Report On Working Capital Management of Ril by Mehul Patel

REPORT ON WORKING CAPITAL MANAGEMENT
A REPORT
ON
WORKING CAPITAL MANAGEMENT
AT
RELIANCE INDUSTRIES LIMITES

VMD
A report submitted in partial fulfillment
of the requirement of
Master Of Business Administration

Programme of
Sikkim Manipal University.
Submitted by:
Mehul K Patel.
MBA 4TH SEM
BIMS
Uni No. 520844031
BARODA INSTITUTE OF MANAGEMENT STUDY

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I, undersigned Mr. Mehul K Patel, hereby declare

that the project report entitled “WORKING CAPITAL
MANAGEMENT” under the guidance of Mr. S.K.Shah
submitted in partial fulfillment of the requirements for
the award of the degree of Master of Business
Administration,Sikkim manipal university from
Baroda Institute of Management Study is my
original work – research study – Carried out during 1st
Dec, 2009 to 5th Jan, 2010 and not submitted for the
award of any other degree/diploma/fellowship or other
similar titles or prizes to any other
institution/organization or university by any other
person.
Place: Vadodara
Signature

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Date: 05-10-2010
( Mehul K Patel)
“Practice makes more perfect”
In the field of management every time

there is a requirement of understanding or practical
aspect of the organization with managerial mind. There
is requirement to go for practical training of any subject
supplement to the theoretical knowledge and clarified
concept.
It is more applicable in the field of the

management especially a professional course like

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M.B.A. Sikkim Manipal University has prescribed 6 to 8

week project report training during the 4th Sem. as a
part of M.B.A programmers my training at the Reliance
Industries Limited is to comply with this requirements
also.
The project report on Working Capital Of

Company, which provide perfect direction of invest the
money. The data collections were by annual report of
the different companies, magazines related to the
cement association and discussion with concerned
employees and experts.
At the end findings and suggestions are

reported.
I hope this serves the Purpose.
Words are indeed inadequate to convey my deep

sense of gratitude to all those who have helped me in
completing this summer project to the best of my
ability. Being a part of this project has certainly been a
unique and a very productive experience on my part.

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I am really thankful to, Mr. S.K.Shah, Executive

(Finance & Accounts) for making all kinds of
arrangements to carry the project successfully and for
guiding and helping me to solve all kinds of quarries
regarding the project work. His systematic way of
working and incomparable guidance has inspired the
pace of the project to a great extent.
I would also like to thank my mentor and project –
coordinator, Ms. Ranjeeta for assigning me a project
of such a great learning experience and acquainting
me with real life project financing and appraisal.
I am very grateful to Mr. Sunil Dalwadi,
principal of Baroda Institute of Management
Study Who has given me the opportunity to do this
project in the Reliance Industries Ltd. and very
thankful to all lecturers of BIMS for their useful
guidance and advise.
This project would not have been successful
without the help of Mr. V.R.Shah.Deputy General
Manager (Human Resource Department) of RIL
VMD.
Last but not least I would like to thank all the
employees of RIL VMD. who have directly or
indirectly helped me with their moral support for the
completion of my project.

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CH. PARTICULARS PAGE
NO. NO.
REPORT
1 ON WORKING CAPITAL OF
BRIEF PROFILE MANAGEMENT
THE COMPANY 07
08
 HIGHLIGHTS
09
 HISTORY OF IPCL
 PRODUCTS AND BRANDS
 PRODUCT FLOW CHART
13
 2002 ONWARDS-RELIANCE ACQISITION
14
 COMPANY LOGOS
16
 RIL MILESTONE
17
 GROWTH THROUGH CHALLENGES
21
 BOARD OF DIRECTORS
23
 MISSION & VISION
24
 VALUES & QUALITY POLICY
25
 THE VADODARA COMPLEX
27
 CENTRAL TIME OFFICE (CTO)
29
 LEGAL AND WELFARE
 SOCIAL EVENTS AT RIL VMD 30
2 CONCEPTUAL FRRMEWORK OF WORKING 31

CAPITAL MANAGEMENT
32
 WORKING CAPITAL
33
 CONCEPT OF WORKING CAPITAL
34
 WORKING CAPITAL MANAGEMENT
35
 TYPES OF WORKING CAPITAL
 FACORS DETERMINING OF WORKING 37
CAPITAL
 ESTIMATE OF WORKING CAPITAL 42
REQUIREMENT
43
 FININCING OF WORKING CAPITAL
45
 MANAGEMENT OF INVENTORY
45
o NEED TO HOLD INVENTORY
46
o OBJECTIVE OF INVENTORY MANAGEMENT
48
 MANAGEMENT OF CASH
48
o NEED TO HOLD CASH
49
 MANAGEMENT
BARODA INSTITUTE OF RECEIVABLE
OF MANAGEMENT STUDY
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50
 OPERATION CYCLE
51
BRIEF PROFILE OF THE COMPANY
 HIGHLIGHTS
 HISTORY OF IPCL
 2002 ONWARDS-RELIANCE ACQISITION
 COMPANY LOGOS
 RIL MILESTONE
 GROWTH THROUGH CHALLENGES
 BOARD OF DIRECTORS
 MISSION & VISION
 VALUES & QUALITY POLICY
 THE VADODARA COMPLEX
 CENTRAL TIME OFFICE (CTO)
 LEGAL AND WELFARE

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HIGHLIGHTS
Turnover : Rs 1,46,328 crore ($ 28,850

million)
PBDIT : Rs 25,743 crore ($ 5,076 million)
Cash Profit : Rs 22,365 crore ($ 4,410 million)
Net Profit : Rs 15,309 crore ($ 3,018 million)
Net Profit (excl. exceptional item)
: Rs 15,637 crore ($ 3,083 million)
Net Profit 5 years CAGR : 25 %
Total Assets : Rs. 2,45,706 crore ($ 48,444
million
)
Significant contribution to India’s economic growth
 10.4 % of India’s total exports
 2.9 % of the Government of India’s indirect

tax exports
 6.1 % of the total market capitalisation in

India
 Weightage of 13.6 % in the BSE Sensex

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 Weightage of 11.1 % in the S&P CNX Nifty

Index
HISTORY OF IPCL
HISTORY (1969-2002)
Indian Petrochemicals Corporation Limited (IPCL). A company
under the Companies Act with Registered Office at Jamnagar (near
Vadodara) in Gujarat was registered n March 22, 1969. It was
assigned the responsibility of setting up two upstream mother units
and two downstream units near an established public sector refinery,
Gujarat Refinery of Indian Oil Corporation on the outskirts of
Vadodara in Gujarat. The first board meeting of the board of
directors of the company held on March 26, 1969 at New Delhi. The
private sector entrepreneurs who were initially allocated six
downstream units during that period were reluctant to invest in this
industry. The industry was highly capital intensive, involved
handling and processing of hazardous material, involved development
of nascent markets and managing new technologies with a skill base
that was inadequate. Hence they were doubtful about the prospects in
the industry and were unwilling to invest. On the other hand, the
government realized the importance of integrated nature of the entire
project.
Finally, in contrast to the original concept of involving the private

sector, the govt. allocated six down stream projects also to IPCL, by
early 1971.
The Gujarat Aromatics Project, consisting of Xylenes plant and DMT
plant was set up at an investment of INR 271.3 Million, with funds

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provided by the Govt. Di-methyl Terephthalate plant was

commissioned by March 20, 1973.
Mrs. Indira Gandhi, the Prime Minister of India laid the foundation
stone for the Gujarat Olefins Project (Naphtha Cracker) on January
29, 1972. The plant was commissioned on March 28, 1978. By
March 15,1979, IPCL achieved the unprecedented feat of
commissioning 11 plant in quick succession, at a capital investment
of INR 3.04 billion. Thus, a fully integrated petrochemical complex
under a single ownership, being the first of its kind in the Indian
Limited (EIL) carried out majority of detailed engineering and
construction jobs for the complex at vadodra. The inauguration of
these downstream plants marked the successful culmination of the
cooperation between India designs, engineering and construction
companies. Indian and foreign equipment manufactures, various
govt. and private research organizations and the international process
licensers. This also meant a beginning of an era for chemicals,
thermoplastic elastomers, and synthetic fibers, organic intermediates
for drugs, insecticides, pharmaceuticals, dyestuffs and synthetic
detergents.
Today, out of the 15,000 plastic and detergent processors in the

country almost 12,000 owe their existence to IPCL, thanks to the
Entrepreneur Development teams that went out with their “magic
lanterns,” guiding, developing and showing the path to prosperity to
the willing but unaware entrepreneurs. The petrochemical revolution
was thus set in motion by IPCL in India.
Disinvestments
The Government of India declared IPCL as one of the Navaratna

companies on February 28, 1997. This means the company belongs
to the select group of blue chip PSUs that are given additional
autonomy in matters related to administration and finance. The

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government reconstituted the IPCL Board by nominating four part-

time directors on November 23,1998 so that the additional freedom
granted under the Navaratna package becomes operative. The
Government decided to retain only 26 per cent of its holdings by
disinvesting part of its equity shares to a strategic partner on

December 16, 1998. The merchant banker issued an advertisement for
expression of interest on May 18, 1999. Several transnational as well
as Indian companies indicated interest, they were asked to submit
Intention of Interest by Government of India, which was supposed to
contain long-term business plans for IPCL. Finally three corporate
bodies, Mitsubishi of Japan, Reliance Industries Ltd of India and
Chatterjee Soros - Indian Oil Corporation were called for due
diligence after evaluating their Intention of interest.
Government of India finally decided not to pursue the sale of

Vadodara complex to Indian Oil Corporation and
decided to divest 26% equity in favor of strategic partner with a
commitment of divesting atleast a further 25% equity from IPCL on
November 12, 2001. Government of India issued the advertisement
for this in December 2000. This announcement attracted three
companies Reliance Industries Ltd., Nirma Chemical Works Ltd and
Indian Oil Corporation Limited. Interested investors submitted their

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financial bids on April 29, 2002. The Evaluation Committee

constituted by the Government of India to arrive at reserve price
recommended a price of Rs. 845 Crores for 26% equity (Rs. 131 per
share). The cabinet committee on disinvestment which met on May
28, 2002 to evaluate the bids found that the bid submitted by Reliance
Petro investments Ltd. was the highest at Rs. 1491 crores (Rs. 231 per
share) around
74% higher than the closing price of IPCL's shares at National Stock
Exchange, Mumbai.
The offer from Indian Oil Corporation was Rs. 826 crores (Rs.
128 per share) and that from Nirma Chemical Works Ltd. was Rs.
711 Crores (Rs. 110 per share).
This brought an end to one of the most keenly watched disinvestment

by Government of India.

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2002 ONWARDS-RELIANCE ACQISITION
The government of India handled over management control to

Reliance group on June 4, 2002, since then the company is being
managed by reliance. The new management team has re-endorsed the
company’s mission to create value for all stakeholders. All over
efforts are being made to enhance productivity and control cost for
superior value addition.
The physical and cultural integration began from the word go, both
IPCL and Reliance started adopting “Best Practices” from each other.
This led to optimal utilization of available resources for enhancing
productivity. The profit for the first financial year(2002-03) under the
reliance management stood at INR 2.04 billion, 90% jump over the
previous year’s profit of INR 1.07 billion.
Commenting on the results for 2002-2003, Mr. Mukesh Ambani,
Chairman, said “we are delighted with the complete turnaround in
IPCL’s performance in the very first year of acquisition by reliance.
The successful absorption of Reliance’s best practice by IPCL in all
areas of operations, and positive impact of measures introduced for
cost reduction and productivity and efficiency gains. We have great
confidence in the capabilities of IPCL and its people, and are
confident of further improvement in the company’s performance in
the future”.

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COMPANY LOGOS
The first logo, which consisted of a tetrahedron -

representing the molecular structure of the simplest organic chemical,
methane - in a circle.
This decision of the government, “Every thing

under one roof” inspired the second logo of IPCL. IPCL took up the
challenge of setting up the entire integrated complex at Vadodara.
IPCL, as a corporate entity, is and what it shall

strive to be. This symbol, or logo, reflects what IPCL is a single
matrix of the many; a diversity of activities and products, emerging
from one sourceand branching out in different directions, yet
retaining its unity and identity. The lines flow upwards and outwards
from a common base into infinity, reaching for unending growth,
universal goodwill, general prosperity and excellence in everything.
The green colour used in the design reinforces the theme - aspiration
and

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growth, rooted in the earth and in harmony with the other elements -
water, light, air and space
The government of India handled over management control to

Reliance group on June 4, 2002, since then the company is being
managed by reliance.

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RIL MILESTONE
YEAR EVENTS
1969 IPCL was incorporated under company act.
1970 Construction of our first Petrochemicals complex commenced at
Vadodara, Gujarat.
1973 Commenced commercial operation at Vadodara.
1992 Initial public offering and listing on the Vadodara stock
exchange
1992 Second Petrochemical Complex commenced at Nagothane,
Maharashtra
1996 Third Petrochemical Complex commenced at Gandhar
1999 Gandhar complex commissioned.
2000 Completion of the second phase of the Gandhar complex
2002 Reliance took over IPCL.
2004 Amendment agreement between the government and the
strategic partner, Reliance petroleum limited, a Reliance group
company.
2005 Government of India withdrew its nominee directors from the
board of directors of India petrochemicals co. ltd.
2006 Amalgamation of six polyester companies i.e. Apollo fibres ltd,
Central India ploysters ltd, India polyfibres ltd, Orissa polyfibres
ltd, Recron synthetics ltd and Silvassa industries Pvt ltd with
IPCL.
2007 RIL complete a landmark acquisition of IPCL.
2008 RIL signed MOU with GAIL(INDIA) Ltd. to explore
opportunities of setting of petrochemical plants.
2009 RPL merged with RIL Ltd : value creation through scale &
synergies.

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GROWTH THROUGH CHALLENGES
Life at Reliance is challenging, fulfilling and exciting!
Reliance offers access to world-class resources for personal and

professional growth.
At Reliance, you'll have the chance to take on challenging

responsibilities, working with top-notch, world-class professionals
from around the globe. You will be part of a culture of excellence.
You would not be just working for a living; You will be part of a
global team that's focused on making a difference in the everyday
lives of people.
People are central to Reliance's growth strategy. A large in-house

pool of intellectual capital is the driving force behind Reliance's rapid
growth, and is one of its competitive advantages. Reliance is a young
company, with an average age of 39 years. Talent is drawn from
diverse academic and professional backgrounds.
World-class exposure, growth opportunities and competitive

compensation packages offered by Reliance enables it to attract and
retain excellent talent.
Reliance targets the world market for talent, provides global

perspectives and has a large number of expatriates on its rolls.
Reliance endeavours to create a workplace where every person can
reach his or her full potential.
Growth is care for good health
Reliance's occupational health centres carry out pre-employment and

periodic medical checkups as well as other routine preventive
services. Specialised tests like biological monitoring, health risk
assessment studies and audits for exposure to various materials are
also performed. Health education and awareness form an integral part
of the health care programme at Reliance

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Growth is care for safety
We believe that the safety of each employee is the responsibility of

the individual as well as of the whole community of employees
Growth is care for the environment
Reliance believes that a clean environment in and around the

workplace fosters health and prosperity for the individual, the group
and the larger community to which they belong. Environmental
protection is an integral part of the planning, design, construction,
operation and maintenance of all our projects.
Growth is betting on our people
Reliance builds with care a workplace that proactively fosters

professional as well as personal growth. There is freedom to explore
and learn; and there are opportunities that inspire initiative and
intrinsic motivation. We believe that people must dream to achieve,
that these dreams will drive the company's excellence in all its
businesses. Reliance thinks, behaves, lives and thrives with a global
mindset, encouraging every employee to reach his / her full potential
by availing opportunities that arise across the group.
Growth is thinking beyond business
As corporate citizens, we invest in social infrastructure, believing

strongly that our business strength fuels our social contributions. To
this end, Reliance encourages, funds and develops numerous
education, health, human capital and infrastructure initiatives. These
initiatives are undertaken through partnerships with non-
governmental organizations, corporate and trusts.
For those who study innovative organizations Reliance Industries will

be a shining example of how innovation is practised in almost
everything that they do. Here are few things that set them apart:

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• "Impossible is an inspiring word" - Nothing turns on the

leadership at Reliance Industries than this magical word. Again
to quote the Jamnagar example, it was considered impossible to
turn a barren land into a greenbelt. Today mangoes grown in
Jamnagar are sold in Harrods London.
• "Hands on thinking, hands off execution." - It is
characteristic of Reliance leadership. They think everything
through and meticulous planning is their hall mark. When it
comes to execution empowerment delegation down to the last
employee in the chain is clearly demonstrated.
• "First time it is learning. Second time it is a mistake." -
Mistakes are never frowned upon; instead they are treated as a
learning opportunity. It is one such mistake converted to
learning that created the world's largest 'Craft Centre' located at
Jamnagar. Cumulatively it has trained 1, 50,000 workmen -
electricians, welders, carpenters.
• "Sense of urgency" - Reliance speed is legendary now.
Reliance has mastered project management skills and has made
it virtually into a fine art. It is this sense of speed that restored
operations in record time in Jamnagar, Patalganga and Hazira
after being affected by cyclones and floods.
• "Think. Anticipate. Be prepared." Part of meticulous
thinking is the ability to anticipate problems. "Every
transformation initiative will face resistance. It is our job to
anticipate the resistance, take the responsibility to earn the
respect of all stakeholders to create a win-win business model."
• "Dreams and Vision are the most potent fuels in the world."
- This is an unmistakable Reliance hallmark espoused both by
the founder Chairman Sh. Dhirubhai Ambani and the current
Chairman Sh. Mukesh Ambani. To a question on what would be
his next big ambition Sh. Mukesh Ambani answered "Rural

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• transformation. Creating direct employment for half a million

people in rural India. Creating a supply chain that the world will
envy."
• "Measuring success differently" - Developing a metric to
measure how much money was spent, is just one example of
inspiring people to think and act differently and effectively.
• "Asking the right questions." - Reliance Leadership excels in
asking the right questions. The company folklore is replete with
examples of deceptively simple questions, leading on to
incredible outcomes. Commonsense is the bedrock of such
thinking.
"Hard work, timely decisions, speed and ingenuity" says one of the
senior managers of Reliance Industries to sum up what Reliance is all
about.
It is evident that Reliance Industries is where it is today because of

Innovation in thinking and execution. Given its ambition for India and
its own organization Reliance leadership has now taken on a major
initiative in the innovation domain.
The leadership of RIL recognizes that its biggest competitive

advantage and differentiator in the future would be innovation.
Innovation has to become the language, the behaviour definer, the
culture and the soul of Reliance, even more explicitly than ever
before

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CURRENT COMPOSITION OF THE BOARD AND

CATEGORY OF CATEGORY OF DIRECTORS ARE
AS FOLLOWS:
"Between my past, the present and the future, there is one common
factor: Relationship and Trust. This is the foundation of our
growth."
Shri Dhirubhai H. Ambani

Founder Chairman Reliance Group
December 28, 1932 - July 6, 2002
Board of Directors of Reliance Industries Limited
Shri Mukesh DAmbani

Chairman & Managing
Director

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Shri Nikhil R. Meswani Shri Hital R. Meswani Shri H.S.Kohli

Executive Director Executive Director Executive Director
Shri PMS Prasad Shri R. Ravimohan Shri Ramniklal H.

Executive Director Executive Director Ambani
Shri Mansingh L.
Shri Yogendra P. Trivedi Dr. D. V. Kapur
Bhakta
Shri M. P. Modi Prof. Ashok Misra Prof. Dipak C Jain
MISSION & VISION

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“Continuously innovate to remain Partners in human progress by

Harnessing science & technology in the petrochemicals domain”
OUR MISSION
“Be a globally preferred Business associate with responsible Concern

for ecology, society, And stakeholder’s value”.
With best wishes,

Sincerely,
Mukesh Ambani
Chairman

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VALUES & QUALITY POLICY

OUR VALUES
“Integrity, Respect for People, Unity of Purpose, Outside-in Focus,

Agility and Innovation”.
QUALITY POLICY
“Bare committed to meet customers’ requirements through continual

improvement Of our quality management systems. We shall sustain
organizational excellence through visionary leadership and innovative
efforts”.
With best wishes,

Sincerely,
Mukesh Ambani
Chairman

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The Vadodara Complex
P.O.: Petrochemicals,
Dist.: Vadodara - 391 346.
Tel: 91 - 265 - 3067221
Facsimile: 91 - 265 – 3067333
The Vadodara Complex

The Vadodara complex is an integrated petrochemical complex with a naphtha cracker and
has 15 downstream plants in operation for the manufacture of polymers, fibers, fiber
intermediates and chemicals. The Vadodara complex is spread over approximately 505
hectares, of which the manufacturing site occupies approximately 378 hectares. The
Vadodara complex had 7,613 full time employees as of December 31, 2005 of which 777
were performing head office services such as marketing, research and development,
corporate finance and accounts for all complexes, and 177 were performing educational
services in schools run by our Vadodara complex. The Vadodara Complex recently
converted its six year old quality management system from ISO 9002:1994 to ISO 9001:2000
and was certified under the revised ISO standards. The certification covers the complex’s
LDPE, PPCP, PVC, LAB, PBR-I and PBR-II plants as well as the associated service
departments. We plan to seek ISO certification for our other plants at Vadodara.

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CENTRAL TIME OFFICE (CTO)
Any Industrial Working System Is Based On Manpower Planning. It

Is Essential To Manage Human Resources. Here In RIL-VMD.CTO
Plays Major Role In Planning Man Power. It Was Made After 2001.
They Preapare Shift Schedule Keeping In Mind The Laws, Manpower
Requirement Etc.
Electronic Attendance Recording System (EARS) Is For Attendance
Data. Punching Machine Is Provided At The Entrance Of Each
Building.
There Are Various Ways If Employees Forget To Punch At The Gate
Then In There Computer There Are Site Given Through Which They
Can Mark Presence.
1. Attendance inquiry
2. Attendance regulation & its status
The above mentioned matters reflect the culture of the

organization. The accuracy, systematic functioning can be
addressed.
 Casual leave - 10
 Restricted holidays-2
 Fixed holidays-10
 Privilege leaves – 2.5days per month
-Visited to Mr Dhiren shah

-Visited to Mr R.V. Gandhi

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Central reception deals with the functions like :
 Attending to visitors and arranging entry gate

passes for them. Only head of the departments
and vice presidents are given authority to sanction
pass.
 Shuttle service, Coordination processing of bills of

Postal service and labour supply by Contractor.
 Briefing vocatational training, safety measure,

appointment etc.
Courier service is on contract basis they are :
• Overnite express
• DHL
• Pashva Engineers
• RMS
Maintaining performance Diary-self innovative

ideas suggestions are welcomed at reception
centre.
Good house-keeping contest marks
Quality system and documentation is maintained.

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 HR training schedules are prepared.
 Joint measurement system and Proof of delivery

document data
is developed to keep track on the records of
documentation. The
receponist also look after other extra circular
activities.
LEGAL
RIL VMD also has a legal department as other industry have the
major activities consist.
- Co ordination with advocates for litigation in various
courts. Legal section provides co – ordination between
HOD & advocates.
- Internal consultancy is also handled by legal section and
gives advice to internal departments in legal matters.
There are two section of this legal staff:-

1. Labour related cases like suspension, misconduct, termination,
grievances & removal.
2. civil, criminal ,activities are done in PMD
LOANS & ADVANCES

RIL-VMD provides advances to their employees. It is one type of
welfare activity as said by Mr V.P.Shah, they provide loans at
nominal rate of interest in comparison to market. They have tie up
with HDFC bank, once in a week person comes from there; if any

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employees want additional loan is provided on the trust of as

company’s employee.
The above mention matter tells above the concern for the employees
by the company.
Advances provided are:-
1. House building advances
2. Conveyance advances
3. Company own car

-Visited to Mr V.P.Shah
SOCIAL EVENTS IN RIL-VMD

Occupational health week is celebrated and theme of the month is
also observed. For eg for the month of Nov’09 HIRA was the theme
i.e. HAZARDOUS IDENTIFICATION and RISK ASSESMENT.
Posters and boards like “Health is Wealth”,”Safely drive vehicles
weather it is home or work” can be observed at each corner of the
department which signifies that organization is not just interested in
profit making but also is concern about its employees.
SOCIAL RESPONSIBILITY is also key role played by an
organization towards its society as it is a chemical industry waste
proportionate is more but here concept like waste management is
implemented in a write manner where no harm to nearby areas local
people n to their health. They perform their duty on time to save
environment and they have lot of greenery planted in their plant from
where employees can get fresh air to breath.
When it was IPCL being a part of society they help government by
constructing circles for eg Nizampura circle is made by it and now

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RIL continuing its responsibility by constructing RIL garden in

several areas of Vadodara.
CONCEPTUAL FRRMEWORK OF WORKING

CAPITAL MANAGEMENT
 WORKING CAPITAL
 CONCEPT OF WORKING CAPITAL
 WORKING CAPITAL MANAGEMENT
 TYPES OF WORKING CAPITAL
 FACORS DETERMINING OF WORKING CAPITAL

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 ESTIMATE OF WORKING CAPITAL

REQUIREMENT
 FININCING OF WORKING CAPITAL
 MANAGEMENT OF INVENTORY
o NEED TO HOLD INVENTORY
o OBJECTIVE OF INVENTORY MANAGEMENT
 MANAGEMENT OF CASH
o NEED TO HOLD CASH
 MANAGEMENT OF RECEIVABLE
 OPERATION CYCLE
 COMPONENTS OF WORKING CAPITAL MGT
 SIGNIFICANCE OF WORKING CAPITAL MGT
What is WORKING CAPITAL?
Fixed Capital is that part of which is required for the purchase

of fixed assets like Land and Building , Plant and machinery etc.
The fixed capital provides the basic means for the business to earn its
return... But by themselves, these fixed assets would not produce
anything. For instance, to operate the machines, we require men,
materials, power, tools, accessories etc. These factors involve
expenses. In addition, we have to maintain certain current assets like
stocks, stores, equipments, etc. All these require enough resources to
keep the wheels of the business in motion. Therefore, in addition to
the amount of fixed capital every business – whether new or growing
requires Working Capital. Working Capital is that portion of a
business concern’s total capital, which is employed in term of
operations. Without working capital, fixed capital would be idle and
ineffectual.
A number of definitions have been formulated: perhaps the most
widely acceptable would be;
“WORKING CAPITAL represents the excess of

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CURRENT ASSETS over CURRENT LIABILITIES “

The same may be designated in the following equation:
WORKING CAPITAL= CURRENT ASSETS – CURRENT
LIABILITIES:
Funds thus invested in current assets keep revolving fast and are
being constantly converted in to cash and this cash flows out again in
exchange for other current assets. Thus it is known as revolving or
circulating capital or short term capital.
TWO CONCEPT OF WORKING CAPITAL :-

a. Gross Working Capital.
b. Net Working Capital.
Gross working capital is the total of all current assets. Net working
capital is the difference between current assets and current liabilities.
Though the later concept of working capital is commonly used it is an
accounting concept with little sense to say that a firm manages its net
working capital. What a firm really does is to take decisions with
respect to various current assets and current liabilities. The
constituents of current assets and current liabilities are shown in table
A.
TABLE A:
Constituents of Current Assets and Current Liabilities
PART –A: CURRENT ASSETS

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 Inventories – Raw materials and components, Work in progress,

Finished goods, other.
 Trade Debtors.
 Loans and Advances.
 Investments.
 Cash and Bank balance.
PART –B: CURRENT LIABILITIES
 Sundry Creditors.
 Trade Advances.
 Borrowings.
 Provisions.
WORKING CAPITAL MANAGEMENT:-
Working Capital Management refers to management of current assets and

current liabilities. The major thrust of course is on the management of current
assets This is understandable because current liabilities arise in the context of
current assets. Working Capital Management is a significant fact of financial
management. Its importance stems from two reasons:-
 Investment in current assets represents a substantial portion of total

investment.
 Investment in current assets and the level of current liabilities have to be
geared quickly to change in sales. To be sure, fixed asset investment and long
term financing are responsive to variation in sales. However, this relationship
is not as close and direct as it is in the case of working capital components. The
importance
of working capital management is effected in the fact that financial manages
spend a great deal of time in managing current assets and current
liabilities. Arranging short term financing, negotiating favorable
credit terms, controlling the movement of cash, administering the
accounts receivable, and monitoring the inventories consume a great
deal of time of financial managers.

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The problem of working capital management is one of the “best”

utilization of a scarce resource.
Thus the job of efficient working capital management is a formidable
one, since it depends upon several variables such as character of the
business, the lengths of the merchandising cycle, rapidity of turnover,
scale of operations, volume and terms of purchase & sales and
seasonal and other variations.
TYPES OF WORKING CAPITAL:-

Working Capital may be classified in to two ways:-
a) On the basis of concept.
b) On the basis of time.
c)
TYPES OF WORKING CAPITAL

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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 that is continuously required by the
enterprise to carry out its normal business operation. For example
every firm has to maintain minimum level of raw materials, work in
process, furnished goods and cash balance. The minimum level of
current assets is called permanent or fixed working capital as their part
of working capital is permanently blocked in current assets. With the
growth of business there is an increase in current assets.
1) Temporary or Variable Working Capital:-

Temporary or Variable Working Capital is the amount of working
capital that is required to meet the seasonal demands and some special
exigencies. Variable working capital can be further classified as:-
a) Seasonal Working Capital.

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b) Special Working Capital.
Most of the enterprises have to provide additional working capital to

meet the special and seasonal needs. The capital required to meet the
seasonal needs of enterprise is called Seasonal working capital.
Special working capital is the part of working capital which is
required to meet the special exigencies such as part of working capital
which is required to meet special exigencies such as launching of
extensive marketing campaigns for conducting research etc. is called
Special working capital.
FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS:-
With the type of business and the ambition of proprietors the amount
is bound to vary. For instance, a small business would need lesser
amount of working capital than a larger business engaged in the same

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line. As the business expands the amount needed would grow.

Similarly, business with seasonal demand would require larger
amount of working capital. Therefore, an estimate of requirements of
working capital will
differ from concern and from industry to industry. Further, cyclical

changes, periods of prosperity and depression cause wide variations
in the demand for working capital. Other unexpected happenings are
likely to create unusual demands for working capital.
There is no concrete formula to decide the amount of workings capital
required by a business. There are also business in which fixed is small
ion relation to working capital.
The Major determinants of the proportion of fixed to working capital
are as follows:-
1.Nature of Business:-
Business units selling service (like public utilities) instead of a
commodity, have little need for working capital, as they have little
demand for large inventories. Generally they operate in cash and
prepay basis. But trading concerns (merchandising companies) make a
greater use of working capital, since inventory represents a major item
of investment. A relatively small proportion will consist of working
capital in case of manufacturing concerns. Larger working capital will
require in labor intensive industries than in highly mechanized
industries. In chemical or engineering industries, working capital

would be relatively larger.

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1) Size of Business :
The working capital requirements of a concern are directly influenced
by the size of the business which may be measured in terms of scale of
operations. Greater the size of a business unit generally larger will be
the requirement of working capital. However, in some cases even a
smaller concern may need more working capital due to high overhead
charges
Insufficient use of available resources and other economic
disadvantages of small size.
Production Policy:-
In certain industries the demand is subject to wide fluctuation due to
seasonal variation. The requirement of working capital, in such cases
depends upon the production policy. The production could be kept
either steady by accumulating inventories during slack period with a
view to meet high demand during the peak season or the production
could be curtailed during the slack season and increased during peak
season. If the policy is to keep production steady by accumulation
inventories it will require higher working capital. A company should
have some production policy i.e. to maintain the production is a
considerable range in order to meet the changing demand. A company
like RIL whose productive capacities can be utilized for
manufacturing varied products can have the advantages of diversified
activities and solve their working capital problem.
2)Manufacturing Process/ Length of the production cycle:-
In manufacturing business, the requirements of working capital
increase in direct proportion to length of manufacturing process,
longer the process period of manufacture, longer is the amount of
working capital required. The longer the manufacturing time, the raw
materials and other supplies have to be carried for a longer period in
the process with progressive increment of labor and service costs
before the finished product is finally obtained. Therefore, if there is

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alternative process of production, the process with the shortest

production period should be chosen.
3) Working Capital Cycle:-
In manufacturing concern, working capital cycle starts with the
purchase of raw materials and ends with realization of cash from the
sale of finished goods. The cycle involves the purchase of raw
materials and ends with the realization of cash from the sale of
finished products. The cycle involves purchase of raw materials and
stores, its conversion in to stock of finished goods through work in
progress with progressive increment of labor and service cost,
conversion of finished stick in to sales and receivables and ultimately
realization of cash and this cycle continuous again from cash to
purchase of raw materials and so on.
4)Market Condition:-
The degree of competition prevailing in the market places has an
important bearing on working capital needs. When competition keen, a
larger inventory of finished goods is required to promptly serve
customer who may not be inclined to wait because other manufacturers
are ready to meet their needs, further, generous credit terms may have
to be offered to attract customers in a highly competitive market. Thus,
working capital needs tends to be high because of greater investment
in finished goods inventory and accounts receivable.
If the market is strong and completion weeks a firm can manage with
a smaller inventory of finished goods because customers can be
served with some delay. Further in such situation the firm can insist
on cash payment and avoid lock – up of funds in accounts receivable,

it can even ask for advance payment, partial or total.

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5)Credit Policy:-
The credit policy is concerned in its dealings with debtors and
creditors influence considerably the requirements of the working
capital. A concern that purchases its requirements on credit and sells
its products/services on cash requires lesser amount of working capital.
On the other hand a concern buying its requirements for cash and
allowing credit to its customers, shall need larger amount of funds are
bound to be tied up in debtors or bills receivables.
6)Business Cycle:-
Business Cycle refers to alternate expansion and contraction in general
business activities. In a period of born i.e. when the business is
prosperous there is a need for larger amount of working capital due to
increase in sales, rise in prices, optimistic expansion of business etc.
On the country at he time of depression i.e. when there is a down
swing of the cycle, business contracts, sales decline, difficulties are
faced in collections from debtors and firms may have a large amount
of working capital lying ideal
7)Rate of Growth Of business:-
The working capital requirements of a concern increase with the
growth and expansion of its business activities. Although it is difficult
to determine the relation between growth in the volume of the business
and in the growth of the working capital of the business, yet it may be
concluded that for normal rate of expansion in the volume of the
business, we may have retained profits to provide for more working
capital but in the first growing concerns, we shall require larger
amount of capital.
8)Earning Capacity And Dividend policy:-
Some firms have more earning capacity than others due to

the quality of their products, monopoly conditions etc. Such firms

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with high earning capacity may generate cash profits from operations
and contribute to their capital. The dividend policy of a concern also
influences the requirements of the working capital. A firm that
maintains steady high rate of cash dividend irrespective of its
generation of profits needs more capital than the firm retains larger
part of its profits and does not pay high rate of cash dividend.
9)Price Level Changes:-
Changes in the prices level also effects the working capital
requirements. Generally the rising prices will require the firm to
maintain larger amount of working capital as more funds will require
maintaining the same current assets. The effect of rising prices may be
different for different firms. Some firms may be affected much while
some other may not be affected at all by the rise in prices.
10) Other Factors:-
Certain other factors such as operating efficiency, management ability,
irregularities a supply, import policy, asset structure, importance of
labor, banking facilities etc. also influences the requirement of
working capital.
12)Other Factors:-
Certain other factors such as operating efficiency, management ability,
irregularities a supply, import policy, asset structure, importance of
labor, banking facilities etc. also influences the requirement of
working capital.
4.d)Estimate of working capital requirements:

To avoid the storage of working capital at once an estimate of
working capital requirements should be made in advances so that

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arrangement can be made to procedure adequate working capital. But

estimation of working capital requirements is not an easy task and a
large number of factors have to be considered before starting this
exercise.
Factors requiring consideration while estimating working capital:-
Total costs incurred on materials, wages and overheads.
1) The length of time for which raw materials are to remain in
stores before they are issued for production.
2) The length of the production cycle or work in progress, i.e. the

time taken for conversion of raw materials into finished goods.
3) The length of sales cycle during which finished goods are kept
waiting for sales.
4) The average period of credit allowed to customers.
5) The amount of cash required to pay day-to-day expenses of the

business.
6) The average amount of cash required to make advance payment.
7) The average period expected to be allowed by suppliers.
8) Time lag in the payment of wages and other expenses.
FINANCING OF WORKING CAPITAL:-

The working capital requirements of a business concern can be
classified as:-

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a) Permanent or Fixed working capital requirements.

b) Tempory ot variable capital requirements.
In concern, a part of working capital investments are as permanent

investment in fixed assets. This is so because there always a minimum
level of current assets which are continuously required by the
enterprise to carry out its day-to-day business operations and this
minimum cannot be expected to reduce at any time. This minimum
level of current assets gives rise to permanent or fixed working capital
as this part of working capital is permanently blocked in current assets.
Similarly some amount of working capital may be required to meet the
seasonal demands and some special exigencies such as rise in prices,
strikes etc. this proportion of working capital gives rise to temporary
or variable working capital which cannot be permanently employed
gainfully in business.
The fixed proportion of working capital should be generally
financed from the fixed capital sources while the temporary or
variable working capital requirements of a concern may be met from
the short term sources of capital. The various sources for the
financing of working capital are:-
PERMANENT OR FIXED SOURCES OF WORKING CAPITAL:-
1) Shares
2) Debentures
3) Public Deposits
4) Ploughing back of profits
5) Loans from financial institutions
TEMPORARY OR VARIABLE SOURSES

OF WORKING CAPITAL:-
1) Commercial banks
2) Indigenous bankers

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3) Trade creditors
4) Installment credit
5) Advances
6) Accounts receivable- credit/factoring
7) Accrued expenses
8) Commercial paper
Commercial banks are the most important sources of short term
capital. The major portions of working capital loans are provided by
commercial banks. They provide of wide variety of loans tailored to
meet the specific
requirements of a concern. The different forms in which the banks
normally provide loans and advances are as follows:-
A) Loans
b) Cash credits
c) Overdrafts
D) Purchasing and discounting of bills
In addition to the above mentioned forms of direct finance,

commercial banks help their customers in obtaining credit form their
suppliers through the letter of credit arrangements.
It is always a test to the prudence of a financial manager to obtain the
correct amount of working capital at the right time, at a reasonable
cost and at the most favorable terms.
• MANAGEMENT OF INVENTORY
• MANAGEMENT OF CASH
• MANAGEMENT OF RECEIVABLES
MANAGEMENT OF INVENTORY:-

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Inventories constitute the most significant part of current assets of

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

There are three general motives for holding inventories:-
1) Transaction motive emphasizes the need to maintain inventories
to facilitate smooth production and sales operation.
2) Precautionary motive necessities holding of inventories to guard

against the risk of unpredictable changes in demand and supply
forces and other factors.

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3) Speculative motive influences the decision to increases or

reduce inventory levels to take advantage of price fluctuations and
also for saving in re-ordering costs and quantity discounts etc.
2.2. Objective of Inventory Management:-

The main objectives of inventory management are operational and
financial. The operational mean that means that the materials and
spares
Should be available in sufficient quantity so that work is not disrupted

for want of inventory. The financial objective means that investments
in inventories should not remain ideal and minimum working capital
Should be locked in it. The following are the objectives of inventory
management:-
1) To ensure continuous supply of materials, spares and finished
goods.
2) To avoid both over-stocking of inventory.
3) To maintain investments in inventories at the optimum level as

required by the operational and sale activities.
4) To keep material cost under control so that they contribute in

reducing cost of production and overall purchases.

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5) To eliminate duplication in ordering or replenishing stocks. This is

possible with the help of centralizing purchases.
6) To minimize losses through deterioration, pilferage, wastages

and damages.
7) To design proper organization for inventory control so that

management. Clear cut account ability should be fixed at various
levels of the organization.
8) To ensure perpetual inventory control so that materials shown in

stock ledgers should be actually lying in the stores.
9) To ensure right quality of goods at reasonable prices.
10) To facilitate furnishing of data for short-term and long term

planning and control of inventory
MANAGEMENT OF CASH:-

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

The firm’s need to hold cash may be attributed to the following three
motives:-
The Transaction Motive: The transaction motive requires a firm to
hold cash to conduct its business in the ordinary course. The firm
needs cash primarily to make payments for purchases, wages and
salaries, other operating expenses, taxes, dividends, etc.
The Precautionary Motive: A firm is required to keep cash for
meeting various contingencies. Though cash inflows and outflows are
anticipated but there may be variations in these estimates. For example
a debtor who pays after 7 days may inform of his inability to pay, on

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the other hand a supplier who used to give credit for 15 days may not
have the stock to supply or he may not be in opposition to give credit
at present.
Speculative Motive: - The speculative motive relates to the holding of
cash for investing in profit making opportunities as and when they
arise.
The opportunities to make profit changes. The firm will hold cash,
when it is expected that interest rates will rise and security price will
fall.
MANAGEMENT OF RECEIVABLE:-
A sound managerial control requires proper management of liquid
assets and inventory. These assets are a part of working capital of the
business. An efficient use of financial resources is necessary to avoid
financial distress. Receivables result from credit sales. A concern is
required to allow credit sales in order to expand its sales volume. It is
not always possible to sell goods on cash basis only. Sometimes other
concern in that line might have established a practice of selling goods
on credit basis. Under these circumstances, it is not possible to avoid
credit sales without adversely affecting sales. The increase in sales is
also essential to increases profitability. After a certain level of sales
the
increase in sales will not proportionately increase production costs.

The increase in sales will bring in more profits. Thus, receivables
constitute a significant portion of current assets of a firm. But for
investment in receivables, a firm has to insure certain costs. Further,
there is a risk of bad debts also. It is therefore, very necessary to have
a proper control and management of receivables.

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Operating cycle:
Operating cycle refers to the time duration required to convert sales
,after the conversion of recourses into inventories, into cash .the
operating cycle of a manufacturing company like RIL includes:
1.)Accusation of resources such as raw materials, labor, power and
fuel etc.
2.)Manufacture of the product which includes conversion of materials
into work-in-progress into finished goods.
3.)Sale of the product either for cash or on credit. Credit sales create
account receivables for collection.
OPERATING CYCLE:

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COMPONENTS OF WORKING CAPITAL ARE

CALCULATED AS FOLLOWS:
1) Raw Materials Storage Period=Avarage stock of raw
materials/Avarage cost of raw material consumption per day.
2.) W-I-P Holding period=Average w-i-p in inventory/Average cost
of production per day.
3.) Stores and spares conversion period= Average stock of Stores and
spares/ Avarage consumption per day.
4.) Finished goods conversion period= Average stock of finished
goods/Avarage cost of of goods sold per day.
5.) Debtors collection period=Avarage book debts/Avarage credit
sales per day.
6.) Credit period availed=Avarage trade creditors/Average credit
purchase per day..

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SIGNIFICANCE OF WORKING CAPITAL:-

77

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Research Methodology
For Every Comprehensive research a proper research methodology is

indispenensable & it has to be properly conceived. The methodology
adopted by me is as follows:-
Research Design
Problem Identification
@ Find out Ratios related to working capital management of RIL and
compare with last 5 years.
@ Find deviation of calculated from standard or Norms
@ Calculating the working capital requirement of Reliance Industries

Limited.
Information needed
@ Information about firm’s assets, liabilities, revenue, expenditure,
bankers, investment etc.
@ Information about firm’s loan, security, stock level & other
financial information.
Data Collection
My data collection source was secondary i.e.
@ Annual reports of companies
@ Balance sheet

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@ Profit & Loss Accounts
Analysis & Interpretation

The data collected and analysed subjectively as well as graphically
where it is possible. The analysis is based upon available information
& interpreted accordingly.
Conclusion
On the basis of analysis conclusion has been drawn.
Suggestion
Suggestion has been given in order to improve performance of the
firm.
Limitation
My scope of study is limited to the annual reports, Balance sheet of
units for analysis.

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ANALYSIS OF WORKING CAPITAL

MANAGEMENT OF THE RELIANCE
INDUSTRIES LIMITED
 CURRENT RAIO
 ACID-TEST RATIO
 DEBTORS TURNOVER RATIO
 CREDITORS TURNVOER RATIO
 INVENTORY TURNOVER RATIO

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 NET WORKING CAPITAL RATIO
 DEBT COLLECTION RATIO
 STATEMENT OF RATIO ANALYSIS
CURRENT RATIO
It is also known as “working capital ratio” .It is a measures of short-
term financial strength of the business and shows whether the
business will be able to meet it’ s current liabilities as when they
mature.
Current Assets including assets which can be converted in to cash

easily and itself like market securities debtors, inventory, prepaid
expenses etc.
Current Liabilities included creditors, bills payable, accrual expenses,
short term bank loan, income tax liabilities and long term debt
maturity in current year. In short it can be said as all obligation
within a year are included in current liabilities.
Current ratio is a measure of the firm’s short term solvency. It
indicate the availability of current assets in rupee of current liabilities.

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As a conventional rule, a current ratio should be or slightly more. It

focuses the strong of weak position of the company.
For the year

= 1.61
= 2.19
= 1.77
= 1.96
= 2.14
YEARS CURRENT RATIO

2008-09 1.61
2007-08 2.19
2006-07 1.77
2005-06 1.96
2004-05 2.14

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Interpretation:
It is generally believed that 2:1 ratio shows a comfortable working

capital position. The tendon committee appointed by RBI had wide
recommended a current ratio of 2:1.
Company has maintained this ration and increased it year by year. A

current ratio is 1.61 in the current year. But in the other year the ratio
is nearer to 1:2 so we can say that the company having comfortable
working capital position.

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ACID-TEST RETIO
The measure of absolute liquidity may be obtained only cash and

bank balance as well as only ready marketable security with liquid
liabilities. This is every existing standard of liquidity and it is
satisfaction if the ratio is 1.50:1
For the year

= 1.08
= 1.38
= 1.05

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= 1.15
= 1.58
YEARS ACID-TEST RATIO

2008-09 1.08
2007-08 1.38
2006-07 1.05
2005-06 1.15
2004-05 1.58
Interpretation :
Acid-test ratio is near to one in current year that is 1.08 as compare to

1.38 in the previous year. Over all the acid-test ratio of last five year

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is very satisfactory so we can conclude that the absolute liquidity of

the Reliance Industries Limited is in favour.
DEBTORS TURNOVER RATIO
This ratio shows the proportion of sales to average receivables. It

shows the efficiency of the collection policy of the firm. The higher
the ratio, the less satisfactory position of the firm. Higher ratio
indicates weak collection policy of the firm.
= 31.21 days
= 22.60 days
= 29.92 days

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= 19.50 days
= 16.82 days
YEARS DEBTORS TURNOVER

RATIO
2008-09 31.21 days
2007-08 22.60 days
2006-07 29.92 days
2005-06 19.50 days
2004-05 16.82 days
Interpretation :

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We know that the higher Debtor’s turnover ratio is not good for the
firm. The lesser the period of the collection the better policy of
collection of the company. In the year 2008-09 it is 31.21 days to
collect the debts. So we can say that the collection policy of the
company is very good that they recover their debts near to 31 days
that is 1 month. But we also consider that in previous year this period
is less than 1 month so some improvement is needed.
CREDITOR’S TURNOVER RATIO :
Creditor’s turnover ratio shows the proportion of purchase to account

payable number of days within which we make payment to our
creditors for credit purchases estimated the creditors ratio if this ratio
is higher it means company has to check whether company is making
payment within credit period available. If it is making payment
before the due date means the company is not taking full advantage of
it credit period and if company making the payment the period that
indicates that the company is not taking the benefit of discount
allowed.

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= 3.33 days
= 4.62 days
= 5.47 days
= 5.49 days
= 3.96 days
YEARS CREDITOR’S
TURNOVER RATIO
2008-09 3.33 days
2007-08 4.62 days
2006-07 5.47 days
2005-06 5.49 days
2004-05 3.96 days

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Interpretation :
Higher Ratio of creditor turnover forces the company to check that

payment is made with in credit period properly or not. The creditors
turnover ratio is 3.33 in 2008-09 as compare to 2007-08 the ratio is
4.62 which is higher than the other years.
INVENTORY TURNOVER RATIO
This ratio is also known as” stock turnover ratio”. The number of
times the average stock is turnover during the year is known as stock
turnover. It is computed by deciding the sales by the inventory. The
ratio is important in joining the ability of management which it can
move the stock.

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= 7.51 times
= 7.17 times
= 9.20 times
= 8.00 times
= 8.91 times
YEARS INVENTORY
TURNOVER RATIO
2008-09 7.51 times
2007-08 7.17 times
2006-07 9.20 times
2005-06 8.00 times
2004-05 8.91 times

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Interpretation:
Higher the ratio more profitability the business would be. The ratio is
joining the ability of management with which it can move the stock.
Inventory turnover ratio is highest in the year 2006-07 is 9.20 as
compare to the other year but in current year it is 7.51 which is little
bit lower than previous year but it is obvious that in heavy industries
like Reliance Industries Limited have lower ration as compare to
FMCG.

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NET WORKING CAPITAL TURNOVER RATIO
Net working capital turnover ratio is obtained by net working capital

joining to sales. The excess of current assets over current liabilities is
called working capital. It is found for measuring firm liquidity. It also
measures the firm potential reserve of funds.
= 7.60 times
= 5.57 times
= 9.85 times
= 10.00 times
= 5.83 times
YEARS INVENTORY
TURNOVER RATIO
2008-09 7.60 times
2007-08 5.57 times
2006-07 9.85 times
2005-06 10.00 times
2004-05 5.83 times

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INTERPRITATION:
As per the balance sheet data of the creditor the working capital
turnover ratio is different for the different years. The ratio is 7.60 in
2008-09 and 5.57 in 2007-08 but the best favorable ratio is in 2005-06
which is 10 times. So it means that higher the ratio better the working
capital condition of the company.
DEBT COLLECTION PERIOD

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The Debt Collection shows the number of days taken to collect the
debts of credit sales. It shows the efficiency and collection policy of
the company. The ratio is computed by dividing the Debtor’s turnover
ratio in to 365 days.
= 11.00 days
= 16.15 days
= 12.20 days
= 18.71 days
= 21.70 days
YEARS INVENTORY
TURNOVER RATIO
2008-09 11.00 days
2007-08 16.15 days
2006-07 12.20 days
2005-06 18.71 days
2004-05 20.71 days

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25
20
15

10
0
2008-09 2007-08 2006-07 2005-06 2004-05
INTERPRETATION:
The collection period is highest in 2004-05 is 20.71 days as compare

to very low in 2008-09 is only 11 days. This shows the improvement
in collection policy of the Reliance Industries Limited. So it is very
important for any company to collect the debs which this company do
very well.

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STATEMENT OF RATIO ANALYSIS
RATIOS 2008- 2007- 2006-07 2005- 2004-

09 08 06 05
Current ratio 1.64 2.19 1.77 1.96 2.14
Acid-test ratio 1.08 1.38 1.05 1.15 1.58
Debtor’s turnover ratio 31.21 22.60 29.92 19.50 16.82
Creditor’s turnover ratio 3.33 4.62 5.47 5.49 3.96
Inventory turnover ratio 7.51 7.17 9.20 8.00 8.91
Net-working capital 7.60 5.57 9.85 10.00 5.83
turnover ratio
Debt collection period 11 16.15 12.20 18.71 21.70

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CONCLUSION
The study involves practical and conceptual over view of

decisions concerning current assets like cash and bank balance
,inventories( like raw materials ,w-i-p,finished goods ),sundry
debtors, loans and advances, other current assets and current liabilities
like sundry creditors, securities and other deposits, other current
liabilities and provisions of RIL. Was with the objective of
maximizing the overall net profit of the bank. And complete
synchronization and co ordination among the working capital
components which shall contribute to optimum level of operations.
Mismanagement of each or any of these components shall be
detrimental to the objectives of efficient operation, profitability and
maximization of overall value of the bank.
The working capital limits would be considered only after the

project nearing completion and after ensuring control over the
inventory. The inventory is a great concern for RIL and it need proper
procurement and management.
Eligible working capital limits would be assessed by cash

Budget method And Projected production method depending the
market condition, scale of operation, nature of activity/enterprise and
duration/length of operating cycle etc.

77
RECOMMENDATION & SUGGESTION:
The recommendation & suggestion for effective management of

working capital at RIL are given bellow:
1) For inventory, in order to improve the position, RIL can reduce the
level of stocks by resorting to phased production i.e. producing
according to requirement and disposing off or recycling the
unserviceable inventories.
However, the low turnover of stock may also be due to
problems with generation of sales
Inventory management is a great concern for RIL especially
stores and spares. The purchase manager should take proper steps for
procurement of inventories.
2.) The plant must take certain steps to decrease the working capital
cycle. One way can be better management of inventories.
3.) The plant is suggested to maintain a balance in capacities,

synchronization of various inputs availability of some materials or
parts which are not easily available.
4.) Short term credit period availed must be reduced and sundry
creditors should be paid faster.
5.) The plant should maintain inventory at an optimum level rather

than a very optimistic level.
6.) The procurement for materials requisition processing should be

reduced so as to minimize the lead time.
7.) Plant should given freedom in deciding the credit policies, cash
discount or credit ratings.
8). RIL can also consider negotiating its creditors for relaxing the
debt repayment period and repaying only on or just before the expire
of the credit period.

77

77
Bibliography
The Reference Books

Author
Financial Management Khan & Jain
Financial Management I.M.Pandey
Research Methodology C.R.Kothari
Reliance last 5 year annual reports
Websites:-
 www.ril.com
 www.stockindia.com
 www.scribd.com
 www.nse.com
 www.bse.com
 www.investopedia.com
 www.tutor24.net

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REPORT ON WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

RELIANCE INDUSTRIES LIMITES

Master Of Business Administration

Sikkim Manipal University.

Uni No. 520844031

BARODA INSTITUTE OF MANAGEMENT STUDY

I, undersigned Mr. Mehul K Patel, hereby declare

BARODA INSTITUTE OF MANAGEMENT STUDY

“Practice makes more perfect”

In the field of management every time

It is more applicable in the field of the

BARODA INSTITUTE OF MANAGEMENT STUDY

M.B.A. Sikkim Manipal University has prescribed 6 to 8

The project report on Working Capital Of

At the end findings and suggestions are

I hope this serves the Purpose.

Words are indeed inadequate to convey my deep

BARODA INSTITUTE OF MANAGEMENT STUDY

I am really thankful to, Mr. S.K.Shah, Executive

BARODA INSTITUTE OF MANAGEMENT STUDY

BARODA INSTITUTE OF MANAGEMENT STUDY

2 CONCEPTUAL FRRMEWORK OF WORKING 31

BRIEF PROFILE OF THE COMPANY

BARODA INSTITUTE OF MANAGEMENT STUDY

Turnover : Rs 1,46,328 crore ($ 28,850

 10.4 % of India’s total exports

 2.9 % of the Government of India’s indirect

 6.1 % of the total market capitalisation in

 Weightage of 13.6 % in the BSE Sensex

BARODA INSTITUTE OF MANAGEMENT STUDY

 Weightage of 11.1 % in the S&P CNX Nifty

Finally, in contrast to the original concept of involving the private

BARODA INSTITUTE OF MANAGEMENT STUDY

provided by the Govt. Di-methyl Terephthalate plant was

Today, out of the 15,000 plastic and detergent processors in the

The Government of India declared IPCL as one of the Navaratna

BARODA INSTITUTE OF MANAGEMENT STUDY

government reconstituted the IPCL Board by nominating four part-

disinvesting part of its equity shares to a strategic partner on

Government of India finally decided not to pursue the sale of

BARODA INSTITUTE OF MANAGEMENT STUDY

financial bids on April 29, 2002. The Evaluation Committee

This brought an end to one of the most keenly watched disinvestment

BARODA INSTITUTE OF MANAGEMENT STUDY

2002 ONWARDS-RELIANCE ACQISITION

The government of India handled over management control to

BARODA INSTITUTE OF MANAGEMENT STUDY

The first logo, which consisted of a tetrahedron -

This decision of the government, “Every thing

IPCL, as a corporate entity, is and what it shall

BARODA INSTITUTE OF MANAGEMENT STUDY

The government of India handled over management control to

BARODA INSTITUTE OF MANAGEMENT STUDY

BARODA INSTITUTE OF MANAGEMENT STUDY

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Reliance offers access to world-class resources for personal and

At Reliance, you'll have the chance to take on challenging

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