread management strategies that will
help in greater productivity, inventory optimization and also better working capital
management. So, it is noted that working capital is a means to run business
smoothly and profitability. Thus, the concept of working capital has its own
important in a going concern. Good management of working capital is part of good
finance management effective use of working capital will contribute to the
operational efficiency of a department; optimum use will help to generate maximum
return.
Plastomech Industry is a small company. Ratios are inconsistent. Capital has

increased drastically but the sale has also increased in proportion. They have
potential to grow phenomenal because they have a strong technical and execution
abilities. They enjoy good will of customers, suppliers and employees.
Though some of the ratios like Debt to equity and working capital requirement go
against them otherwise all other ratios are as per the benchmark requirements.
71
SUGGESTIONS
 Plastomech Industry should control its working capital requirement.

 They should focus on collection from Debtors which seems to be weak in the
year 2009-10 and also in 2010-11.
 Plastomech Industry should bring down Debt to Equity ratio which is very
high during year 2010-11
 Plastomech Industry should venture in some manufacturing activity related
to their field.
 This will improve the gross margin and also the valuation of the company.
72
CHAPTER:7
LIMITATIONS
73
LIMITATION OF THE STUDY
Following limitation was encountered while preparing this project:
1) Limited data
This project has completed with annual reports; it just constitutes one
part of data collection i.e. secondary .there were limitation for primary
data collection because of confidentiality.
2) Limited period
This project is based on three year annual reports. Conclusions and
recommendation are based on such limited data. The trends of last
three year may or may not reflect the real working capital position
of the company.
3) Limited area
Also it was difficult to collect the data regarding the competitions
and their financial information. Industry figure were also difficult
to get.
1) The time for the detail project study is very short.

2) The study is limited only last year confidential maters .
3) The ratio are generally calculated from past financial statements
the studies limited only for last 3 years 2008-2009,2009-
2010,2010-2011.
4) Every organization having their some confidential matters
because of that they provide limited information.
74
CHAPTER-8
BIBLIOGRAPHY
75
Books Referred :-
 FINANCIAL MANAGENENT – PRASANNA CHANDRA
 FINANCIAL MANAGEMENT – I.M.PANDEY
 PRICNCIPAL OF FINANCIAL MANAGEMENT-SATISH

INAMDAR
ANNUAL REPORTS OF PLASTO-MECH INDUSTRY
YEAR 2008-2009
YEAR 2009-2010
YEAR 2010-2011
WEBSITES REFERENCES
 www.google.com
 www.studyfinance.com
 info@elite-group.co.in
76

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ACKNOWLEDGMENT

I take the occasion to thanks “PLASTO MECH INDUSTRY”. For giving me an

I specially want to thanks Mr.YUVRAJ BORATE to help me in my work. I will always

I express my sincere thanks to Dr. A. A. Deshmukh (HOD,MBA Dept., P.V.P.I.T.)

Under the Guidance of

Sr. No. Particulars Page No.

4 Net Profit Ratio

5 Working Capital turnover ratio

6 Debtors Turnover Ratio

7 Creditors Turnover Ratio

8 Stock Turnover Ratio

II. Company Profile

III. Objectives of the Study

IV. Research Methodology

VII. Suggestions and Conclusions

“STUDY OF WORKING CAPITAL MANAGEMENT”

Under the guidance of

Prof. Ajit Thite

In partial fulfillment of the requirement for the award of the degree of

TSSM’S PADMABHOOSHAN VASANTDADA PATIL

We have undergone my summer training at PLASTO-MECH INDUSTRIES,

which is one of the growing manufacturing units.

related to inventory management, receivables management and cash management

currents and currents liabilities.

me enough scope to implement my analytical ability. The analysis and advice

reports of PLASTO-MECH INDUSTRY.

The project gives in insight about interpretation and analysis of working

capital of PLASTO-MECH INDUSTRY to suggest measures to overcome the

shortfalls if any. We got an opportunity to learn what is really meant by working

capital management and its implementation in day to day life.

Decisions related to working capital (current assets -current liabilities) and

both maturing short term debt and upcoming operational expenses.

through the various annual of the company which is as follows.

a) Annual report of 2008-2009

b) Annual report of 2009-2010

c) Annual report of 2010-2011

research, and reports of PLASTO-MECH INDUSTY.

The company is an ISO/TS 16949:2009 certified engineering industry

established in 1974 (since 35 years). main aim behind targeting plastic

fields is to meet the emerging needs of plastics and sub-assemblies in

automotives, electronics, defense and many other sectors.

Elite Group is a core team of management including the people from

comes up with concept of component and demands complete assembly in

customer’s requirements like screen printing, lead casting, atomized sub

maximum renowned customers in almost all sectors. In 2002 Plasto-mech

industry established in Bhosari.

 Two wheelers paint packaging

 To become a global player in the field of plastic parts and products.

 To always be in synchronization with contemporary technology.

 To reach Rs.100 crore sales turnover annually by the year 2014-15.

 Human: they treasure there people.

amongst there employees.

Product & Tool Designing

management of OEMs– concept to production hard tooling. An efficient approach

such as Unigrapics, Pro-E, DelCAM.

Feasibility Analysis, Design Review and Alternative Design Solution, Value

In-house Tool Development

consists of Vertical Machining Center (VMC), Electric Discharge Machining (EDM),

maintain there plant

OEE > 80%

They have a separate standard room for inspection of newly manufactured

/ under-development tools. The standard room includes Coordinate Measurement

other checking instruments.