WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

PROJECT REPORT
(Submitted for the degree of B.com Hons. in Accounting & Finance
under Calcutta University)

On

WORKING CAPITAL MANAGEMENT

OF
ACC LIMITED
SUBMITTED BY
Name : SONU PATWARI
Registration No : 144-1121-1452-13
Roll No : 1144-61-0071
College Roll No : 221
Name of the College : BANGABASI MORNING COLLEGE

SUPERVISED BY
Name of the Supervisor: SUBHABRATA DINDA
Name of the College : BANGABASI MORNING
COLLEGE
 WORKING CAPITAL MANAGEMENT

ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to our college for

providing the excellent infrastructure for completion of this project work
in our organization BANGABASI MORNING COLLEGE.
A special word of thanks to Head of the Department of our college for
patronizing & completion of my project.
My sincere thanks to Prof. Subhabrata Dinda who have provided
support directly and indirectly for completion of my project and for
giving me the golden opportunity to do this wonderful project on the
topic WORKING CAPITAL MANAGEMENT ON ACC LTD. I am
really thankful to him.
I would like to thank my parents and friends who helped me a lot in
finishing this project within the limited time. I would also like to express
my gratitude to the companies for using their names as well as their
statistical data. I am making this project not only for marks but to also
increase my knowledge.

THANKS AGAIN TO ALL WHO HELPED ME.

________________
(SONU PATWARI)

N
Naam
mee--SSoonnuu PPaattw
waarrii
R
Roollll N
Noo..--222211
C
CUUR
Roollll N
Noo..-- 11114444--6611--00007711
 WORKING CAPITAL MANAGEMENT

ABSTRACT

Working capital management is one of the most important topics in

corporate finance: it relates to the operating investment of a firm and the
way managers choose to finance it. This topic, mostly ignored by academics
for years, is now gaining importance as we realize that financial markets are
not as efficient as they were assumed to be, especially as firms expand
outside the developed economies. This book provides a general framework
that helps to understand working capital in a comprehensive approach,
linking operating decisions to their financial implications and to the overall
business strategy.

Objective
Decide Appropriate means of Short Term Financing
It means raw material should be present on requirement and it should
not be a cause to stoppages of production.
All other requirements of production should be in place before time.
The finished goods should be sold as early as possible once they are
produced and inventoried.

Methodology
Tools used for analysis:
Financial Ratio Analysis, Trend Analysis, Time Series Analysis.
Data sources:
Research is totally based on primary data. Secondary data can be used
only for the reference.
Scope of study:
In the project, we take into consideration, The Annual report of various
years. The Profit and Loss Statement of various years. Information about
the raw materials, their annual usage and the price of each raw material.
Information about the sources of finance and their Investment options.

TABLE OF CONTENTS
 WORKING CAPITAL MANAGEMENT

Sl. No. Particulars Pg. No.

Chapter 1 Introduction
1.1 Introduction
1.2 Background
1.3 Rationale
1.4 Literature Review
1.5 Limitation of Study
1.6 Chapter Planning
1.7 Objective
1.8 Research Methodology

Chapter 2 Conceptual Framework

2.1 National & International Scenario

Chapter 3 Presentation of Data, Analysis And Findings

3.1 Finding
3.2 Company Profile
3.3 Inventory Management
3.4 Ratio Analysis

Chapter 4 Conclusion and Recommendations

4.1 Recommendations for further study
2.2 Conclusion

Bibliography or References

Annexures
 WORKING CAPITAL MANAGEMENT

1.1 INTRODUCTION

Working capital management involves the relationship between a

firm's short-term assets and its short-term liabilities. The goal of working
capital management is to ensure that a firm is able to continue its
operations and that it has sufficient ability to satisfy both maturing short-
term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable and
payable, and cash.
Nature and Constituents of Working Capital Management:
- Working Capital Management is concerned with the problems that arise
in attempting to manage the Current Assets, Current Liabilities and the
inter-relationship that exists between them
- Working Capital Management means the deployment of current assets
and current liabilities efficiently so as to maximize short-term liquidity
- Working capital management entails short term decisions - generally,
relating to the next one year period - which are "reversible"
- Two Steps involved in the Working Capital Management:
(I) Forecasting the Amount of Working Capital
(ii) Determining the Sources of Working Capital

Need for study:

Working capital Management is referred as short term Financial
Management .The need of working capital management is to:
Ensure that a firm is able to continue its operations and that it has
sufficient ability to satisfy both maturing short-term debt and
upcoming operational expenses. Maintain the optimum balance of
each of the working capital components. Increase the Profitability
of the company.

Importance of Working Capital Management:

- Working Capital is the Life Blood of the Business
- Fixed Assets (Long Term Assets) can be purchased on Lease/Hire
Purchase but Current Assets cannot be
 WORKING CAPITAL MANAGEMENT

- Liquidity V/s Profitability

1.2 BACKGROUND
Decisions relating to working capital and short-term financing are referred to
as working capital management. These involve managing the relationship
between a firm's short-term assets and its short-term liabilities. The goal of
working capital management is to ensure that the firm is able to continue its
operations and that it has sufficient cash flow to satisfy both maturing short-
term debt and upcoming operational expenses.

A managerial accounting strategy focusing on maintaining efficient levels of

both components of working capital, current assets and current liabilities, in
respect to each other. Working capital management ensures a company has
sufficient cash flow in order to meet its short-term debt obligations and
operating expenses

1.3 RATIONALE
Working capital is a daily necessity for businesses, as they require a regular
amount of cash to make routine payments, cover unexpected costs and
purchase basic materials used in production of goods. Working capital is an
easily understandable concept, as it is linked to an individuals cost of living
and, thus, can be understood in a more personal way. Individuals need to
collect money they are owed and maintain a certain amount on a daily basis
to cover day-to-day expenses, bills and other regular expenditures.

Working capital is a prevalent metric for the efficiency, liquidity and overall
health of a company. It is a reflection of the results of various company
activities, including revenue collection, debt management, inventory
management and payments to suppliers. This is because it includes
inventory, accounts payable and receivable, cash, portions of debt due within
the period of a year and other short-term accounts.

The needs for working capital vary from industry to industry, and they can
even vary among similar companies. This is due to several factors, including
differences in collection and payment policies, the timing of asset purchases,
the likelihood of a company writing off some of its past-due accounts
receivable, and in some instances, capital-raising efforts a company is
undertaking.
 WORKING CAPITAL MANAGEMENT

1.4 LITERATURE REVIEW

Working Capital Management: Difficult, but rewarding

The article focuses on the importance of management of the working capital

in a business enterprise. From the perspective of the chief financial officer
(CFO), the concept of working capital management is relatively
straightforward: to ensure that the organization is able to fund the difference
between short-term assets and short-term liabilities. In practice, though,
working capital management has become the Achilles' heel of scores of
finance organizations, with many CFOs struggling to identify core working
capital drivers and the appropriate level of working capital. By
understanding the role and drivers of working capital management and
acting to reach the "right" levels of working capital, companies can
minimize risk, prepare for uncertainty and improve overall performance. The
most effective programs for both improving working capital performance
and forecasting are those that look beyond the local organization and
consider the broader corporate environment. While working capital
forecasting is critical to a company's ability to make informed strategic
business decisions, many CFOs struggle with the process.
Process/Steps Involved in Working Capital Management:
- Forecasting the Amount of Working Capital
- Determining the Sources of Working Capital

1.5 LIMITATION OF STUDY

Profit Criterion for Working Capital is not analysed due to lack of data
regarding the initial investment. Primary data that are collected by
interacting with the financial executives may not be accurate. Details
regarding the inventories such as the price of the raw materials are not
revealed by the organization. Few assumptions are made in calculating the
aging schedule. Credit Management is done for the ACC cement works
Company, Madukkarai only whereas the rest of the project is done for the
whole ACC Company.
 WORKING CAPITAL MANAGEMENT

1.6 CHAPTER PLANNING

Data Analysis:
Inventory management, debtors management, creditors management,
current ratio analysis, operating cycle analysis, net working capital analysis,
debtors and creditors turnover ratio, sales analysis. ( all from the year
2014 2015) and also collection and monthly sales of the year 2015.
Different Aspects of Working Capital Management:
- Management of Inventory
- Management of Receivables/Debtors
-Management of Cash
- Management of Payables/Creditors

1.7 OBJECTIVE

Deciding Optimum Level of Investment in various WC Assets

Decide Optimal Mix of Short Term and Long Term Capital
Decide Appropriate means of Short Term Financing
It means raw material should be present on requirement and it should
not be a cause to stoppages of production.
All other requirements of production should be in place before time.
The finished goods should be sold as early as possible once they are
produced and inventoried.
The accounts receivable should be collected on time.
Accounts payable should be paid when due without any delay.
Cash should be available as and when required along with some
cushion.

1.8 METHODOLOGY
 WORKING CAPITAL MANAGEMENT

Primary data have been collected from the organization. These data were obtained
from the interactions with the financial executives in the company. These are in the
form of verbal reports, computer reports, etc. Secondary data are drawn from annual
reports, records, sales report, Purchase order and Inventory Report.

Tools used for analysis:

Financial Ratio Analysis, Trend Analysis, Time Series Analysis.

Data sources:
Research is totally based on primary data. Secondary data can be used
only for the
reference. Research has been done by primary data collection, and
primary data
has been collected by interacting with various people. The secondary data
has been collected through various journals and websites

Sample design:
Data has been presented with the help of bar graph, pie charts, line
graphs etc.

Scope of study:
In the project, we take into consideration, The Annual report of various
years. The Profit and Loss Statement of various years. Information about
the raw materials, their annual usage and the price of each raw material.
Information about the sources of finance and their Investment options.
 WORKING CAPITAL MANAGEMENT

CONCEPTUAL FRAMEWORK
Comparative Analysis between National and International Scenario
Indian Accounting Standards International Accounting Standards

Traditional working capital ratios may be classified according to whether

they measure working capital position, working capital activity or
leverage (Emery, 1984: 26; Love more & Bummer, 1993: 83). Working
capital position ratios, typically the current and quick ratios, measure the
degree to which the firm's currently maturing obligations are covered by
currently maturing assets. The current ratio is regarded as a broad
measure of liquidity and is expressed as current assets divided by current
liabilities. The quick ratio is considered to be a narrow measure of
liquidity and is expressed as current assets minus inventory divided by
current liabilities.

Workingcapital activity ratios attempt to measure the relative efficiency

of the firm's resources by relating the level of investment in different
current assets to the level of operations (Gal linger& Healey, 1991: 73).
Frequently cited activity measures are inventory turnover, accounts
receivable turnover, accounts payable turnover and sales to net
workingcapital. Inventory turnover is defined as the cost of sales over
average inventory. Accounts receivable turnover measures the speed of
 WORKING CAPITAL MANAGEMENT

converting accounts receivable into cash, and is calculated as credit sales

divided by accounts receivable. Accounts payable turnover reveals the
effectiveness of the management of a firm's short-term financing, and is
represented by credit purchases divided by accounts payable.

WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES

In a department's Statement of Financial Position, these components of

working capital are reported under the following headings:

Current Assets

Liquid Assets (cash and bank deposits)

Inventory
Debtors and Receivables

Current Liabilities

Bank Overdraft
Creditors and Payables
Other Short Term Liabilities

a) Inventory Management

Inventories are lists of stocks-raw materials, work in progress or

finished goods-waiting to be consumed in production or to be sold. A
department also needs a system of internal controls to efficiently manage
stocks and to ensure that stock records provide reliable information.

The total balance of inventory is the sum of the value of each

individual stock line. Stock records are needed to provide an account of
activity within each stock line; as evidence to support the balances used
in financial reports.

b) Debtor Management
 WORKING CAPITAL MANAGEMENT

Debtors (Accounts Receivable) are customers who have not yet

made payment for goods or services which the department has provided.
Cash flow can be significantly enhanced if the amounts owing to a
business are collected faster. Every business needs to know.... who owes
them money.... how much is owed.... how long it is owing.... for what it
is owed.

c) Creditor Management

Creditors (Accounts Payable) are suppliers whose invoices for goods or

services have been processed but who have not yet been paid. Creditors
are a vital part of effective cash management and should be managed
carefully to enhance the cash position.
Organizations often regard the amount owing to creditors as a source of
free credit. However, creditor administration systems are expensive and
time-consuming to run.

d) Cash Management

Good cash management can have a major impact on overall working

capital management. Cash Management identify the cash balance which
allows for the business to meet day to day expenses, but reduces cash
holding costs. The key elements of cash management are: Cash
forecasting; Balance management; Administration; Internal control.
 WORKING CAPITAL MANAGEMENT

PRESENTATION OF DATA, ANALYSIS

AND FINDINGS
3.1 FINDINGS
DETERMINATION OF OPERATING CYCLE AND CASH
CYCLE

The inventory period for ACC Limited is 73.8 days, the accounts
receivable period is 22.2 days and the accounts payable period is 13.53
days. So, the operating cycle is 96 days and the cash cycle is 82.47 days.
The firm has higher operating and cash cycle. Thus, ACC limited takes
about 82.47 days to collect payment from its customers from the time it
pays for its inventory purchases.

TIME SERIES ANALYSIS

Inventory Period
Inventory period for the year 2014 2015 are 78, 80, 86, 84 and
74 days. The inventory period has been increasing from the year 2014
2015 and it has decreased in the year 2015.
 WORKING CAPITAL MANAGEMENT

Operating Cycle

Operating Cycle for the year 2014 2015 are 100 days, 98 days, 107
days, 102 days, 96 days. The operating Cycle has increased to 107 days
in the year 2005 and it has been decreased to 96 days in the year 2015.

Control of Accounts Receivables

Days Sales Outstanding
For the first quarter the DSO was 29 days, for the second quarter it was
17.93 days, for the third quarter it was 36.99 days and for the fourth
quarter it was 27.81days. It decreased in the second quarter, increased in
the third quarter but decreased in the third quarter and again increased in
the fourth quarter.

COLLECTION PROCEDURE

The Collection Procedure for the first six months of the year 2015 has
been estimated. The credit sales during the month of January are
collected as follows: 60 percent is paid as the advance payment in the
month in which sale is made. 10 percent in the first following week, 10
percent in the second following week, 10 percent in the third following
week, 10 percent in the fourth following week. From the collection
pattern it seems that the collection is stable and they have a formalized
procedure for collecting the amount from their customers.

INVENTORY MANAGEMENT

MONITORING AND CONTROL OF INVENTORIES

In ACC Limited, the raw materials used for consumption are Limestone,
Gypsum and fly ash. Category A represents the item Gypsum which
consists of 15 to 25 percent of inventory items and accounts for 60 to 75
percent of annual usage value. Category B represents the item fly ash
which consists of 20 to 30 percent of inventory items and accounts for 20
to 30 percent of annual usage value. Category C, representing
Limestone which consists of 40 to 60 percent of inventory items and
 WORKING CAPITAL MANAGEMENT

accounts for 10 to 15 percent of annual usage value.

MEASURE OF EFFECTIVENESS
The overall inventory turnover ratio is 5 days; the raw material turnover
ratio is 0.5 days, work-in-progress inventory turnover ratio is 16.03 days
and finished goods inventory turnover ratio is 40 days. The ratio is higher
due to more sales and minimum level of inventory is held and hence
possessing good inventory management.

WORKING CAPITAL LEVERAGE

Working Capital Leverage reflects the sensitivity of return on Investment
(earning Power) to changes in the level of current assets. The working
capital leverage thus calculated is 0.3. It means that the percentage
change in ROI is 0.3 times the percentage change in Current Assets.

WORKING CAPITAL TURNOVER RATIO

The working capital ratio of ACC during the year 2014-2015 was 10.44
which have increased during the next few years. The highest net sales
were in the year 2014-2015 and lowest working capital was in the year
2015.This shows that there was lowest investment and greater profit.

Trend Analysis

Net Working Capital

As from the projections on net working capital, it is clear that the net
working capital has decreasing trend. It was found that it would decrease
from Rs297 Crore to Rs236 Crore. This is due to the decrease in the
current liabilities. The firm is reducing its current liabilities by paying
back to its creditors from itsprofit.

3.2 Company profile:

ACC Limited is Indias foremost manufacturer of cement and ready mix
concrete with a countrywide network of factories and marketing offices.
Established in 1936, ACC has been a pioneer and trend-setter in cement
 WORKING CAPITAL MANAGEMENT

and concrete technology. ACCs brand name is synonymous with cement

and enjoys a high level of equity in the Indian market. Among the first
companies in India to include commitment to environment protection as
a corporate objective, ACC has won several prizes and accolades for
environment friendly measures taken at its plants and mines. The
company has also been felicitated for its acts of good corporate
citizenship.
The time that elapses between the purchase of raw materials and the
collection of cash for sales is referred to as the Operating Cycle, whereas
the time length between the payment of raw material purchases and the
collection of cash for sales is referred to as the Cash Cycle.

Figure 1CASH CYCLE AND OPERATING CYCLE

Production

Raw Work in
Materials Progress
Operation cycle

Finished
Supplier
goods

Godown
Cash

Customers

The Operating Cycle is the sum of the inventory period and the accounts
receivable period, whereas the Cash Cycle is equal to the Operating
Cycle less the accounts payable period. From the financial statement of
the firm, we can estimate the inventory period, the accounts receivable
period, and the accounts payable period. All the data is given in Rest.
Crore)
INVENTORY PERIOD FOR THE YEAR 2014-2015

Annual Cost of
Year
Average Inventory goods Sold (in Inventory Period
 WORKING CAPITAL MANAGEMENT

(in Rest. Crore) Rest. Crore) (in days)

2011 357.10 1,670.56 78.02

2012 416.53 1,890.11 80.43

2013 472.66 2,010.10 85.83

2014 644.00 2,800.98 83.92

2015 571.67 2,823.90 73.80

ACCOUNTS RECEIVABLE PERIOD FOR THE YEAR 2014-2015

Average Accounts Accounts

Ye Receivable Annual Sales Receivable Period
ar (in Rest. Crore) (in Rest. Crore) (in days)

20
202.07 3,384.43 21.79
11

20
178.95 3,657.01 17.86
12

20
207.05 3,560.44 21.23
13

20
208.59 4,227.22 18.01
14

20
194.86 3,203.41 22.20
15

OPERATING CYCLE FOR THE YEAR 2014-2015

Inventory
Period Accounts Receivable Operating Cycle
Year (in days) Period (in days) (in days)

2011 78.02 21.79 99.81

 WORKING CAPITAL MANAGEMENT

2012 80.43 17.86 98.29

2013 85.83 21.23 107.06

2014 83.92 18.01 101.93

2015 73.8 22.20 96.00

OPERATING CYCLE FOR THE YEAR 2014-2015

120

100

80

Day
s 60

40

20

0
2011 2012 2013 2014 2015
Year

Operating Cycle Inventory Period Accounts Receivable Period

MONTHLY SALES AND RECEIVABLES OF THE YEAR 2015

Accounts Outstanding
Sales Received (rupees Receivables
Month (rupees in lakhs) in lakhs) ( rupees in lakhs )

January 856 770.4 90.8

February 795 801.1 80.1

 WORKING CAPITAL MANAGEMENT

March 784 785.1 79.0

April 1,056 1,484 106.0

May 1,002 1,007.4 100.0

June 442 498 45.9

July 564 551.8 55.6

August 462 472.2 45.3

Septemb 768 737.4 75.4

er

October 890 877.8 90.5

Novembe 873 874.7 85.6

r

Decembe 774 783.9 77.2

r

DSO OF THE YEAR 2015

Quarter Calculation Days Sales

Outstanding

First 785.1/ [( 856 + 795 + 29.00

784)/90]

Second 498/ [ (1056+1002+442) / 90 17.93

]

Third 737.4 / [ (564+ 462+768)/ 90 36.99

]

Fourth 783.9 / [(890 + 873 + 774) 27.81

/90]
 WORKING CAPITAL MANAGEMENT

40

30
Days

20

10

0
First Second Third Fourth
Days Sales Outstanding

INTERPRETATION

The table above shows that the Days Sales Outstanding for each
quarter of the year 2015. For the first quarter the DSO was 29 days, for
the second quarter it was 17.93 days, for the third quarter it was 36.99
days and for the fourth quarter it was 27.81days. It decreased in the
second quarter, increased in the third quarter but decreased in the third
quarter and again increased in the fourth quarter.

COLLECTION PROCEDURE OF THE YEAR 2015

J
M u
Jan Ap M
Percentage of Febru ar n
uary ril ay
receivables collected ary ch e
Sale Sa Sa
during the Sales Sa S
s les les
les al
es
At the time of sales 60 60 60 60 60 6
0
 WORKING CAPITAL MANAGEMENT

First following week 10 10 10 10 10 1

0

Second following week 10 10 10 10 10 1

0

Third following week 10 10 10 10 10 1

0

Fourth following week 10 10 10 10 10 1

0

INTERPRETATION
The Collection Procedure for the first six months of the year 2015
has been estimated. The credit sales during the month of January are
collected as follows: 60 percent is paid as the advance payment in the
month in which sale is made. 10 percent in the first following week, 10
percent in the second following week, 10 percent in the third following
week, 10 percent in the fourth following week. From the collection
pattern it seems that the collection is stable and they have a formalized
procedure for collecting the amount from their customers.

3.3 INVENTORY
MANAGEMENT:MONITORING AND
CONTROL OF INVENTORIES
ABC Analysis:In most inventories a small proportion of items accounts
for a very substantial usage (in terms of the monetary value of annual
consumption) and a large proportion of items accounts for a very small
usage (in terms of the monetary value of annual consumption). ABC
analysis, based on this empirical reality, advocates in essence a selective
approach to inventory control which calls for a greater concentration of
effort on inventory items accounting for the bulk of usage value. This
approach calls for classifying inventories into three broad categories, A,
B, and C. Category A, representing the most important items, generally
consists of 15 to 25 percent of inventory items and accounts for 60 to 75
 WORKING CAPITAL MANAGEMENT

percent of annual usage value. Category B, representing items of

moderate importance, generally consists of 20 to 30 percent of inventory
items and accounts for 20 to 30 percent of annual usage value. Category
C, representing items of least importance, generally consists of 40 to 60
percent of inventory items and accounts for 10 to 15 percent of annual
usage value.
WORKING CAPITAL LEVERAGE
Working Capital Leverage reflects the sensitivity of return on Investment
(earning Power) to changes in the level of current assets. To express the
formula for working capital leverage the following symbols are used:

CA = value of current assets (gross working capital)

CA = change in the level of current assets

FA = value of net fixed assets

TA = value of total assets (TA = CA +FA)

EBIT = Earnings before Interest and Taxes

In order to understand the length of time for which resources are

committed to various components of working capital, operating cycle
analysis can be done. An extension of this analysis which may be
referred as the weighted operating cycle analysis may be done to reflect
the magnitudes of resources commitments.

Operating Cycle Analysis

The operating cycle of a firm begins with the acquisition of raw materials
and ends with the collection of receivables. There are four aspects of the
operating cycle which involve commitment of resources: raw material
stage; work- in- progress stage; finished goods stage; and accounts
receivable stage. There is one aspect of the operating cycle which
provides resources; accounts payable stage (this is the period for which
credit is provided by the suppliers of the raw materials).
The duration of the Operating Cycle may be defined as
 WORKING CAPITAL MANAGEMENT

Doc = DRM + Dip+ Dig+ Dar - Dap

3.4 RATIO ANALYSIS

Key Working Capital Ratios

Inventory Turnover Ratio

Inventory turnover ratio is the number of times the inventory is
turned over in the business during a particular period and it measures the
relationship between sales and average inventory. This ratio measures
how quickly inventory is sold and indicates whether investment in
inventory is within proper limits or not, signifying the liquidity of the
inventory. Higher the ratio more the sales and minimum level of
inventory is held and hence possessing good inventory management.

INVENTORY TURNOVER RATIO

Year Sales Average Ratio

Inventory
2014 2015 3,348.43 357.10 9.37
2015 2013 3,657.01 416.53 8.77
2013 2014 3,560.44 472.66 7.53
2014 2015 4,227.22 644.00 6.56
2015 3,363.46 629.13 5.34

INTERPRETATION
During the year 2014-15 the inventory turnover ratio was 9.37. It shows
a decreasing trend thereafter. The lowest ratio was during 2015 and was
5.34 because of decrease in sales and maximum level of inventory held
on stock.

INVENTORY TURNOVER RATIO

 WORKING CAPITAL MANAGEMENT

10

Inventory
8 Turnover Ratio

0
2014 2015 2015 2013 2013 2014 2014 2015 2015
Year
 WORKING CAPITAL MANAGEMENT

DEBTORS TURNOVER RATIO

Debtors turnover ratio is the relationship between net credit sales

and average debtors. This ratio shows how quickly receivables or debtors
are converted to cash. It is also called accounts receivable. Sound credit
and collection period results in efficient receivables management. Net
credit sales include sale of products, recoveries, excise duty adjustment
and products consumed internally. The higher the ratio, the better debts
are being collected more promptly.

DEBTORS TURNOVER RATIO

Year Net Credit Average Ratio

Sales Debtors

2014 2015 3,348.43 165.41 20.24

2015 2013 3,657.01 173.22 21.11

2013 2014 3,560.44 195.38 18.22

2014 2015 4,227.22 212.11 19.92

2015 3,363.46 242.62 13.86

INTERPRETATION
The debtors turnover ratio of ACC during 2003-04 was 20.24 and
reduced to 13.86 in 2013. The ratio shows a declining trend. This was
due to delay in collection of debts. This shows inefficient credit
management of the company. So it is to be concluded that debtors
turnover ratio shows unsatisfactory position of ACC because of
decreasing trend in the ratio.
 WORKING CAPITAL MANAGEMENT

DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

25

20

15

10

0
2014 2015 2015 2013 2013 2014 2014 2015 2015
Year

4.9.3 AVERAGE COLLECTION PERIOD

Average collection period measures the liquidity of the firm and it
is the time taken for collection of debts. It is calculated by dividing days
in a year by debtors turnover ratio. Shorter collection of debts and quick
payments by debtors increase the liquidity of the firm. The longer
collection period shows delayed payment by debtors and hence declining
liquidity position.
TABLE 4.9.3: AVERAGE COLLECTION PERIOD

Year Days in a year Debtors Turnover Days

Ratio
2011 360 20.24 18
2012
2012 360 21.11 17
2013
 WORKING CAPITAL MANAGEMENT

2013 360 18.22 20

2014
2014 360 19.92 18
2015

2015 360 13.86 26

AVERAGE COLLECTION PERIOD

AVERAGE COLLECTION PERIOD(DAYS)

30
26

25
20
20 18 18
17
AVERAGE COLLECTION
15
PERIOD(DAYS)

10

0
2011-2012 2012-2013 2013-2014 2014-2015 2015

INTERPRETATION

Average collection period of ACC during 2003-04 was 18 days; it

has decreased to 17 days in 2004-05 again to 20 and 18 days in 2005-06
and 2006-07 and finally increased to 26 days. This increase was due to
the inefficiency in managing debtors by company.

CURRENT RATIO
Current ratio may be defined as the relationship between current asset and
current liabilities. This ratio is known as working capital ratio and is a
measure of general
 WORKING CAPITAL MANAGEMENT

Liquidity. Desirable current ratio is 2:1. Current ratio of a firm represents the
assets which
Can be converted into cash within a short period of time, not exceeding one
year. Current Liabilities include liabilities and provisions which are short
term maturing obligations to be net within a year. The higher the current
ratio, the more the firms ability to meet current obligations and greater
the safety of funds of short term creditors.

CURRENT RATIO

Year Current Assets Current Liabilities Ratio

2011 951.53 631.04 1.50

2012

2012 949.05 720.25 1.31

2013

2013 1,199.72 905.08 1.32

2014

2014 1,371.29 1,057.41 1.29

2015

2015 1,420.88 1,250.41 1.13

INTERPRETATION
The current ratio has decreased from the year 2003 to 2007. The
current assets are greater than current liabilities in all these years. This
shows that the company is always maintaining the current assets more
than the current liability.
 WORKING CAPITAL MANAGEMENT

CHART 4.9.4: CURRENT RATIO

1600
1420.88
1371.29
1400
1250.41
1199.72
1200
1057.41
1000 951.53 949.05
905.08 CURRENT ASSET
CURRENT LIABLITY
800 720.25
RATIO
631.04
600 Poly. (CURRENT ASSET)
Poly. (CURRENT LIABLITY)
400

200
1.5 1.31 1.32 1.29 1.13
0
2011-2012 2012-2013 2013-2014 2014-2015 2015

WORKING CAPITAL TURN OVER RATIO

Net working capital ratio is the measure of the efficiency of the employment
of the working capital. It finds out the relationship between the cost of sales
and the working capital. It helps in determining the liquidity of a firm in as
much as it gives the rate at which the inventories are converted to sales and
then to cash. Working Capital Turnover ratio is calculated in order to
analyse how working capital has been effectively utilized in making sales.
The higher the ratio the lower the investment in working capital and greater
the profit.
 WORKING CAPITAL MANAGEMENT

WORKING CAPITAL TURNOVER RATIO

Year Net sales Net working capital Ratio

2011 2012 3,348.43 320.49 10.44

2012 2013 3,657.01 228.80 15.98

2013 2014 3,560.44 294.64 12.08

2014 2015 4,227.22 313.88 13.46

2015 3,363.46 170.47 19.73

INTERPRETATION
The working capital ratio of ACC during the year 2003-2004 was
10.44 which have increased during the next few years. The highest net
sales were in the year 2006-2007 and lowest working capital was in the
year 2007. This shows that there was lowest investment and greater
profit.
Working Capital Turnover Ratio

1.0

0.8

0.6

0.4

0.2

0.0
2011 2012 2012 2013 2013 2014 2014 2015 2015
Year
 WORKING CAPITAL MANAGEMENT

WORKING CAPITAL TURNOVER RATIO

TREND ANALYSIS
A trend means a basic tendency of a series to grow or decline over
a period of time. The concept of trend doesnt include short range
oscillation, but rather a steady movement over a long time. The tendency
of a particular data to grow over a period of time is known as growth
factor. On the other hand the tendency of economic data to fall over a
period of time is declining factor. The trend has either growth factor or
declining factor. It may have either upward or downward movement.

Net Working Capital

Net
Working
Capital Deviat
Year (y) ion (x) x2 my Trend

320.4 (640.9
2009 9 (2) 4 8) 297.28

228.8 (228.8
2010 0 (1) 1 0) 287.15

294.6
2011 4 0 0 0.00 277.02

313.8
2012 8 1 1 313.88 266.89

227.2
2013 9 2 4 454.59 256.76

2014 3 246.63
 WORKING CAPITAL MANAGEMENT

2015 4 236.50

CHART 4.10.1: PROJECTIONS ON NET WORKING CAPITAL

Net Working Capital

330

310

290

270

250

230

210

190

170

150
2009 2010 2011 2012 2013 2014 2015

Net Working Capital Trend

INFERENCE
The trend for Net Working Capital is a decreasing trend. It
decreases from Rest 298 Crore to Rest 236 Crore in the period of seven
years.
 WORKING CAPITAL MANAGEMENT

4.1 RECOMMENDATION FOR

FURTHER STUDY
DETERMINATION OF OPERATING CYCLE AND CASH
CYCLE

The Operating Cycle is high for ACC Ltd because the inventory
period is high as it manufactures Cement which needs its raw material,
work in progress and finished goods to be stocked for longer period and
more time is taken to manufacture Cement which cannot be avoided. But
due to effective planning, the demand can be estimated in advance and
the raw materials can be purchased at the required time thus reducing raw
material inventory and the Cement can be manufactured on demand.
The accounts receivable period is less which is satisfactory. The organization
follows a standard procedure to collect from its debtors. So, the firm can
follow the same procedure.

CREDIT MANAGEMENT
The Control of accounts receivables is done through DSO and
Collection Procedure. From DSO, it is clear that the firm has improved
their collection effort. The firm should strictly follow the same collection
procedure to decrease the DSO further.
From the Ageing Schedule, it is clear that the firm collects all its debt
within 40 days which is better but to further improve it should collect its
debt within 25 days.
INVENTORY MANAGEMENT
The Overall inventory turnover period is very high which means
that the inventory is sold quickly. This ratio is also used to check that the
investment in inventory is within the proper limits, signifying the
liquidity of the inventory. The firm can increase the inventory turnover
ratio by increasing the sales by decreasing the price of the cement.
 WORKING CAPITAL MANAGEMENT

Higher the ratio more the sales and minimum level of inventory is held
and hence possesses good inventory management.

ESTIMATION OF WORKING CAPITAL NEEDS

The analysis of the projected working capital requirement has
given way to certain measures that can be incorporated so that the
operating profit of the company can be increased.

WORKING CAPITAL LEVERAGE

Working Capital Leverage is used to find out the sensitivity of return on
Investment (earning Power) to changes in the level of current assets. So,
the firm should increase the current assets further to increase the return
on investments.

RATIO ANALYSIS

DEBTORS TURNOVER RATIO

The Debtors turnover ratio is high which indicates the number of
times debtors turnover each year. Higher the value of debtors turnover,
more efficient is the management of credit. This ratio has been
decreasing, so proper method should be followed to increase the debtor
turnover.

AVERAGE COLLECTION PERIOD

The average collection period indicates the quality of debtors. It
has been increased which shows the decrease in the quality of debtor.
The firm should not relax its credit and collection policy in order to
decrease the average collection period.

CURRENT RATIO
The current ratio should be 2 to 1. But the current ratio has been
decreasing. Even though the ratio is less than 2, the company is doing
well. So, too much reliance should not be made on the current ratio.

QUICK RATIO
 WORKING CAPITAL MANAGEMENT

The quick should be 1 to 1.But, the quick ratio is less than

1.Eventhough the ratio is less than 1, and the firm is prospering and
paying its current obligations in time.Anyway the firm should
concentrate to increase the quick assets because the quick ratio remains
as an important index of the firms liability.

WORKING CAPITAL TURNOVER RATIO

The working capital turnover ratio is very high due to the increase
in sales. The firm should maintain this ratio high by increasing the sales
further by decreasing the price of the cement.

4.2 CONCLUSION
The project revealed that the Working capital has a direct impact on cash
flow in a business. Since cash flow is the name of the game for all
business owners, a good understanding of working capital is imperative
to make any business enterprise successful. Companies must seek
granular detail to identify the underlying drivers of working capital. By
understanding the role and drivers of working capital management and
taking steps to reach the "right" levels of working capital, companies can
minimize risk, effectively prepare for uncertainty and improve overall
performance. Successfully improving working capital management
requires a different approach. The better a company manages its working
capital, the less the company needs to borrow.

The financial performance of The Associated Cement Companies is in a

good and acceptable position. The study reveals that the firm has
increased sales which results in the increased profitability. From the
analysis it is obvious that the company has an upward trend. The
company is maintaining a good liquidity position to meet all its current
obligations. Though there were slight deviation in the financial year
2002-03, still the overall profitability was high, which shows that the
company has a good growth trend. Thus the company ensures the
shareholders wealth maximization which is the major objective of the
company.
 WORKING CAPITAL MANAGEMENT

BIBLIOGRAPHY
1)V.K. Bhalla (2002), Financial Management and Policy: Text and
Cases, Third Edition, Anmol Publication Pt. Ltd, New Delhi

2) James C. Van Horne, John M. Wachowicz, Jr. (1995), Fundamentals

of Financial Management, Ninth Edition, Prentice Hall of India Pt. Ltd,
New Delhi

3) Haim Levy (1998), Principles of Corporate Finance, First Edition,

South Western College (An International Thomson Publisher), USA

4) I M Pandey (1978), Financial Management, Ninth Edition, Visas

Publishing House Pvt Ltd, New Delhi5) Parana Chandra (1984),
Financial Management, Theory and Practice, Fifth Edition, Tata Mc
Grew-Hill Publishing Company Ltd, New Delhi

5) http:www.acc.com
 WORKING CAPITAL MANAGEMENT

Annexure- IA

Supervisor's Certificate

This is to certify that SONU PATWARI, a student of B.Com. Honors in

Accounting & Finance of BANGABASI MORNING COLLEGE under the
University of Calcutta has worked under my supervision and guidance for
her Project Work and prepared a Project Report with the title WORKING
CAPITAL MANAGEMENT ON ACC LTD. which she is submitting, is her
genuine and original work to the best of my knowledge.

Signature:

Place: KOLKATA

Name:

Date: Day of February, 2016

Designation: LECTURER

Name of the College: BANGABASI MORNING COLLEGE

Annexure- IB
 WORKING CAPITAL MANAGEMENT

Student's Declaration

I hereby declare that the Project Work with the title OVERVIEW ON
SOFTDRINK INDUSTRY submitted by me for the partial fulfilment of the
degree of B.Com. Honors in Accounting & Finance under the University of
Calcutta is my original work and has not been submitted earlier to any other
University /Institution for the fulfilment of the requirement for any course of
study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me.
However, extracts of any literature which has been used for this report has
been duly acknowledged providing details of such literature in the
references.

Signature:
Name: SONU PATWARI
Registration No.: 144-1121-1452-13

Place: KOLKATA
Date: Day of February, 2016