SUMMER TRAINING PROJECT REPORT ON

STUDY OF WORKING CAPITAL MANAGEMENT AT SUPERTECH LTD

For the partial fulfilment for the Degree of

MASTER OF BUSINESS ADMINISTRATION

EXECUTIVE SUMMARY

Supertech Group Pioneer in Real Estate Development over 20 years, Supertech Group is a prominent name for development of high quality residential, commercial and shopping centres, Malls, Multiplexes and Hotels in NCR and other prominent places UP and Uttrakhand.

Supertech was promoted by Mr. R.K. Arora aged 48 years who is Civil engineer by profession, having more that 25 years experience in construction and allied activities. Supertech Group started long back in 1995 with their flagship company Supertech Construction Private Limited(Name of the same company was changed to Supertech Limited subsequently). Supertech Limited is a company incorporated under the Indian Companies Act 1956. The group grew from small company to a large corporate house of well known brand Supertech. Supertech limited has developed and constructed several prestigious group housing, Malls, Hotels, Multiplexes and Commercial complexes in and around Delhi. The group is known for its high quality construction, innovative designs and well planned amenities at prime location. The brand Supertech is well known in real estate industry and the group has successfully completed a number of residential and commercial complexes in Delhi NCR and Western U.P.

My Project is Study of Working Capital Management At Supertech Limited.

The study was conducted at the Corporate office of Supertech Limited in Noida (U.P.). The project was of 2 months duration. During the project I interviewed the executives & staff to collect the data, & also made use of company records & annual reports. The data collected were then compiled, tabulated and analyzed.

Working Capital Management is a very important facet of financial management due to:

Investments in current assets represent a substantial portion of total investment. Investment in current assets & the level of current liabilities have to be geared quickly to change sales.

Some the points to be studied under this topic are: How much cash should a firm hold? What should be the firms credit policy? How to & when to pay the creditors of the firm? How much to invest in inventories?

Objectives
To identify the financial strengths & weakness of the company. Through the profit ratio, understand the profitability of the company. Evaluating company s performance relating to financial statement analysis. To know the liquidity position of the company with the help of current ratio. To determine policy regarding profitability, liquidity and risk by considering company s objectives. To determine the quantum and structure of current assets. Determining the relationship between the current assets and current liabilities and hence liquidity is determined.

COMPANY PROFILE

Supertech Group, founded in 1988 , has set new trends and benchmarks of architectural excellence in the contemporary global scenario. An ISO 9001:2000 certified company; Supertech has successfully completed 20 years in real estate business and today it has revolutionized the real estate arena. Under the dynamic and pragmatic leadership of Mr. R.K.Arora, Chairman & CMD and experienced Board Members, Supertech Group is scaling new heights and touched the horizon of excellence. Their vision and entrepreneurial acumen and have taken the group to the greater heights. All this dedication and commitment has enabled us to receive the coveted Udyog Ratan Award, 2001 for unparalleled contribution to this area. The greatest contributory factor to this landmark achievement is the vision of Mr. R.K. Arora whose entrepreneurial skills and business acumen have steered the group diligently on a growth path. Mr. Arora has also been bestowed with Excellence Award for the year 2001 for his outstanding contributions to real estate industry.

Supertech Group has already converted more than 33 million sq. ft. area of residential and commercial entity into architectural landmarks and more than 36 projects that

accommodates nearly 30000 families. Its various projects viz. Residential & Commercial Townships, Shopping Malls, Hotels and IT Parks have either completed or about to complete. We are inspired by our clients to endeavour the dreams turning into reality. Our commitment to deliver quality with aesthetic design surges ahead with the enterprising

vision of creating value through excellence. world class architecture shows true modern lifestyle.

In a span of 20 years, Supertech Limited has achieved an impressive growth. The annual turnover for the year ending 31st March 2012 stands at 1410 crores and profit after tax(PAT) at 110 crores. The tangible net worth of Supertech Limited is more than 430 crores as on 31st March 2012. Supertech as a brand name is registered with the registrar of Trade Marks . The group has completed three shopping malls called Shopprix at sector-61, Noida, sector-5 Vaishali and Kaushambhi, Ghaziabad respectively. The Group has completed group housing projects like Supertech Residency, Supertech Estate at Vaishali, Housing project Rameshwar Orchid at Kaushambhi and Housing Project Icon at Indrapuram, Ghaziabad, Emerald Court, at Expressway Noida. The presently ongoing projects of the group include Residential Townships, Large Group Housing Complexes, Commercial Complexes, Multi Cineplexs & 5 Star Hotel Projects etc.

COMPANYS CHAIRMAN PROFILE

R K Arora (Chairman & Managing Director)

Mr. R K Arora is a Chairman & Managing Director of the Supertech Ltd. He has reappointed on April 2012 by the board of directors in 16th Annual General Meeting. He has a good entrepreneur skills which leads to the organization to maintain a sustainable growth. He is B.E. in civil engineering & has more than 28 years experience of this sector. He has also get Excellence Award for the year 2001 for his outstanding contribution to real estate industry.

In Board Of Directors company also have 5 other directors who have a great entrepreneur

&

business skills whish leads organization to achieve a sustainable growth. They all have a more than 18 year of experience of different market sectors or corporate world.

Board of Directors-

Mrs. Sangita Arora (JMD)

Mr. Mohit Arora (Director)

Mr. Anil Sharma (Director)

Mr. G.L.Khera (Director)

Mr. Vikas Kansal (Director)

Corporate Social Responsibility (CSR)-

Realty major Supertech Ltd., a socially aware company, is significantly contributing towards growth of the society. The company is aware about its social responsibility to give back a certain share to the socio-economic growth. As part of the CSR the various initiatives of the company include:

Supertech provide public amenities like running of community centres, adoption and maintenance of parks and walkways where families spend time together further enriching their lives. The need of the project area and CSR programmes are developed keeping in mind the identified need. Also, provision of ample greenery and open space at our residential projects.

The company believes in Social responsibility is about giving something back, and we do this with every project we take on. It believes in giving their clients a place to live, work and flourish. It builds developments that enhance their surroundings that enrich people's lives.

The company has just started 'Kaksha' a CSR activity at its ongoing projects to educate the poor children in the area and the labourers working at construction project. The programme is an initiative of "Supertech Foundation" a Trust established by Mr. R. K. Arora and his family members.

Quality Policy-

Supertech Group has been awarded an internationally recognized ISO 9001:2001 certification and Udyog Ratan Award for its quality standard. Supertech Group is constantly working towards creating new benchmarks of architectural excellence in the contemporary global environment. In this new environment, the demand for multi-faceted real estate development has become crucial for keeping pace with the progress. Capitalizing on these demand dynamics, we at Supertech Group have always taken new initiatives and emerged as one of the prominent entities. Supertech introducing quality into every aspect of the Company ranging from Process, Human Resource, Technology and Services to create an all-encompassing quality culture. Developing collective willingness towards the discipline of doing things right by using perfect planning & state of the art technology and delivering highest quality Standard to the clients. Our strong Quality Consciousness and quest for continuous up gradation for ultra modern life-style and luxurious living standard. Our clients interests are paramount priority for us. We want all our clients' investment to be safe & profitable. We always try to research, innovate and improve on service quality. We also provide the most accurate information and added value in order to fulfil our clients demands.

Organization Chart

Board of Directors
R.K. Arora (Chairman & Managing Director) Sunita Arora (Joint Managing Director)

Director-IT

Director-Projects

Company Secretary

CFO

Director (Mktg & Sales)

Vice president (HR)

VP/AVP

VP/AVP

SGM/GM

GM-HR

Project Head

GM(Accounts)

GM(Finance)
Mgr.

GM(Mktg)
Mgr.

Mgr.

AM-IT

AM-HR

Engineers

AM-Acct.

AM-Fin.

AM/TL-Sales

EXEC.-IT

EXEC.-IT

EXEC.-HR

EXEC.-HR

SUPERVISOR

SUPERVISOR

EXEC.-ACC.

EXEC.-ACC

EXEC.-FIN.

EXEC.-FIN

EXEC

EXEC.

Financial Results of the Company:

The Companys performance during the financial years is Summarized below: (Rs. in crores)

Particulars

2009-10 (Audited)

2010-11 (Audited) 1333.67 1,189.01 144.65 2.33 5.05 10.53 126.74 27.36 0.16 99.22 213.58 312.80 0.78 0.13 311.89

2011-12 (Provisional) 1883.47 1674.06 209.41 6.71 63.59 139.34 29.30 0.25 111.56 311.9 423.46 423.46

Total Income 337.66 Less: Operative Expenses 283.41 Profit before Interest, Depreciation and 54.25 Taxation Less: Depreciation 0.68 Less: Interest 5.53 Less: Prior Period Item Profit Before Taxation 48.04 Less: Provision For Taxation -Current 10.41 -Deferred 0.03 Profit After Tax 37.59 Add: Profit Brought Forward 176.44 Balance Available For Appropriation 214.03 Appropriation Proposed Dividend on Equity Shares 0.39 Tax on Proposed Dividend 0.06 213.58 Balance Carried to Balance Sheet

Total Income
2,000.00 1,800.00 1,600.00 1883.47

Rs.in crores

1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 2009-10 337.66

1333.67

2010-11

2011-12

Profit After Tax

200 180 160 140

Rs. in crores

120 100 80 60 40 20 0 2009-10 2010-11 37.59 99.22

111.56

2011-12

Earning Per Share

160 140 120 Amount in Rs. 100 122.69 138.56

60 40 20 0 2009-10 48.36

Financ ial Yea r

2010-11

80

2011-12

Company has excellent track record in paying interest and repayment of loan. Company has not defaulted even for a single day in interest & loan repayment. No account so far has been restructured with any bank. They have term loan facilities from following bankers:

1. Corporation Bank 2. Punjab National Bank 3. Indian Overseas Bank 4. Bank Of India 5. Indian Bank 6. ICICI Bank Ltd. 7. Oriental Bank Of Commerce(OBC) 8. UCO Bank 9. Kotak Mahindra Bank 10. HUDCO

COMPANYS NEW PROJECT

SUPERNOVA

SUPERNOVA

It is the most awaited project of Supertech Limited. Supertech Group, after the successful launch of North Eye-North, Indias tallest residential development, has launched Supertech Supernova, situated in NOIDA. This splendid project, which is the biggest project in North India, has mixeduse development spread over the area of 5 million sq. ft. The new township is set on beautiful lush green area to offer its residents luxurious lifestyle. Each plot has 70% open area. The project involves a 300 meter tall building that is going to be the tallest in North India. Supertech Supernova is build by keeping in mind the necessities of prominent clients who desire to have luxurious lifestyle, and it is comprised with all modern facilities like well appointed apartments with modern conveniences such as a clubhouse, jogging track, swimming pool and more. Supernova is having five towers. Spira is the iconic tower, which is Indias tallest mixed use development having 80 floors which stands at 300 meters. Supertech Supernova is offering mixed use development and offering Residential, Serviced Apartment, Hotels, Shopping Malls, Office Spaces and Recreational centres. Mixed use development and its benefits redefine this project as an Epicentre. This project reveals luxurious amenities, world class modern conveniences all around inside this complex. This project is very well scheduled and designed with prominent architects and consultants, who are working to offer high class facilities with long-lasting designs. Supertech Supernova as a residential community is contained with two luxurious hotels, premium and luxurious retail brands offices, deluxe residences, fully furnished serviced apartments, free entry and exits for all verticals etc.

Revenue Model of this project is as under: Particulars Of Project Hotel-1(Super Luxury) Hotel-2(Five Star) Retail Office Area Service Apartments High end residential Apartments/ Branded Residential Apartment Revenue Model Revenue from operations of Hotel Revenue from operations of Hotel Lease Model 50% sale 50% Lease Revenue From Operations Sale Model

Cost of Project & Means of Finance

(Rs. in Crores)
Cost of Project Payment for Land(During Construction Period) Interest Cost paid to NOIDA Authority Construction Cost Consultancy, Admin & Marketing Expenses Interest During Construction Period TOTAL Means Of Finance Loan From Bank/FI Promoters Contribution(By way of Capital & Unsecured Loan) Advances From Buyers TOTAL Orignal 397.66 378.73 1241.34 136.26 180.71 2334.7 735.58 527.49 1071.63 2334.7

Detail Of Towers

Name Of Tower No. Of Floors

Spira

79

Hotel & Serviced Apartment 45

Nova East

Nova West

Astralis

39

38

28

The Table Containing Combination of various segments in Different towers is as follows:

Hotel in Residential in Various Various Tower Towers

Tower

Location In tower

Units

Total No. Of Floors

Spira(4BHK+3BHK) Nova East(4BHK+3BHK) Nova West(3BHK+2BHK) Spira Hotel Tower

5th To 17th Floor 5th To 39th Floor 5th To 38th Floor 53rd To 75th Floor 30th To 45th Floor

8 8 8 51 40

13 35 34 23 16

Serviced Branded Apartment Studio Residences in Variuos Apartment (4BHK) Towers

Spira

41st To 51st Floor

28

11

Hotel Tower

5th To 28th Floor

24

Spira

9th To 40th Floor

26

22

Payment Plan for Towers (Astralis, Nova, Spira)

Flexi Payment Plan Within 15 days of Booking 5,00,000 Within 60 days of Booking Balance of 10%* On completion of foundation 40%* Down Payment On start of Ground Floor 9%* Booking Amount 5,00,000 On start of 5th Floor 9%* Within 15 days of Booking Balance of 10%* On start of 8th floor 9%* Within 30 days of Booking 85%* On start of 12th Floor 9%* Onpossession 5%* On Possession 5%* * including all allied charges * includes all allied cahrges

Construction Link Payment Plan Booking Amount 5,00,000 Withinn 45 Days Of Booking Balance of 10%* Withinn 60 Days Of Booking 10% of BSP On Bhumi Poojan 10% of BSP On Start of foundation Work 10%+25% of (LR) On Start of Ground Floor 7.5%+25% of (LR) On Start of 2nd Floor 7.5%+25% of (LR) On start of 5th Floor 7.5%+25% of (LR) On Start of 8th Floor 7.5%+50% Car Parking 7.5%+50% Car Parking+25%of IFMS+25% of CRF 7.5%+50% Car Parking+25%of IFMS+25% of CRF 7.5%+50% Car Parking+25%of IFMS+25% of CRF 7.5%+50% Car Parking+25%of IFMS+25% of CRF 5%

On Start of 12th Floor

On Start of 15th Floor

On Completion of super structure

On Start of electrification work On offer of Possession

WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities.

Symbolically, it means, Net Current Assets = Current Assets- Current Liabilities

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital:

1) Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow .

2) Working capital represents the total of all current assets. In other words it is the Gross working capital, it is also known as Circulating capital or Current capital for current assets are rotating in their nature.

3) Working capital is defined as the excess of current assets over current liabilities and provisions. In other words it is the Net Current Assets or Net Working Capital.

IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures.

To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business. In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.

WORKING CAPITAL MANAGEMENT

INTRODUCTION:

Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e. 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle.

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm.

There are basically four components have to be managed in the working capital management because whole working capital management based on its components management.

PAYABLE MANAGEMENT

CASH MANAGEMENT

WORKING CAPITAL MANAGEMENT

RECEIVABLE MANAGEMENT

INVENTORY MANAGEMENT

Composition of working capital

Major Current Assets 1) Cash 2) Accounts Receivables 3) Inventory 4) Marketable Securities Major Current Liabilities 1) Bank Overdraft 2) Outstanding Expenses 3) Accounts Payable 4) Bills Payable

The Goal of Capital Management is to manage the firm s current assets &liabilities, so that the satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets.

Main theme of the theory of working capital management is interaction between the current assets & current liabilities.

CONCEPT OF WORKING CAPITAL:

There are 2 concepts:

Balance Sheet Concept Operating Cycle Concept

Balance Sheet Concept:

There are two interpretation of working capital under Balance Sheet Concept.

Gross working capital: - It is referred as total current assets. Focuses on,

Optimum investment in current assets:

Excessive investments impairs firms profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets.

Financing of current assets:

Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities.

Net working capital (NWC)- defined in 2 ways, Difference between current assets and current liabilities. Net working capital is that portion of current assets which is financed with long term funds.

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES

If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk.

Implications of Net Working Capital:

Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will

be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC.

For evaluating NWC position, an important consideration is trade off between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease.

Operating Cycle Concept:

A companys operating cycle typically consist of three primary activities. Purchasing resources, Producing the product and Distributing (Selling)the product. If the firm is to maintain liquidity and function properly, it has to invest funds in various short term assets (Working Capital) during this cycle. It has to maintain a cash balance to pay the bills as they come due. In addition the company must invest in account receivables to extend credit to its customers.

We can show the operating cycle of a company in this way-

Purchase Resources Inventory Conversion Period Payables Deferred Period

Pay for resources Purchases

Sell Product on Credit Receivables Conversion Period Cash Conversion Cycle

Receive Cash

Operating Cycle

Operating cycle= Inventory conversion period + Receivable conversion period

Operating Cycle In Supertech Ltd-

In the above said statement it concludes that, There is a different procedure of operating cycle in this company, compare to others core manufacturing sector because its a real estate company which is not a core manufacturing sector. So it is difficult to ascertain operating cycle for a particular period. Basically company follow the operating cycle in this way e.g. company purchase raw material, Construction and selling it to the customers and after a certain period company generate cash from it. Here it is quite difficult to make relationship between the construction and cash generated from the sale.

NOTE- Therefore we can say It is quite difficult to calculate the exact operating cycle period because it is difficult to ascertain in how much period product would be sold which can not identified here.

PLANNING OF WORKING CAPITAL:

Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn sufficient return from its operations. WCM is a significant facet of financial management. Its importance stems from two reasons: Investment in current asset represents a substantial portion of total investment. Investment in current assets and level of current liability has to be geared quickly to change in sales.

Business undertaking required funds for two purposes: To create productive capacity through purchase of fixed assets. To finance current assets required for running of the business.

The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are necessary for earning profits. However, sales do not convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two. To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle.

WORKING CAPITAL CYCLE:

A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm.

Each component of working capital (namely inventory, receivables and payables) has two dimensions ... TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors

more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water Flowing down a plughole, they remove liquidity from the business

AR Converted Into Cash

CASH

COLLECT ACCOUNT RECEIVABLES

SALE ORDER

DELIVER GOODS/SERVICES

PURCHASE GOODS/SERVICES

Cash Converted to Prepaid expenses and Inventory

Goods/Services Converted into AR

WORKING CAPITAL CYCLE

Comparative Balance Sheet for Three Years

PARTICULERS
SOURCES OF FUNDS SHAREHOLDERS FUNDS(A) Capital Reserves and Surplus Share Application Money(pending allotment) LOAN FUNDS Secured Loans(B) Unsecured Loans(C) TOTAL(A+B+C) APPLICATION OF FUND FIXED ASSETS(D) Gross Block Less: Accumulated Depreciation NET BLOCK (1) Investment(E) Deferred tax Assets/Liability(2)

AS AT 31.3.2010

AS AT 31.3.2011

AS AT 31.3.2012

7,77,00,000 2,13,58,07,783 -

7,77,00,000 3,11,89,60,308 56,66,700

7,77,00,000 4,23,12,58,710 56,66,700

2,33,91,46,897 4,71,94,214 4,59,98,48,894

2,86,85,62,309 9,53,34,014 6,16,62,23,331

5,77,54,65,414 9,56,80,457 10,18,57,71,281

8,74,28,613 2,71,41,393 6,02,87,220 68,41,26,430 680,741

34,22,14,848 5,04,67,682 29,17,47,166 1,25,18,17,837 (963,662)

49,69,86,596 6,70,21,537 37,94,97,376 1,20,76,07,837 (45,83,076)

CURRENT ASSET,LOANS AND ADVANCES Inventories(F) 5,53,00,00,985 Sundry Debtors(G) Cash and Bank Balance(H) Loans and Advances(I) LESS:CURRENT LAIBILITIES AND PROVISION Current Liabilities(J) Provision(K) NET CURRENT ASSETS (3) {(F+G+H+I)-(J+K)} Miscellaneous Expenditure to the Extent Not Written Off Or Adjusted (L) TOTAL(1+E+2+3) 73,68,03,369 48,52,60,801 1,35,90,52,209 8,11,11,17,364

13,30,02,08,898 2,16,41,14,233 2,48,10,93,076 3,80,71,12,586 21,75,25,28,793

5,73,70,23,205 9,43,35,47,853 1,15,55,50,106 11,18,17,76,444 27,50,78,97,608

4,15,07,22,371 10,86,79,342 3,85,17,15,651 30,38,852

16,84,74,63,161 28,26,31,918 4,62,24,33,714 11,88,276

18,62,58,64,528 27,87,83,936 8,60,32,49,144 18,50,576

4,59,98,48,894

6,16,62,23,331

10,18,57,71,281

Profit & Loss Account for the years (2009-10, 2010-11, 2011-12)

(Rs. in crores)

PARTICULARS

Revenue from Operations Other Income Total Revenue(I+II) Expenses Cost of material Consumed Changes in Inventories of FG,WIP & Stock In Trade Employee benefits Expenses Finance Cost Depreciation and Amortization Other Expenses Total Expenses V. Profit before Exceptional, Extraordinary items & tax VI. Exceptional Items VII. Profit Before Extraordinary items & tax[V-VI] VIII. Extraordinary Items IX. Profit Before Tax X. Tax expense: (1) Current Tax (2) Deferred Tax XI. Profit/loss for the period

I. II. III. IV.

AMOUNT (Audited) (2009-10) 330.37 7.3 337.66 64.12 208.71 4.60 5.53 0.68 5.99 289.62 48.03 48.03 48.03 10.41 .03 37.59

AMOUNT (Audited) (2010-11) 1322.42 11.24 1333.66 273.58 (780.81) 36.97 37.67 2.32 1626.66 1196.39 137.28 137.28 10.53 126.74 27.36 1.6 99.21

AMOUNT (Provisional) (2011-12) 1859.62 24.19 1883.81 273.58 749.16 32.93 63.59 6.71 618.55 1744.36 139.45 139.45 .060 139.40 27.87 3.6 111.15

CASH MANAGEMENT

CASH MANAGEMENT

Cash management is one of the key areas of WCM. Apart from the fact that it is the most liquid asset, cash is the common denominator to which all current assets, that is, receivables & inventory get eventually converted into cash. Cash is oil of lubricate the ever-turning wheels of business: without it the process grinds to a shop.

Motives for holding cash:

Cash with reference to cash management is used in two senses: It is used broadly to cover currency and generally accepted equivalents of cash, such as cheques, drafts and demand deposits in banks. It includes near-cash assets, such as marketable securities & time deposits in banks.

The main characteristic of these is that they can be readily sold & converted into cash. They serve as a reserve pool of liquidity that provides cash quickly when needed. They provide short term investment outlet to excess cash and are also useful for meeting planned outflow of funds.

CASH IS MAINTAINED FOR FOUR MOTIVES:

A. Transaction motive:

Transaction motive refer to the holding of cash to meet routine cash requirements to finance the transactions which a firm carries on in a variety of transactions to accomplish its objectives which have to be paid for in the form of cash. E.g. payment for purchases, wages, operating expenses,

financial charges like interest, taxes, dividends etc. Thus requirement of cash balances to meet routine need is known as the transaction motive and such motive refers to the holding of cash to meet anticipated obligations whose timing is not perfectly synchronized with cash receipts.

B. Precautionary motive:

A firm has to pay cash for the purposes which cannot be predicted or anticipated. The unexpected cash needs at the short notice may be due to:

Floods, strikes & failure of customer

Slowdown in collection of current receivables

Increase in cost of raw material

Collection of some order of goods as customer is not satisfied

The cash balance held in reserves for such random and unforeseen fluctuations in cash flows are called as precautionary balance. Thus precautionary cash provides a cushion to meet unexpected contingencies. The more unpredictable are the cash flows, the larger is the need for such balance.

C. Speculative motive:

It refers to the desire of the firm to take advantage of opportunities which present themselves at unexpected moment & which are typically outside the normal course of business. If the precautionary motive is defensive in nature, in that firms must make provisions to tide over unexpected contingencies, the speculative motive represents a positive and aggressive Approach. The speculative motive helps to take advantages of:

An opportunity to purchase raw material at reduced price on payment Of immediate cash.

A chance to speculate on interest rate movements by buying securities When interest rates are expected to decline.

Make purchases at favourable price.

Delay purchase of raw material on the anticipation of decline in prices.

OBJECTIVES OF CASH MANAGEMENT

To meet the cash disbursement needs

In the normal course of business firms have to make payment of cash on a continuous and regular basis to the supplier of goods, employees and so son. Also

the collection is done from the debtors. Basic objective is to meet payment schedule that is to have sufficient cash to meet the cash disbursement needs of the firm.

To minimize the funds committed to cash balances First of all if we keep high cash balance, it will ensure prompt payment together with all the advantages. But it also implied that the large funds will remain idle, as cash is the non-earning asset and firm will have to forego profits. On the other hand, low cash balance mean failure to meet payment schedule. Therefore we should have optimum level of cash balance.

FACTORS DETERMININING CASH NEEDS

Synchronization of cash - need for the cash balances arises from the non-synchronization of the inflows & outflows of cash. First need in determining cash needs is, the extent of non-synchronization of cash receipts & disbursements. For this purpose cash budget is to be prepared. Cash budget point out when the firm will have excess or shortage of cash.

Short cash- Cash period reveals the period of cash shortages. Every shortage of cash whether expected or unexpected involves a cost depending upon the security, duration & frequency of shortfall & how the shortage is covered. Expenses incurred as a shortfall are called short costs.

There are following costs included in the short cash:

Transaction cost: this is usually the brokerage incurred in relation to the some short-term near-cash assets like marketable securities.

Borrowing costs: these include interest on loan, commitment charges & other expenses relating to loan.

Loss of cash discount: that s a loss because of temporary shortage of cash.

Cost associated with deterioration of credit rating.

Penalty rates: By a bank to meet a shortfall in compensating balances.

Excess cash balance - cost associated with excessively large cash balances is known as excess cash balance cost. If large funds are idle the implication is that the firm has missed the opportunity to invest those funds and has thereby lost interest. This loss of interest is primarily the excess cost.

Procurement & Management cost: cost associated with establishing and operating cash management staff and activities. They are generally fixed and accounted for by salary, handling of securities etc.

 Uncertainty: the first requirement in cash management is Precautionary cushion to cope with irregularities in cash flows, unexpected delays in collection &disbursements, defaults and unexpected cash needs.

DETERMINING THE CASH NEEDS IN A COMPANY

There are two ways to determine the cash needs-

Planned way Unplanned way

PLANNED WAY

DETEMINING THE CASH NEEDS

UNPLANNE D WAY

Planned way:

Cash needs can be determined through preparing cash budget, for the year, month, week etc. Cash reports, providing a comparison of actual development with forecast figures, are helpful in controlling and revising cash forecasts on a continual basis. The important cash reports are-

 The daily cash reports

Daily treasury reports

The monthly cash report

By preparing of these reports cash needs can be easily identified and fulfilled accordingly.

Unplanned way:

There is no requirement to make a cash budget or any other statement relating to fulfil the cash needs here. In this way as timely requirement has to be generated, it has to be fulfilled from cash available. As such in this regard there in no certain plan to meet out the cash needs.

INVENTORY MANAGEMENT

Inventory management-

Inventory Management is concerned with keeping enough products on hand to avoid running out while, at the same time maintaining a small enough inventory balance to allow for a reasonable return on investment. Proper Inventory management is important for the financial help of the corporation. Being out of stock forces customers to turn to competitors or results in a loss of sales. Excessive level of inventory, however, results in large inventory carrying cost, including the cost of the capital tied up in inventory warehouse fee, insurance etc. A major problem with managing inventory is that a demand for a corporations product is to a degree uncertain. The supply of the raw material used in its production process is also somewhat uncertain. In addition the corporations own production contains some degree of uncertainty due to possible equipment breakdowns and labour difficulties. Because of these possibilities, inventory acts as a shock absorber between product demand and product supply. If product losing sales unit production can be stepped up enough to select the unexpected demand. However, inventory is difficult to manage because it crosses so many line so of responsibility

Why Inventories Exist?

Some function of the firm, such as the purchase of the raw materials, processing and having finished goods available for sale, have a sequential, physical dependence. Maintenance of inventories allows the firm to decuple these functions so that each can be planned, schedule and operated independently.

Types of inventories-

RAW MATERIALS

WORK-INPROGRESS

FINISHED GOODS

Raw Materials- An inventory of raw materials allows separation of production scheduling

from arrival of basic inputs to the production process. Factors affecting the amount of the raw materials inventory include proximity to the supplier, relationship with the supplier, predictability of the production process, lead time required to place an order, transportability of materials.

Work in Progress- An inventory of partially completed units allows the separation of different
phases of the production process. The amount of work in process inventory is in part a function of the type of product, the measurement period and the nature of the production process.

Finished Goods- An inventory of finished goods allows separation of production from selling.
With a stock of finished merchandise on hand, a firm can fill orders as they are received rather than depend upon the completion of production to satisfy customer demands.

Motives of holding of InventoryEconomists have established three motives of holding inventories are as followsTransactions motiveThe transaction motive for holding inventory is to satisfy the expected level of activities of the firm. Precautionary Motive The precautionary motive is to provide cushion in case the actual level of activity is different than anticipated. Speculative MotiveThe speculative motive for holding inventory might entice a firm to purchase a larger quantity of materials than normal in anticipation of making abnormal profits. Advance purchase of raw materials in inflationary times is one form of speculative behaviour. A second reason for speculative inventory purchase may involve an anticipated change in a product. Factors to be considered when determining optimum stock levels include:

What are the projected sales of each product? How widely available are raw materials, components etc.?

How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers?

RECEIVABLE MANAGEMENT

INTRODUCTION-

Receivable Management refers to the decisions a business makes regarding to overall credit and collection policies and the evaluation of individual credit applications. In formulating an optional credit policy, marginal benefits and costs associated with changes in credit standards, credit terms , collection efforts etc. Receivable management proves for a firm, both, an asset and a problem: an asset because of the promise of a future cash flow and a problem because of the need to obtain financing while waiting for the future cash flow.

Company Credit Policy- Company is providing a credit period of 30days to its customers.
Basically its not a core manufacturing company. Its a real estate company. If any Customer is not able to pay the due amount to the company in given period that condition company provides a 15 days extension in existing period but for this there is an approval required signed by the CEO of the company.

Cost of maintaing Receivables Cost of financing- The credit sales delays the time of sales realization and therefore the time
gap between incurring the cost and the sales realization is extended. This result is blocking of funds for a longer period. On the other hand company has to arrange funds to meet its obligation. These funds are to be procured at some explicit cost or implicit cost.

Administrative Cost- a firm will also be required to incur various costs in order to maintain
the record of credit customers both before the credit sales as well as after the credit sales. Before credit sales, costs are incurred on obtaining information regarding credit worthiness of the customers.

Delinquency Costs- over and above the normal administrative cost of maintaing and collection
of receivables, the firm may have to incur additional costs, if there is delay in payment by a customer.

Cost of Default by Customers- if there is a default by a customer and the receivables becomes, partly or wholly, unrealizable then this amount, known as bad debt, also becomes a cost to the company. In receivable Management there are four things which is to be managed by the company as follows-

Credit Sales- Changing credit standards can also be expected to change the volume of sales. As
standards are relaxed, sales are expected to increase with relaxation in credit standards and decrease if credit standards become more restrictive

Credit Policy- the credit policy of a company can be regarded as a kind of trade off between
increased credit sales regarding to increase in profit and the cost of having larger amount of cash locked up in the form of receivables and the loss due to the incidence of bad debts.

Factoring cost this cost have to be beard by the company if it choose an external agency or
institution for collecting the money from debtors.

Opportunity cost of investment- if the company provide a more relaxation in credit period
in that situation more funds have to be blocked, the result is company will lose opportunity to invest somewhere else for this company have to be beard some cost.

PAYBLES MANAGEMENT

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following:

Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do you use order quantities, which take account of stock holding an purchasing costs?

Do you know the cost to the company of carrying stock?

Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier.

How many of your suppliers have a returns policy?

Are you in a position to pass on cost increases quickly through price increases to your customers?

If a supplier of goods or services lets you down can you charge back the cost of the delay?

 Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-intime basis?

There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors -slow payment by you may create ill feeling and can signal that your company is inefficient (or in trouble!).

Company Policy
Company purchase cement always on cash basis from some major suppliers i.e. ACC Cement, Ultratech Cement & J.K.Cement etc.

Company purchase iron rods and other Materials on the basis of 30days credit basis from
the suppliers. Company purchase electronics items on the basis of 15 days.

DATA INTERPRETATION & RATIO ANALYSIS

CURRENT RATIO

Current Assets CURRENT RATIOCurrent Liabilities (Rs. in Crores)

Year
Current Assets Current Liabilities Current Ratio

2009-10
811.11 415.07 1.95:1

2010-11
2175.25 1684.74 1.29:1

2011-12
2750.79 1862.69 1.48:1

Current Ratio
3 2.5 2 1.5 1 0.5 0 2009-10 2010-11 2011-12

Interpretation
In 2012 company current ratio is 1.48 which is good in comparison to last year for a company to pay their obligations but in 2009 company have a current ratio of 1.95 which showed that company have a more current assets in that year.

QUICK RATIO

Liquid Assets Quick RatioCurrent Liabilities ( Rs. in Crores)

Year
Liquid Assets Current Liabilities Quick Ratio

2009-10
258.11 415.07 0.67

2010-11
845.25 1684.74 0.49

2011-12
2177.09 1862.69 1.17

Quick Ratio
1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009-10 2010-11 2011-12 0.67 0.49 1.17

Interpretation:
In 2009 company had a quick ratio i.e. 0.67 which was goes down in 2010 i.e. 0.49 but in 2012 company have a better quick ratio i.e. 1.17 in comparison to last two years which shows that company has able to reduce the blockage in inventory this year and also able to generate the more liquidity for the company.

Debtors Collection Period

12 months Debtors Collection PeriodDebtors Turnover Ratio

Particulars Period In Months DT Ratio DCP in months

2009-10 12 5.2 2.30

2010-11 12 9.11 1.31

2011-12 12 3.2 3.75

Debtors Collection Period

4 3.75 3.5 3 2.5 2 1.5 1 0.5 0 2009-10 2010-11 2011-12 1.31 2.3 DCP in Months

InterpretationIn 2012 company have a collection period of 3.75 months in compare to last two years in this time period company has able to collect due amount as per the company credit policy and it is also helpful to reduce the blockage of funds which gives a more opportunity to invest somewhere but in 2010 company had a 1.31 moths collection which showed more blockage of funds and in 2009 company had the very good level in collection period in compare to 2009.

CREDITORS PAYMENT PERIOD 12 Months Creditors Payment PeriodCreditors Turnovers Ratio

Particulars Period in months C.T.R. C.P.P.

2009-10 12 2.02 5.94

2010-11 12 1.94 6.18

2011-12 12 1.95 6.15

Creditors Payment Period

6.2 6.15 6.1 6.05 6 5.95 5.9 5.85 5.8 2009-10 2010-11 2011-12 5.94 CPP in Months 6.18 6.15

Interpretation:
2010-11 shows the highest CPP i.e. 6.18 because in this year creditors variation in regards to purchase are satisfactory and have also increased compare to 2009-10 or 2011-12 therefore CTR is also higher which affect the CPP. In 2009-10 CPP is lower because in this year purchase have more varied in compare to creditors therefore CTR more which affect the CPP. But in 2011-12 there is a minor variation in to CTR & CPP because creditors increased in to a same way in which purchase have increased.

INTEREST COVERAGE RATIO

EBIT Interest Coverage RatioInterest (Rs.in Crores) Particulars Interest EBT EBIT I.C.R.(in times) 2009-10 5.53 48.04 53.57 9.69 2010-11 5.05 126.74 131.79 26.09 2011-12 63.01 139.34 202.35 3.21

Interest Coverage Ratio

30 25 20 15 10 5 3.21 0 2009-10 2010-11 2011-12 9.69 26.09

Interpretation:
In 2010 company have a good interest coverage ratio 26.90 which shows that company have very good image in paying the interest but in 2012 company have a ratio of 3.21 times which is not for a good because it shows that company is not able to pay its obligations and it also shows the blockage of funds.

DEBT TO EQUITY RATIO

Total Debts Debt Equity RatioEquity (Sh. Capital+ Reserve & Surplus) (Rs. in Crores) Particulars Equity Total Debt D.T.E.R. 2009-10 221.35 238.63 1.07 2010-11 320.24 296.39 0.90 2011-12 430.18 587.11 1.36

Debt Equity Ratio

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009-10 2010-11 2011-12 1.07 0.9 1.34

Interpretation:
In 2011 company have 1.34 debt equity ratio which is more in compare to last two years its shows that company are using more debt in their capital structure. The reason of increasing debt is in this year company have taken more loan because of launching of some new projects. In 2010 company have a satisfactory situation but in 2009 it is 1.07 which is more in compare to 2010

,GROSS PROFIT RATIO

Gross Profit Gross Profit Ratio:Sales (Rs. in Crores) Particulars Gross Profit Sales G.P. Ratio (in %) 2009-10 48.03 330.37 14.53 2010-11 137.28 1333.67 10.29 2011-12 139.45 1883.81 7.40 100

G. P. Ratio
16 14 12 10 8 6 4 2 0 2009-10 2010-11 2011-12 10.29 7.4 Ratio in % 14.53

Interpretation:
It shows that company have a highest gross profit ratio i.e. 14.53 in 2010 but its goes down in 2011 & 2012 doe to increase of expenses i.e. finance cot & other expenses in compare to last two year. In 2012 company have a G.P. ratio of 7.4 which is least to last two years due to high increment in expenses.

TOTAL ASSETS TURNOVER RATIO

Net Sales Total Assets Turnover RatioAverage Total Assets (Rs. in Crores) Particulars Total Fixed Assets(Opening + Closing) Average Fixed Assets(Opening + Closing)/2 Total Current Assets(Opening + Closing) Average Current Assets (Opening + Closing)/2 Average Total Assets(AFA+ACA) Net Sales Total assets Turnover Ratio 2009-10 6.03 3.02 811.11 405.55 408.57 337.66 0.826 2010-11 29.17 14.62 2175.25 1087.625 1102.245 1333.66 1.21 2011-12 37.95 18.95 2750.79 1375.395 1394.345 1883.81 1.35

Total Assets Turnover Ratio

1.35 0.826 2009-10 1.21 2010-11 2011-12

Interpretation:In 2010 company having a total assets turnover ratio of 0.826 which is increased in 2011 by 0.384 due to increase in sales i.e. 337.66 to 1333.66 but in 2012 there is a slight increment in total assets turnover ratio is 0.14 . it has happened also because of increment in sales of 550.15 crores .

WORKING CAPITAL TURNOVER RATIO

Net Sales WORKING CAPITAL TURNOVER RATIO: Net Working Capital

Particulars Net Sales Net Working Capital WCTR

2009-10 337.66 385.17 0.88

2010-11 1333.66 460.25 2.89

2011-12 1883.47 860.32 2.19

WCTR
3.5 3 2.5 2 1.5 1 0.5 0 2009-10 2010-11 2011-12 0.88 1.64 2.89

Interpretation:
In 2011 company have 2.89 working capital turnover ratio which is more in compare to 2010 i.e. 0.88 it means company have more blockage of funds in 2011 but in 2012 it is 1.64 which is less from2010.

WORKING CAPITAL AND SALES

As on 31st March

(Rs. in Crores) Particulars Working Capital 337.66 Sales 114.29 % Of Sales 34.66 45.68 1333.66 1883.17 2009-10 385.17 2010-11 460.25 2011-12 860.32

DEBTORS AND WORKING CAPITAL

As on 31st March (Rs. in Crores) Particulars Debtors Working Capital % of WC 2009-10 73.68 385.17 19.12 2010-11 217.41 460.25 47.23 2011-12 943.35 860.32 109.65

CREDITORS AND WORKING CAPITAL

As on 31st March (Rs. in Crores) Particulars Creditors Working Capital As a % of WC 2009-10 415.07 2010-11 1684.75 2011-12 1862.58

385.17
107.76

460.25
366.05

860.32
216.43

DEBTORS AND SALES

As on 31st March (Rs. in Crores) Particulars Debtors Sales As a % sales 2009-10 73.68 337.66 21.82 2010-11 217.41 1333.66 16.30 2011-12 943.35 1883.17 50.09

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

Research Type- This Is an Analytical Research which is to be based on secondary data.

The whole secondary data have collected from various sources like Annual Reports of the company. Magazines, Reports in the company. Policy documents of finance departments. Tally & SAP softwares. After collection of these data analysis has to be done for fulfilling the research objective

FINDINGS
Company revenue is increasing year by year which shows its growth. Increment in Gross Profit in compare to last year. Company have a Liquidity Ratio of 1.17 in current year which that company have a sufficient liquidity to pay their obligations. Company have a 6.15 creditors payment period in compare to debtors collection period i.e. 3.75 in current year. It means company have a more opportunity for investment. Company have a 1.64 working capital turnover ratio in current year which is less from last year i.e. 2.89 it also shows that blockage in funds is less in compare to last year.

SUGGESTIONS

It can be said that overall financial position of the company is normal but it is required to be improved from the profitability point of view.

Company should try to reduce the receivable period so that blockage of funds can be reduced.

Company should try to pay interest timely on long term debts. Company should not rely on Long-term debts. Company should try to increase Volume based sales so as to stand in the competition.

LIMITATION
Operating cycle cannot be clearly determined here because it is Real Estate Company rather than core manufacturing company. Company used unstructured way to meet out the daily expenses from available cash balance. Optimum inventory level cannot be determined here.

ANNEXURS

Statement of Changes in Working Capital (2009-10)

Particulars A) Current Assets Inventory Sundry Debtors Cash & Bank Loan & Advances Total Current Assets B) Current Liabilities Sundry Creditors Provision Total Current Liabilities Net Current Assets Net Increase in Working Capital 2009 319.17 53.38 22.33 80.99 475.87 126.31 7.28 133.59 342.28 2010 553.03 73.68 48.53 135.9 811.14 415..07 10.87 425.94 385.2 Increase 233.86 20.3 26.2 54.91 Decrease

288.76 3.59

42.92

Statement of Changes in Working Capital (2010-11)

Particulars A) Current Assets Inventory Sundry Debtors Cash & Bank Loan & Advances Total Current Assets B) Current Liabilities Sundry Creditors Provision Total Current Liabilities Net Current Assets Net Increase in Working Capital

2010 553.03 73.68 48.53 135.9 811.14 415.07 10.87 425.94 385.2

2011 1330.02 216.41 248.11 380.71 2175.25 1684.75 28.26 1713.01 462.24

Increase 776.99 142.73 199.58 244.81

Decrease

1269.68 17.39

77.04

Projection of Changes in Working Capital (2011-12)

Particulars A) Current Assets Inventory Sundry Debtors Cash & Bank Loan & Advances Total Current Assets B) Current Liabilities Sundry Creditors Provision Total Current Liabilities Net Current Assets Net Increase in Working Capital

2011 1330.02 216.41 248.11 380.71 2175.25 1684.75 28.26 1713.01 462.24

2012 573.7 943.35 115.55 1118.18 2750.78 1862.58 561.27 1890.46 860.32

Increase

Decrease 756.32

726.94 132.56 737.47

177.83 533.01

710.84

BIBLIOGRAPHY
Working Capital Management V.K. Bhalla Company Website www.supertechlimited.com Annual reports of Supertech Limited