A

PROJECT REPORT
ON
WORKING CAPITAL MANAGEMENT
For
SHREE GANESH ENTERPRISES
Submitted by
KUNAL MAHAJAN
Under the guidance of
PROF. S.P. MARATHE
Submitted to
UNIVERSITY OF PUNE
In partial fulfilment of the requirement for the award
Of the degree of Master of Business Administration

ASMs Institute of Business Management and Research,

Chinchwad, Pune.
(2012-2014)

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DECLARATION

I, Kunal Mahajan undersigned, hereby declare that the Project Report entitled

WORKING CAPITAL MANAGEMENT OF SHREE GANESH ENTERPRISES Written

and submitted by me to the University of Pune, in partial fulfillment of the requirement for the
award of degree of Master of Business Administration under the guidance of Prof.S. P. Marathe
is my original work and the conclusion drawn therein is based on the material collected by
myself.

Place:
Date:

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Kunal Mahajan

Acknowledgements

I wish to express my sincere thanks and gratitude to my External Guide Mr. Abhilash Pillai.
For guiding me throughout the project and taking some time out of his busy schedule to provide
valuable inputs
I would like to thank Prof. S. Marathe (ASMS IBMR) for providing me an opportunity through
this summer project to get a feel and interact with an industry and corporate world.
Last but not least I am thankful to The Director Dr. Aasha Pachpande All Departmental Staff of
ASMS IBMR College, Chinchwad and my friend providing me moral support towards the
completion of this project.

Kunal Mahajan

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Executive Summary

The basic idea behind selection of this topic is mainly due to its nature and importance in overall
Financial Management of any organization.
Primary function of Financial Management is not only procurement of funds but also their
effective use with the objective maximizing the owners wealth. The allocation of funds therefore
is an important function of Financial Management.
Modern organization expects finance manager to take the responsibility of acquiring the targeted
funds and also require looking into financial implication of any decision.
Level of current asset depends on expected sales and can be adjusted as per short term
fluctuation. The need for working capital to run day to day activities of a manufacturing firm
depends upon its operating cycle. The operating cycle and need for funds are directly related.
Hence working capital management requires greater degree of efforts on the part of finance
managers.
In short, Working capital management involves the following concepts:
1. Estimation of Requirements.
2. Sourcing of funds and Composite thereof.
3. Collection from Debtors.
4. Payment to Creditors.
5. Inventory Management.
Hence, the management of current assets and current liabilities starts with calculation of
operating cycle which with the past three years figures from the base of estimation of required
funds. Depending on the firm risk taking capacity and its ability to service debt, the composition
of funds is worked out by the finance manager. Finally evaluation of the firms performance is
done on the basis of ratio analysis and the length of the operating cycle (both gross and net).
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This report is based on experience while working as a project trainee at Shree Ganesh
Enterprises, Bhosri.
I used primary as well as secondary method of data collection.
To study the effectiveness of the working capital managed in the company.
To estimate the working capital management requirement of the company and the composition of
net current assets for the period under reviews.
The quick ratio indicates sufficient balance available to give to liquid liabilities. Because
inventories were minimum.

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INDEX
SR.NO

CHAPTER

PAGE NO

INTRODUCTION

COMPANY PROFILE

INDUSTRY PROFILE

OBJECTIVE AND SCOPE

RESEARCH METHODOLOGY

LITERATURE SERVEY

DATA ANALYSIS AND INTERPRETATION

OBSERVATIONS AND FINDINGS

SUGGESTION AND RECOMNDATION

10

CONCLUSION

11

BIBLIOGRAPHY

13

18
20
21
35
52
54
55
56

1. INTRODUCTION
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10

Working capital:
Working capital is the life blood of business operations and its management is the primary task
for every manager. Good management of working capital generates cash and helps to improve
profit and reduce risk. In other words working capital is the management of current asset which
is different from fixed asset. Inadequacy or mismanagement of Working Capital is the leading
cause of many business failures. Working Capital is that portion of asset of a business which is
used in current operations. The basic goal of working capital management is to manage the
current assets and current liabilities of the firm in such a way that a satisfactory level of working
capital is maintained, thus the firm has a greater degree of flexibility in managing current or
working capital.
Working capital is of major importance to internal and external analysis because of its close
relationship with the day-to-day operations of a business. Every business needs funds for two
purposes.

Long term funds are required to create production facilities through purchase of

fixed assets such as plants, machineries, lands, buildings &etc

Short term funds are required for the purchase of raw materials, payment of wages,
and other day-to-day expenses. . It is otherwise known as revolving or circulating
capital

It is nothing but the difference between current assets and current liabilities. Hence, the formula
for working capital is:
(Working Capital = Current Asset Current Liability).

Sector Profile
Businesses use capital for construction, renovation, furniture, software, equipment, or machinery.
It is also commonly used to purchase inventory, or to make payroll. Hence, Working capital
management is essential for any business to succeed and It is becoming increasingly important to
have access to more working capital whenever it is needed. In other words, Working capital
means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an
enterprise. It consists broadly of that portion of assets of a business which are used in or related

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to its current operations. It refers to funds which are used during an accounting period to
generate a current income of a type which is consistent with major purpose of a firm existence.
Working capital management plays a very significant role in better performance of manufacturing firms. .A
manufacturing firm is required to maintain a balance between liquidity and profitability while
conducting its day to day operations. Hence, it is very important to study both the factors.
Liquidity is a precondition factor to ensure that manufacturing firms are able to meet their shortterm obligations and their continued flow can be guaranteed from a profitable venture. In other
words a large amount of working capital strengthens firms liquidity position but at the same
time it also reduces the overall profitability. Hence, the decisions on the amount of current assets
to be held by a firm are very important for efficient operations of the business.
A manufacturing firm must maintain an adequate level of working capital in order to run its
business smoothly. It is worthy to note that both excessive and inadequate working capital
positions are harmful. Working capital is just like the heart of business. If it becomes weak, the
business can hardly prosper and survive. No business can run successfully without an adequate
amount of working capital.

REASON FOR SELECTION OF THE TOPIC

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 One of the most important areas in the day to day management of firm is management of
the working capital.

The analysis of working capital is necessary for all the organization because if an
organization maintains a large holding of current asset specially cash, the risk is reduced
but it also reduces the profitability.

The importance of working capital management is reflected in the fact that financial
manager spend a great deal of time in managing current asset and current liabilities
.Arranging short term financing, negotiating favorable credit terms, controlling cash
movement, managing accounts receivables and monitoring investment in inventories
consume a great deal of time of financial manager.
As the study of working capital can find out the drawbacks of working capital
management of the company by analyzing the previous years working capital.

2. COMPANY PROFILE

SHREE GANESH ENTERPRISES

7/1, SHED NO. 14, SHANTI NAGAR,
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LANDEWADI, BHOSARI PUNE-411 039.

An ISO 9001:2008 Certified Company

Introduction:
Shree Ganesh is a Manufactures of Rubber Molded, Metal Bonded components supplying to
various Automobile & General Industries since last TEN Years. Shree Ganesh is the well
equipped with modern Machinery & Different types of Testing Equipment to carry test.
Commitments to Quality & Customer Satisfaction has been our main strength. Shree Ganesh has
with us Skilled Manpower to take of Quality Production. Shree Ganesh has a Quality
Management System as per ISO: 9001:2008 standards. This Organization is an ISO 9001:2008
certified company.

Major Customers are:

1) M/s IAI Industries LTD.

2) M/s Match-well Engg. LTD.

3) M/s Arm Welders PVT. LTD.

4) M/s Viney Corporation PVT. LTD.

5) M/s Jayashree Electrodevices PVT. LTD.

6) M/s Feryex Polymers PVT. LTD.

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7) M/s Das Agro Products PVT. LTD.

8) M/s Allavard IAI Suspensions PVT.LTD.

9) M/s Nizami Accurate MFG.

Polymer used:

Natural Nitrile, EPDM, SBR, Neoprene, Silicon, viton etc. To meet customer requirements,
Shree Ganesh has qualified & experienced Technical staff, which are conversant with latest
quality systems. Shree Ganesh has adopted Quality Management System as per ISO 9001:2008
QMS.

Quality Policy is:

Shree Ganesh committed to give customer satisfaction by providing Quality

Material, Timely Delivery with cost effectiveness through continuous
Improvement of Quality management System, providing training and
Monitoring & measuring of Customer objectives.
A

Company Details:

1.

Year of Establishment

2003

2.

Type of Products

O Ring, Oil seals, U seals, Gaskets,

Washer,
Bushes,
Bellows,
Buffer,
Grommets, Flat Ring, Seals ,etc.

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Manufacturing Facilities:

S.no
.

Description

1.

14 x 14
(2 dylite)

2.

12 x 12 Hydrolic Press

MODERN

3 Nos.

14 x 14 Hydrolic Press.

ESKAY

4 Nos.

4.

14x 14 Hand Press

MODERN

2 Nos.

5.

12x12 Hand Press

MODERN

1 Nos.

6.

10: x 24 Mixing Mill

MODERN

2 Nos.

7.

0.5 HP Bench POLISHER

ELMAK

3 Nos.

8.

1 HP Compressor

ELGI

2 Nos.

3.

Make
Hydraulic

Press. ESKAY

Qty
3 Nos.

Inspection & Test Facilities:

S.no
.

Description

Make

Qty

1.

0 200 Dial Vernier.

Mitutoyo

4 Nos.

2.

0 100 Durometer.

Sentico

3 Nos

3.

0 10 Thickness Gauge.

Mitutoyo

4 Nos

Certification:

1.

ISO 9001:2008:-Reg. No.: RQ91/3474, Dtd. 08-09-2005 By ICS.

2.

VAT TIN NO.: 27710548723 V, wef : 28-06-2006.

3.

CST TIN NO.: 27710548723 C, wef : 28-06-2006.

3. INDUSTRY PROFILE
INTRODUCTION & INDUSTRY PROFILE
An Overview of Rubber Industry (F.Y. 2012-13) (Estimated)
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Total No. of Units:

6000 approx

Large & Medium scale units:

500

Small & Tiny Units:

5500

Industry Turnover:

Rs. 60,000 Crores

Tyre Sector:

Rs.35,000 Crores

Non Tyre Sector:

Rs.25,000 Crores

Value Exports:

Rs.9,600 Crores

Taxes & Duties:

Rs. 13500 Crores

Raw-Material intensity:

Raw Material cost accounts for 65% - 70%

Of Industry Turnover (approx)

Principal Raw-Materials:

Natural Rubber, Synthetic Rubbers,

Carbon Black, Rubber Chemicals etc.

INDIAN RUBBER INDUSTRY - SOME PERTINENT FACTS

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 The Rubber Industry is highly labour and energy intensive. The Indian Rubber Industry
comprises about 450 / 500 large / medium scale units and nearly 5500 Small and Tiny
units.
The high cost of power, finance, inadequate & expensive infrastructure and relatively low
volumes, deprives the Indian Rubber Industry particularly small and tiny units, the costcompetitiveness as compared to their counterparts in other Asian countries which are
posing threats to the very survival of Industry.
Allow duty free import of 1 lac metric tonne of Natural Rubber to meet demand supply
gap.
Rubber Product as well as Synthetic Rubber are imported at same rate of duty, whereas
import from Asian Countries have 5% concession in duty. Hence it is very difficult for
India Rubber Industry to survive.
In India, the consumption ratio between natural rubber and synthetic rubber is nearly
73:27 against the world ratio of 44:56, which shows over dependence on natural rubber in
India. Natural rubber being non-modvatable, the modvat component in rubber goods is
almost negligible. As such, the excise duty on general rubber products at 10% is on
higher side.
The import of the major raw materials of rubber industry which are not indigenously
produced is subjected to high rate of Custom Duty, making it very difficult for the Rubber
Industry to survive and to compete against import of finished products.
Basic raw material and rubber finished products are charged at same rate of duty this is
against normally accepted practice of imposing lower rate of duty on raw material and
higher rate on finished products. The government should fix the import duties on raw
material lower than the import duties on the finished products.
Levy of anti-dumping duties on High Styrene Butadiene Rubber (all 1900 series) has
made the Indian footwear products more expensive. With high interest cost and energy
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rates many of SSI footwear units had to close their shutter, leading to import of Footwear
products from Nepal, Sri-Lanka & China.
Levy of anti-dumping duties on Carbon Black & Rubber Chemicals has made the Indian
rubber products more expensive. With high interest cost and energy rates many of SME
units had to close their shutters.
In spite of constraints faces by the Indian rubber industry; it is achieving growth in export
of rubber products at 15% to 20% annually.

Trends in Production, Consumption, Import & Export of

Natural Rubber in India.

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Natural Rubber (Production,Consumption,Import & Export)

1000000
900000
800000
700000
600000
Matric Tons

500000
400000
300000
200000
100000
0

Year
2007-08
2008-09
2010-11
2010-11
2011-12

2007-08

2008-09

2009-10

2010-11

2011-12

Natural Rubber (Production,Consumption,Import & Export)

Production
Consumption
Import
Export
825345
861455
89295
60280
864500
871720
81545
46926
831400
930565
170679
25090
861950
947715
177637
29851
903700
964415
213785
27145

Trends in Production, Consumption, Import & Export of

Synthetic Rubber in India.

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Trends in Production, Consumption, Import & Export of Synthetic Rubber in India.

450000
400000
350000
300000
250000

Matric Tons

200000
150000
100000
50000
0

2007-08

2008-09

2009-10

2010-11

2011-12

Trends in Production, Consumption, Import & Export of Synthetic Rubber in India.

Year
Production
Consumption
Import
Export
2007-08
101265
297155
195705
2008-09
96739
292950
190630
2010-11
106743
347710
250210
2010-11
110340
411830
302030
2011-12
110599
423350
327625
Summary
Consumption of Natural & Synthetic Rubber is constantly increasing at moderate rate whereas
production of the same is not matching the growth in consumption. It is not available even at
high prices. Therefore, it is urgent need to import one lac MT of Natural Rubber to bridge the
demand supply gap and to stabilize the demand supply situation.

4. OBJECTIVE AND SCOPE

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0
0
0
0
0

The training was undertaking with view of following objective:-

To study the effectiveness of the working capital managed in the company.

To estimate the working capital management requirement of the company and the
composition of net current assets for the period under reviews.
Measurement of working capital in the company.
To identify the financial strength and weakness of the company.
To gain the practical knowledge and experience about the topic and company.
To analyze financial statement with the year wise change.
To know about the financial condition of a company by ratio analysis.
To study different aspects used as tools for managing working capital.

SCOPE

The scope of the study is identified after and during the study is conducted. The main
scope of the study was to put into practical the theoretical aspect of the study into real life work
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experience. The study of working capital is based on tools like Ratio Analysis, Statement of
changes in working capital. Further the study is based on the annual report of shree Ganesh for
the year 2012-13
1. The period of project report is two months.
2. The study is only related to the working capital management.

5. RESEARCH METHODOLOGY

This report is based on experience while working as a project trainee at Shree Ganesh
Enterprises, Bhosri.
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Data Collection
Data collected from two sources.
Primary data Information collected from every department of the company, such as finance, stores, production,
engineering and administrative departments and some other data by observing the company
environment.
Secondary dataSecondary data is the data that has been collected earlier for purpose of present study.
The data is collected through the secondary sources like:

Annual reports of the company.

Magazines, reports in the company.
Policy documents of various department.

6. LITERATURE SERVEY

CONCEPTS TO BE COVERED
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Introduction of Working Capital

Definition
Concept of Working Capital
Need of Working Capital
Types of Working Capital
Importance of Working Capital management
Factors affecting Working Capital
Nature of Working Capital Management
Disadvantages Or Dangerous Of Inadequate Working Capital

INTRODUCTION OF WORKING CAPITAL

Working capital refers to the cash a business requires for its day to day operations or
more specifically for financing the conversion of raw material into finished goods, which the
company sells for payment.
It is a measure of both a companys efficiency and its short term financial health.
It is calculated by the following formula:Working capital = Current Assets - Current Liabilities
Current Assets:

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Current assets are the assets which can be converted in to cash within an accounting year and its
components are:

Current Liabilities:
Current liabilities those claims of outsiders which are expected to mature for payment within an
accounting year and its components are:

If a companys current assets do not exceed its current liabilities, then it may run into
trouble paying back creditors in the short run. The worst case scenario is bankruptcy. A declining
working capital ratio over a longer time period is also a danger (Red Flag) that warrants further
analysis.
Working Capital also gives investors an idea of the companys underlying operational
efficiency.

The primary objective of Working Capital Management is to ensure that sufficient cash is
available to:

Meet day to day cash flow needs

Pay wages and salaries when they fall due
Pay creditors to ensure continued supplies of goods and services
Ensure long term survival of the business entity.

Thus working capital management is an attempt to manage and control the current assets
and current liabilities in order to maximize profitability and proper liquidity in the business. To
keep the business alive you need to manage working capital, so the cash flows quickly around
the business.

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DEFINITION

Working capital is the excess of current assets over current liabilities of any
business at any time.

Use to evaluate the liquidity of a company and how well it is positioned to fund
operations in the short term using cash and other assets convertible to cash. Liquid assets
available for conducting the daily affairs of a business can also be called as working capital. It is
used to meet fluctuating needs that will be repaid during the companys next full operating cycle,
generally, one year. By definition, working capital management entails short term decisionsgenerally, relating to the next one year period- which is reversible

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24 | P a g e

LESS

WORKING CAPITAL

CONCEPTS OF WORKIING CAPITAL

Working capital differs from fixed capital in terms of time required to recover the
investment in a given asset. In case of fixed capital or long term assets (such as land, building
and equipment), a firm usually needs several years or more to recover the initial investment. In
contrast, working capital is turned over or circulated at a relatively rapid rate.

There are two concepts of working capital: - Gross and Net Working Capital

Gross Working Capital:25 | P a g e

It refers to the firms investment in current assets. Current assets are the assets that can be
converted into cash within an accounting year and include cash, short term securities, debtors,
bills receivable and stock.

Net working capital:It refers to the difference between current assets and current liabilities. It can also be
defined as that portion of a firms current assets which is finance with long term funds. Current
liabilities are those claims of outsiders that are expected to mature for payment within an
accounting year and include creditors, bills payable and outstanding expenses. Net working
capital can be positive or negative. A positive net working capital will arise when current assets
exceed current liabilities. A negative net working capital occurs when current liabilities are in
excess of current assets.

The two concepts of working capital gross and net are not exclusive rather they have
equal significance from the management view point.

Working capital is also of permanent and variable nature. There is always a minimum level of
current assets that is continuously required by the firm to carry on its business operations. This
minimum level of current asset is referred to as permanent or fixed working capital. The extra
working capital needed to support the changing production and sales activities is called
fluctuating or variable working capital.
The firm should maintain working capital position. It should have adequate Working
Capital to run its business operation. Both excessive as well as inadequate Working Capital
positions are dangerous from the firms point of view. Excessive working capital means idle
funds which earn no profits for the firm.

NEED OF WORKING CAPITAL

Not all businesses have the same need to invest in working capital. Much depends on:-

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 The nature of the production process i.e. what and how something is being
produce.
The way in which the product is distributed to the customer.

Different industries have different optimum working capital profiles, reflecting their
methods of doing business and what they are selling. The most appropriate a method of
calculating the working capital need of a firm is a concept of Operating cycle.

Businesses with a lot of cash sales and few credit sales should have minimum trade
debtor
Example: Supermarkets.
Businesses that exist to trade in completed products will only have finished goods in
stock. As compared to this, manufacturers will have to maintain stock of Raw material
and Work in Progress.
Larger Companies may be able to use their bargaining strength as customers obtain
more favorable, extended credit terms from suppliers. But smaller companies those have
recently started trading (and do not have a track record of credit worthiness) may be
required to pay their suppliers immediately.
Some businesses will receive their money at certain times of year, although they may
incur expenses throughout the year at a consistent level. This is known as Seasonality
of cash flow.
Example: Travel Agents
Working Capital need fluctuate during the year:Amount of funds tied up in Working Capital would not typically be a constant figure
throughout the year

Types of Working Capital

Following is the diagram showing types of Working Capital:-

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WORKING
CAPITAL

On the Basis of
Concept

Gross
Working
Capital

Net Working
capital

On the basis of
Requirement

Fixed
Working
capital

Variable
Working
Capital

Gross Working Capital:

This concept implies the total of current assets of a business firm. Current assets are that asset
which can be converted in to cash within in accounting year of an operation cycble. The current
assets include cash and bank balances, debtors, bills receivables, inventories and expenses
prepaid and short term investment.

Net Working Capital:

The net working capital is the difference between current assets and current liabilities. Current
liabilities are those liabilities, which are expected to mature for payment within an accounting

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year and include creditors bills payables, outstanding expenses, bank overdraft and other short
term loans. The net working capital can be positive or negative

If current assets exceed current liabilities, the difference is positive net working capital and
when current liabilities exceed current assets, the difference is negative working capital.

Fixed working capital:

Every business requires some minimum amount of working capital in spite of level of
operation, throughout the year. These amounts represent the fixed amount of working capital.

Variable working capital:

In many business firms, the level of operation fluctuates from time to time depending upon
demand pattern. In case the demand picks of in a particular season the need for working capital
also increases and during low demand periods the need for working capital also comes.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

The task of the financial manager in managing working capital efficiency is to ensure
sufficient liquidity in the operations of the enterprise. The liquidity of a business firm is
measured by its ability to satisfy short term obligations as they become due.

1. Time devoted to working capital management:-

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Surveys indicate that the largest portion of a financial managers time is devoted to the day
to day internal operations of the firm; this may be appropriately subsumed under the heading
Working Capital Management

2. Investment in current assets:Characteristically, current assets represent more than half of the total assets of the
business firm. Because they represent a large investment and it tends to be relatively volatile,
current assets are worth of the financial managers careful attention.

3. Importance for small firms:Working capital management is particularly important for small firms. A small firm may
minimize its investment in fixed assets by renting or by leasing plant and equipment, but there is
no way it can avoid investment in cash, receivables and inventory. Therefore, current assets are
particularly significant for the financial manager of a small firm. Further, because a small firm
has relatively limited access to the long term capital markets; it must necessarily rely on trade
credit and short term bank loans, both of which affect net working capital by increased current
liabilities.

4. Exploitation of favorable market conditions:-

Only concerns with adequate working capital can exploit favorable market conditions such
as purchasing its requirement in bulk when the prices are lower and by holding inventories for
higher prices.

FACTORS AFFECTING WORKING CAPITAL

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Determinants of working capital:There are no set of rules or formulas to determine the working capital requirements of
firms. A large number of factors, each having a different importance influence working capital
needs of firms. The importance of the factors also changes for a factor of time. Therefore an
analysis of relevant factors should be made in order to determine total investment in working
capital. Following are some factors affecting the composition of working capital:

1. Nature of business:Working capital requirements of a firm are basically influenced by the nature of its
business. Trading and financial firms have a very small investment in fixed assets, but require a
large sum of money to be invested in working capital. Retail stores, for example must carry large
stocks of a variety of goods to stratify varied and continuously demands of their customers.
In contrast, public utilities may have limited need of working capital and have to invest
abundantly in fixed assets. Their working capital requirement is nominal because they may have
only cash sales and supply services, not products. Thus, no funds will be tied up in debtors and
stock.
2. Market and demand conditions:The working capital needs of a firm are related to its sales. However, it is difficult to
precisely determine the relationship between volume of sales and working capital needs.
Sales depend on demand conditions. Large number of firms experience seasonal cyclical
fluctuations in the demand for their products and services. These business variations affect
the working capital requirements, specially the temporary working capital requirement of a
firm.
Seasonal fluctuations not only affect working capital requirement but also create
production problems of the firm.

3. Technology and manufacturing policy:The manufacturing cycle (or the inventory conversion cycle) comprises of the
purchase and use of raw material and the production of the finished goods. Longer the
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manufacturing cycle, larger will be the firms working capital requirement production
policies will differ from firm to firm, depending on the circumstances of the individual firm.

4. Credit policy:The credit policy of the firm affect she working capital by influencing the level of
debtors. The credit term to be granted to customers may depend upon the norms of the industry
to which the firm belongs. The firm should follow a renationalized credit policy based on the
credit standing of customers and other relevant factors.

5. Operating efficiency:The operating efficiency of the firm relates to the optimum utilization of all its resources
at minimum costs. The efficiency in controlling costs and utilization fixed and current assets
leads to operating efficiency.

6. Price level changes:Generally, rising price level will require a firm to maintain higher amount of working
capital. Same levels of current asset will need increased investment when prices are increasing. It
is possible that some companies will not be affected by rising prices while others may be badly
affected.

7. Rate of growth of business:The working capital requirement of a firm increases with the growth and expansion of its
activities. It is difficult to determine the relationship between growth in the volume of business
and the growth in the working capital of a 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 fast growing concern, we shall require larger amount of working capital.
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NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is concern with the problem that arises in attempting to
manage the current assets, the current liabilities and the inter relationships that exists between
them .The term current assets refer to those assets, which in ordinary course will be or can be
turned into cash within one year without undergoing a decrease in value and inventory. Current
liabilities, which are intended at their inception to be paid in the ordinary course of business
within year out of the current assets, are earning of the concerns.

The basic current liabilities are bills payable, creditors, bank overdrafts and outstanding
expenses. The goal of working capital management is to manage the firms current assets and
current liabilities in such a way that a satisfactory level of working capital is maintained. This is
because, if the firms cannot maintain a satisfactory level of working capital, it is likely to force
into bankruptcy. The current assets should be large enough to cover its liabilities in order to
ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in
order to maintain the liquidity if the firm while not keeping it too high level of any one of them.
Each of the short term sources of financing must be continuously managed to ensure that they are
obtained and used in the best possible way.

DISADVANTAGES OR DANGEROUS OF INADEQUATE WORKING

CAPITAL

1. A concern, which has inadequate working capital, cannot pay its short-term liabilities in
time. Thus it will lose its reputation and shall not be able to get good credit facilities.

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2. It cannot buy its requirement in bulk and cannot avail of discount ,etc
3. It because difficult for the firm to exploit favorable market. Conditions and undertake
profitable projects due to lack of working capital.
4. The firm pays day-to-day expenses of its operations and it creates inefficiencies, increase
cost and reduces the profit of the business.
5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of
liquid funds.
6. The rate of return on investments also falls with the shortage of working capital.

7. DATA ANALYSIS AND INTERPRETATION

ESTIMATING WORKING CAPITAL NEEDS

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As we know working capital is the life blood and the centre of a business. Adequate amount of
working capital is very much essential for the smooth running of the business. And the most
important part is the efficient management of working capital in right time. The liquidity position
of the firm is totally effected by the management of working capital. So, a study of changes in
the uses and sources of working capital is necessary to evaluate the efficiency with which the
working capital is employed in a business. This involves the need of working capital analysis.

Statement of working capital

Years

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2011 (Rs.in lakh)

2012 (Rs.in lakh)

2013 (Rs.in lakh)

Current Asset (CA)

Inventories
S.Debtors
Cash & Bank
balance
Other CA
Loan & Advances

29.22
71.49
6.60
13.48
9.91

24.45
65.10
2.07
28.45
10.72

22.07
63.45
5.67
45.12
14.63

1. TOTAL CA

130.70

130.79

150.94

Current Liabilities
Current Liabilities
Provisions

101.19
11.32

104.30
12.53

126.75
13.60

2.TOTAL CL

112.51

116.83

140.35

NET WORKING
CAPITAL (1-2)

18.19

13.96

10.59

Net Working Capital

20

18.19
13.96

15

10.59

10
5
0
2010-11

Interpretation:

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2011-12

2012-13

Net Working Capital

The working capital of Shree Ganesh Pvt. Ltd has been showing decreasing trend. It was
high during 2011. There is decreasing working capital in 2012 and 2013.
During 2011 working capital was highest because debtors turnover ratio was also highest and
company increased inventory. The company succeeded to recover money much faster than other
years. The proportionate increase in current assets was more than proportionate increase in
current liabilities.
During 2011 companys working capital has going down. The main reason behind this the
company has reduced its inventory. The debtors turnover ratio was low during this period.
Companys current liability has increased in more proportion to current asset. During this period
company was more depend on sundry creditors than short term bank borrowing.
During 2012 and 2013 companies working capital is very highly decreasing. Due to increase in
current liabilities of company are same the current assets. Due to decrease in sale current assets
is not available to meet the current liabilities. And company takes fund from the customers in
terms of advances. The debtors turnover ratio was low during this period. Companys current
liability has increased in more proportion to current asset.

1) LIQUIDITY RATIOS:-

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Liquidity refers to the ability of the firm to meet its obligations in the short run, usually one year.
Liquidity ratios are generally based on the relationship between current assets and current
liabilities.

a) Current Ratio: This ratio measures the solvency of the company in the short
term. Current ratio of 2:1 indicates a highly solvent position. A very high current ratio
will have an adverse impact on the profitability of the organization.

Current Ratio = Current Assets

Current Liabilities

2011

2012

2013

130.70

130.79

150.94

116.83

140.35

1.11

1.07

Year
Current Assets (lakh)
Current Liabilities(lakh)
Current Ratio

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112.51
1.16

Current Ratio
1.16
1.16
1.14

1.11

1.12

Current Ratio

1.1

1.07

1.08
1.06
1.04
1.02
2010-11

2011-12

2012-13

Interpretation:
The Current Ratio has been decreasing. It was high during 2011 because Current Liability
has not much increased as it increased in 2012. During 2012 and 2013 the ratio was minimum
because Current Liability has increased more as compared to proportionate increase in Current
Assets. During the year 2013 the current ratio is 1.07 which shows the adequate backing
Available to current liability. The Company Current Ratio is below Standard level i.e. 2:1.
b) Quick Ratio/Acid-test Ratio/ liquid ratio: This is used as a measure of the
companys ability to meet its current obligation. Quick Ratio of 1:1 indicates highly
solvent position

Liquid Ratio =

Current Assets - Inventory

Current Liabilities

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Year
Current Assets
(Lakh)
Less:

2011

2012

2013

130.70

130.79

150.94

31.67

26.84

23.26

103.95

127.68

Avg.Inventories
(Lakh)
Liquid Assets (Lakh) 99.03
Liquid Liabilities
(Lakh)
Quick Ratio

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112.51

116.83

0.88

0.89

140.35
0.90

Quick Ratio
0.9
0.9
0.9

0.89
Quick Ratio

0.89
0.89

0.88

0.88
0.88
0.87
2010-11

2011-12

2012-13

Interpretation:
The companies Quick Ratio has been increasing from 2011 to 2013. In 2011 it is low
even though inventories were minimum. This is become liquid asset has not much increased in
proportion to liquid liabilities.
2) TURNOVER RATIOS
They measure how efficiently the assets are employed by the firm. These ratios are based on the
relationship between the level of activity, represented by the sales or cost of goods sold and levels of
various assets.
a) Inventory turnover ratios:A ratio of 6 or 7 times is considered satisfactory. But there is no rule of thumb. It
measures how fast the inventory is moving through the firm and generating sales. It reflects the
efficiency of inventory management, the higher the ratio the more efficient the management of
inventories and vice versa.

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Inventory turnover ratio = Net Sales/

Average inventory

Years

2011 (Rs.in Lakh)

2012(Rs. in Lakh)

2013 (Rs in Lakh)

Sales

218.28

199.96

162.22

Less: Gross profit

27.83

28.36

17.46

Cost of goods sold

190.45

171.6

144.76

Average Inventory

31.67

26.84

23.26

Inventory Turnover

6.01

6.40

6.22

Ratio

Inventory Turnover Ratio

6.4
6.4
6.22

6.3
6.2
6.1

Inventory Turnover Ratio

6.01

6
5.9
5.8
2010-11

2011-12

2012-13

Interpretation:
Inventory Turnover Ratio of company is fluctuating during the period of time. The ratio of the
company for the period 2011 and 2012 are 6.01 and 6.40 respectively. Which indicates sales are
double of the inventory investment? The ratio slightly decreases in the period year 2013 by 6.22.

42 | P a g e

Inventory Holding Period

Inventory Holding Period = Months in a year/ Inventory turnover ratio
Year

2011

2012

2013

Months in a year

12

12

12

Inventory Turnover

6.01

6.40

6.22

1.99

1.88

1.92

Ratio
Inventory Holding
Period (In Months)

Inventory Holding Period (In Months)

1.99
2
1.98
1.96
1.94
1.92
1.9
1.88
1.86
1.84
1.82

1.92
1.88

2010-2011

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2011-2012

2012-2013

Inventory Holding Period (In

Months)

b) Debtors turnover ratio

This ratio measures how rapidly receivables are collected. Higher the ratio, the greater the
efficiency of credit management. If the credit period is 30 days the ratio should be 12:1. Suppose
if the ratio is 12:2: i.e. 6:1 the realization from debtors is taking two months.
Debtors turnover ratio = Net credit sales/ Average sundry debtors
2011

2012

2013

256.16
55.53
4.61

219.26
68.29
3.21

173.05
64.27
2.69

Year
Credit Sales
Average Debtors
Debtors Turnover
Ratio

Debtors Turnover Ratio

4.61

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

3.21
2.69

2010-11

2011-12

Debtors Turnover Ratio

2012-13

Interpretation:
Debtors Turnover Ratio is consistently decrease in last three years which inversely effect on the
debtors Payment Period. A high turnover ratio indicates that collection from debtors quite
prompt.
Debtors Collection Period:
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Average Collection Period is the average amount of times needed to collect accounts
receivables.

Debt Collection Period= Months in a

year/ Debtors Turnover Ratio.

Years

2011

2012

2013

Months in a year

12

12

12

Debtors Turnover

4.61

3.21

2.69

2.60

3.73

4.46

Ratio
Debt Collection
Period

Debt Collection Period

4.46
4.5

3.73

4
3.5

2.6

Debt Collection Period

2.5
2
1.5
1
0.5
0
2010-11

Interpretation:
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2011-12

2012-13

Debtors collection period indicates the speed at which the debtors are converted into cash.
Debtors collections period Ratio shows increasing trend. The ratio was 2.60 in the year 2011
which increase to 3.73 in year 2012 because increase in credit sales. Compare to 2012 the ratio in
the year 2013 is increase to 4.46 due to increase in both net credit sale and account receivable.

c) Fixed asset turnover:

This ratio measures sales per rupee of investment in fixed assets. This ratio is supposed to
measure the efficiency with which fixed assets are employed. A high ratio indicates a degree of
efficiency in asset utilization and a low ratio reflects inefficient use of assets.
Fixed Asset Turnover Ratio = Net
Sales/ Fixed Asset

2011

2012

2013

218.29
53.26
4.10

199.96
56.25
3.55

166.22
58.86
2.82

Year
Net Sales
Net Fixed Asset
Fixed Asset Turnover
Ratio

46 | P a g e

Fixed Asset Turnover Ratio

4.1

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

3.55
2.82
Fixed Asset Turnover Ratio

2010-2011

2011-2012

2012-2013

Interpretation:
Fixed asset turnover ratio of the company for the period 2011 which indicate
sales are double of fixed asset. During the year 2012 and 2013 ratio decrease to 1.77 and 1.27
respectively due to not increase in the subsequent amount of sale.

d) Current assets turnover

If this ratio is high it indicates an efficient utilization of current assets in generating sales.
If this ratio is low it is indicative of inefficiency in working capital management. A too high or
too low current assets turnover ratio is not welcoming feature of a firms management.
Current asset turnover= Net Sales/
Current assets

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Year
Net Sales
Current Asset
Current asset turnover
ratio

2011

2012

2013

218.29
130.70
1.67

199.96
130.79
1.52

162.22
150.94
1.07

Current Assets Turnover Ratio

1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

1.67

1.52
1.07

2010-11

2011-12

Current Assets Turnover

Ratio

2012-13

Interpretation:
This ratio shows increasing trend. The company has succeeded to achieve maximum sales with
minimum level of investment in Current assets.
Working capital Turnover ratio:A measurement comparing the depletion of working capital to the generation of sales over a
given period. This provides some useful information as to how effectively a company is using its
working capital to generate sales. This ratio indicates the extent of working capital turned over in
achieving sales of the firm.

Working capital turnover ratio=

Cost of goods sold/ Net working
Capital

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Years

2011

2012

2013

Cost of goods sold

Net working Capital

190.45
18.19

171.60
13.96

144.76
10.59

Working capital
turnover Ratio

10.47

12.29

13.66

Working Capital Turnover Ratio

13.66
12.29

14
10.47

12

Working Capital Turnover

Ratio

10
8
6
4
2
0
2010-11

2011-12

2012-13

Interpretation:
Working Capital turnover ratio of the company for the period 2011 which
indicate the working capital turnover is low. During the year 2012 and 2013 ratio increase to
12.29 & 13.66 respectively due to increase in the subsequent amount of sale.

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8. FINDINGS

1. The current ratio of the firm is decrease. Because Current Liability has increased
more as compared to proportionate increase in Current Assets. The main cause of
increasing current liability is company has not managed the fund, and the cash
was unallocated.
2. The quick ratio indicates sufficient balance available to give to liquid liabilities.
Because inventories were minimum. Company uses the various techniques of
inventory management like ABC, EOQ etc.
3. The debtors collection period is increase in 2011 and in 2012. Because increase
in both net credit sale and account receivable. In 2012 company not managed the
proper AR (Accounts Receivable) department.
4. The working capital of the company is comes in low but it is positive sign which
increase the sale of the firm in future. Company does not have proper working
capital now but company has large amount of accounts receivable.

LIMITATIONS

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 The study is based on secondary data given in the annual audited balance sheet, profit and
loss account and directors and auditors reports.

The study is based on three years balance sheet, and annual reports that find to be
insufficient for detailed study.

There is no source of primary data collection regarding the financial aspects of the
company.
Many things are found to be confidential between the management of the company

9. SUGGESTION

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 The firm should try to maintain its current ratio by concentrating on both current asset
and current liabilities.
The firm should increase the inventory turnover ratio by decrease average inventory.
The working capital turnover ratio is very low in the year 2013. Company should
improve this.
The company should control the short-term solvency of the company.
The company should control the long-term debts as well as short term debts.

10. CONCLUSION

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 Thus to conclude through the project study it is clear that management must have
proper control over the working capital as the large part of the funds are blocked in
raw material, work in progress, finished goods and debtors.
The finance manager should take immediate and proper steps to overcome the situation
of under capitalization by making arrangement of sufficient working capital.
The management of working capital is an essential task of financial management. The
management must take action in such a manner that the company should not have
excessive funds, which may be lying idle, nor should it have fewer funds, which may
result in bottleneck during production. As the funds have cost and value it should be
managed properly.
It is job of finance department to have correct estimate of working capital requirement
and must have optimum investment in working capital. Thus estimating working
capital helps in making arrangements of funds through any bank policy or financial
lender.
Working capital management is concerned with the problem that arises in attempting in
current assets, current liabilities & inters relationship between them.
Thus from assessment of working capital it is clear that working capital funds
requirements is increasing every year. From the ratio analysis it is noted that
companys current ratio, acid ratio debt to equity ratio, is also efficient but also the
fixed assets turnover ratio indicates investments of excessive funds in fixed assets & a
majority in inventory.
Thus in brief it can be started that management of working capital could enable the
organization to reap the benefits as & when they come & thus also enables the
organization to consolidate its position in the market.

10. BIBLOGRAPHY

For the preparation of the project report following books and websites were referred
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1) Pandey I.M., Financial Management

Vikas Publishing House, New Delhi.
2) Annual report of SHREE GANESH ENTERPRISES.
3) www.wikipedia.com

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