A Project Report

On
Working Capital Management
Of
JK TYRE & INDUSTRIES LTD.

BANMORE TYRE PLANT

Dist. MORENA (M.P)

In partial Fulfillment of the Requirement of the

Degree
Master of Business Administration
(Finance)
(2008-2010)

PUNJAB TECHNICAL UNIVERSITY, Jalandhar

Submitted by:
Submitted to:
Neetu Bhadoria Mr. Kuldeep Malik
H.O.D. (Department Of Management)
 The City College, Gwalior

DECLARATION

I do hereby declare that the Project entitled “Working Capital Management” is an authentic
work developed by me at JK Tyre and Industries Ltd. under the guidance of Mr. PRAVEEN GUPTA
submitted in partial fulfillment of the requirements for the award of the degree of Master of Business
Administration by the Punjab Technical University, Jalandhar (Punjab), from the Local Centre The
City College, Gwalior

I also declare that, any or all contents incorporated in this Project have not been submitted in any
form for the award of any degree or diploma of any other institution or university.

Dated:
Place: Gwalior (Neetu Bhadoria)
 ACKNOWLEDGEMENT

It is a great sense of satisfaction and a matter of privilege to me to work at JK TYRE AND

INDUSTRIES LTD. BANMORE TYRE PLANT.

I wish to express my heartiest thanks to thanks Mr. Omkar Singh Chief Manager
(HRD), J.K. Tyres Banmore for providing me the opportunity to undergo training in the
esteemed organization. Under such a nice environment, systematic work approach and target oriented
task management of this division provided me with much desired training experience needed for future.

My special thanks to Mr. Praveen Gupta Sr. manager (F&A), J.K. Tyres
Banmore who accepted me as a trainee in his group and helping in the projects with words of
encouragement and has shown full confidence in my abilities.

I will be failing in my obligation if to not thanks my family for their support and
encouragement.

(Neetu Bhadoria)
 PREFACE

As an integral of the course curriculum, all MBA students are required to undergo summer
training in an industry or organization. The main objectives are to supplement Student’s theoretical
knowledge with an exposure to the working environment of an organization.

I have chosen to work with JK TYRE AND INDUSTRIES LTD., Banmore (Dist. Morena, MP)
on the project “Working Capital Management” which provided me with an insight of welfare
activities of the company.

It has been my best effort to present this report in the systematic manner to make dry material
come alive.

NEETU BHADORIA
Contents
Company Profile
 JK Tyre

Ever since its inception it has been JK Tyre's belief in

the value of technological superiority that has made it grow by
leaps and bounds. This division produces and sells tyres and
tubes under the brand name "JK Tyre" for Truck, Buses,
Passenger Cars, Jeeps, Light Commercial Vehicles, Multi
Utility Vehicles and Tractors.

The company pioneered Steel Radial Technology in

India in 1977 and continues to be the industry leader in the
Radial segment in India. JK Tyre is the only Tyre
Manufacturer in the country to produce high performance 'T' &
'H' -rated steel radial tyres.

JK Tyre has consciously followed a policy of continuously modernizing and expanding

its tyre manufacutring facilities to retain its edge in the market place.

Our customer base covers virtually the entire

Original Equipment Manufacturers (OEMs) in India
together with Replacement Market for four wheeler
vehicles, Defence and State Transport Units. Besides
India, we have a worldwide customer base in over 45
countries across all 6 continents.

To keep pace with the market demand as well

as technological leadership in Indian market, J.K.
Industries acquired Vikrant Tyres Limited, Mysore in 1997. J.K. Industries and Vikrant Tyres
Limited are the only tyre companies in India to have received all three ISO 9001, QS 9000 and
ISO 14001 certificates. This indeed is a true reflection of our commitment to system oriented
approach. The company has a technical collaboration with M/s Continental AG, Germany,
which is among the top five tyre manufacturers in the world to keep pace with latest
technological developments. To stay at the forefront of technological advancements a state of art
Research & Development Centre, HASETRI, was set up, which remains the nerve centre for
providing cutting edge technology. In a short span of time it has emerged as the 17th largest tyre
manufacturer in the world an achievement in itself.

With three plants located in Rajasthan, Madhya Pradesh and Karnataka, JK Tyre is the
largest manufacturer of truck and bus tyres in India. The truck and bus tyres produced account
for nearly 74% of the total tyre business in India, thus giving JK Tyre an undisputed position.
Additionally, JK Tyre is the only manufacturer of truck/ bus steel radial tyres, and the second
largest manufacturer of 4-wheeler tyres in the country.

Also, JK Tyre is the largest exported tyre brand from India. It was awarded the
CAPEXIL's Highest Export Award for 1997-97 by FIEO. It enjoys preferred premium brand
status in Truck Bias market in USA and across many markets in Africa, Middle East and South
East Asia.
History of JK Tyres

CORE VALUES:

JK Organization has been a forerunner in the economic and social advancement of India. It always aimed at
creating job opportunities for a multitude of countrymen and to provide high quality products. It has striven to
make India self reliant by pioneering the production of a number of industrial and consumer products, by
adopting the latest technology as well as developing its own know-how. It has also undertaken industrial
ventures in several other countries.

JK Organization is an association of industrial and commercial companies and charitable trusts. Its member
companies, employing nearly 50,000 persons are engaged in the manufacture of a variety of products and in
diverse fields of commerce.

Trusts are devoted to promoting industrial, technical and medical research, education, religious values and
providing better living and recreational facilities. With the spirit of social consciousness uppermost in mind,
J.K. Organization is committed to the cause of human advancement.

1933 First in India to manufacture Calico Prints- Juggilal Kamlapat Cotton Spinning and Weaving Mills
Co. Ltd., Kanpur.

1940 First in India to manufacture steel Bailing Hoops for jute and cotton and to make the country self
sufficient by meeting the entire demand-J.K. Iron & Steel Co. Ltd., Kanpur.

1944 First in India to produce Aluminium virgin Metal from Indian Bauxite-Aluminium Corporation of
India Ltd., Jaykaynagar.

1949 First in India to manufacture Engineering files- J.K. Engineers ‘Files, Bombay.

1959 First in India to set up a continuous process Rayon Plant.

1960 First to manufacture a Hydraulically Operated Cane Crushing Mill for Khandsari Sugar Plant and
completed 100 ton plant-J.K. Iron & Steel Co. Ltd., Kanpur.
1961 First in world to set up a plant for production of Hydrosulphite of soda by Sodium Amalgam
Process- J.K. Chemicals Ltd., Bombay.

1965 First to produce Sodium Sulphoxylate Formaldehyde (Rangolite C of Formosul) in India - J.K.
Chemicals Ltd., Bombay

1968 First to manufacture TV Sets in India- J.K. Electronics, Kanpur. First to manufacture Metallic Cops
for Synthetic Filament yarn industries in India- Syntex tube works, Kanpur.

1969 First to manufacture Acrylic Fibres- J.K. Synthetics Ltd. Kota

First to develop differentially Dyeable Nylon- J.K. Synthetics Ltd., Kota

1973 First in India to license Synthetic Fibre Technology to third party as well as the first to manufacture
Synthetic Fibre Machinery Fibretech Engineers & Manufacturers, Dadri.

1976 First in India to produce steel belted Radial Tyres for passenger cars, trucks and buses- J.K. Tyre
Plant, Kankroli.

1980 First in world to make Steel Belted Radial Tyres for three wheelers- J.K. Tyre Plant, Kankroli.

1984 First in India to produce white cement through dry process- J.K. White cement. Gotan.

1985 First in India to produce Cathonic Dyeable Polyester Fibre- J.K. Synthetics Ltd., Kota.

First in India to produce Nylon Tyre Cord based on Spin Draw Technology- J.K. Synthetics Ltd.,
Kota.

1989 First in India to produce magnetic tapes with cobalt technology J.K. magnetics, Surajpur.

1991 Banmore Tyre Plant (BTP) set-up with a capacity of 5.7 lacs tyres p.a.

1992 R & D center set-up at HASTERI.

1994 India's first T-Rated tyre launched
Banmore Tyre Plant (BTP) crossed 100 TPD.

1995 Mercedes Benz Launched on JK steel radials

First tyre manufacturer in the world to get ISO 9001

1996 India's first dual contact high traction steel radial- aquasonic launched.

Introduced steel wheels.

1997 Awarded the National Export Award for 96-97.

Vikrant Tyres (VTL) acquired.

India's first H rated tyre launched.

Only Tyre manufacturer to get 'E' Mark certification.

HASETRI became the first research institute in Asia to get ISO 9002.

1998 First tyre manufacturer in the world to get QS 9000.

Awarded CAPEXIL's highest export award for 1997-98.

1999 Synergy with VTL in procurement, marketing and production flexibility.

Completion of state of the art modernisation of truck radials.

JK Tyres ranked 16th largest Tyre Company in the world.

ISA - 14000 accredition for environment & safety.

2000 JK introduced National Go-Karting Championships.

2001 Recieved CAPEXIL award.

J.K. Industries recieved FOCUS LAC export award for the year 1999-2000.
Commendation Certificate of CII Exim.
IInd National Go-Karting Championships held.
JK Tyre's No 1 market position

In what is being considered as a landmark decision in the highly competitive Indian tyre industry, the
Advertising Standards Council of India (ASCI) has upheld JK Industries Ltd's claim of being India's No 1 tyre
manufacturer in the four-wheeler tyre segment, reaffirming JK's leadership position in the market.

Expressing his happiness over ASCI's judgement, JK Tyre marketing director T K Banerjee says: ''This is a
fabulous example of why all of us need to have faith in bodies like ASCI. We believe that the process of self-
regulation in Indian advertising is working for both companies and agencies. We also hope that this would
encourage various players to bring superior technology and consumer service standards and claim leadership in
a more healthier and competitive manner.''

The case was started when few competitors filed a complaint with ASCI against JK Tyre's print advertisement,
in which JK Tyre announced its numero uno position in the four-wheeler tyre segment, quoting production
figures compiled by Automotive Tyre Manufacturer Association and other authentic industry sources.

But the competitors contradicted the claim, stating the fact that market figures from a company's annual report
should be used as authentic data to claim one's leadership, not the production figures.

But ASCI considered the case at the Consumer Complaints Council on 23 May 2002 and upheld JK Tyre's
contention that production figures, as compiled by authentic industry sources and used by JK Tyre to claim its
leadership, is a valid and applicable comparison platform.

Hence, JK Tyre's claim as No 1 tyre manufacturer in India is a perfectly valid and correct statement. This also
reflects ASCI's agreement to JK Tyre's viewpoint that figures, as stated in the one's annual report, could actually
be misleading and could include revenues from non-tyre-related businesses also.
JK Tyre, pioneers of radial technology in India, is today India's largest manufacturer of tyres in the four-wheel
segment, including tyres for trucks and buses, LCVs, passenger cars, jeeps, tractors, ADVs and OTRs. After 25
years of pioneering world-class technologies in India, JK Tyre has recently launched the country's first eco-
friendly coloured tyres as well as steel-belted tractor rear radials.
Mission & Vision

Vision:
To be amongst the most admire companies in India committed to be excellence.
Mission:
a. Be a customer obsessed company
b. No.1 Tyre brand in India
c. Deliver enhanced value at all stakeholders
d. Most profitable Tyre Company in India
e. Enhance global presence through acquisition
f. Motivated and committed team development for high performance organization

c. Marketing Strategy

Strategic thinking is key to the evolution of successful marketing strategies of JK tyre. This involves the
following analyses:

i. Understanding markets: Strategic perspective of the market requires skilful analysis of

the trend and how they affect the market size and demand for the firm’s product.
ii. Finding market niches: Price, service, convenience and technology are some of the
niches in Indian market.
iii. Product and service planning: Analysis of the customer’s promotion of the brand, both
of the firm and competitors, besides an analysis of the situation in which the customer uses the product.
iv. Distribution: Structural changes in inventory management, mobile distribution are some
of the key factors that are going to affect the distribution process in the Indian market.
v. Managing for result: With pressure on costs, prices, and margins, marketers will have to
make effective utilization of every rupee spent in marketing.

Market opportunity of JK:

Identification of market opportunity is critical before the management of affirm takes a decision to launch or
diversify in any product area. This involves analysis of the following:
 Size of the market
 Marketing strategies and the extent and quality of services rendered by other firm in the industry.
 Market programmed required to satisfy market wants
 Identification of key success factors in an industry and linking them to a firm’s strengths and weakness
 Market opportunity
a. Size of the market
b. How well the market is served
c. Prospective inches
d. Marketing mix required to succeed
e. Core competencies required

Market Industry Competition

segment analysis analysis
analysis

Demand
Trade
Condition
analysis
s

Market opportunity
Size of the market
How well the market is served
Prospective inches
Marketing mix required to succeed
Core competencies required

Framework of market opportunity analysis

Size of the market:
Sizes of the market are....
. Demand analysis: is the core aspect of market opportunity.
. Segmentation analysis: is the process of dividing the market into homogeneous sub units.
. Industry analysis:
Entry Barriers: High

The entry barriers are high for the tyre

industry. It is a highly capital intensive
industry. A plant with an annual capacity
of 1.5 million cross-ply tyres costs
between Rs. 4,000 and Rs. 5,000 million.
A similiar plant producing radial tyres
costs Rs. 8,000 million.

gaining Power of the Bargaining Power of the

yers: High
OEMs have total
trol over prices. In
, the OEMs faced with
lining profitability
e also reduced the
mber of component
pliers to make the
ply chain more
cient.
Inter Firm Rivalry: Low
The tyre industry in India is fairly
concentrated, with the top eight
companies accounting for more than
80% of the total production of tyres
Suppliers: High
The tyre industry consumes
nearly 50% of the natural
rubber produced in the
country. The price of natural
rubber is controlled by
Rubber Control Board and
the domestic prices of
natural rubber have
registered a significant
increase in recent times.

Threat of Substitutes: Low but Increasing

During the FY2002, over 1,10,000
passenger car tyres were imported. This
constitutes over 2% of total radial
passenger car tyre production in the
country. However, with the reduction of
peak custom duty, the import of tyres is
likely to increase.

Industry Analysis - Porter's Model

Competitor analysis: analysis of competition how well the market is served.
WORKING CAPITAL MANAGEMENT-AN OVERVIEW
INTRODUCTION:
Working capital means the funds which are required to meet the daily transactions of the business .In other
words it refers to that part of the firm’s capital which is required for financing current assets such as cash,
marketable securities, debtors and inventories. Thus working capital is very significant facet of financial
management. Every business concern should have adequate working capital to run its operations smoothly. It
should have neither excess working capital nor inadequate working capital because both of these have adverse
effects on firm’s profitability and liquidity positions. Therefore, business concerns should maintain adequate
working capital. The basic objective of working capital is to manage the firm’s current assets and current
liabilities in such a way that that a satisfactory level of working capital is maintained.
Working capital policies have a great effect on a firm’s liquidity and profitability. Therefore, the working
capital should be managed in such a way which will ensure higher profitability and proper liquidity to the
business concern.
The significance of working capital management is to ensure that the organization maintains a ‘good fit’ with
the changing environment and strives to build the capability to cope with challenges.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:
 Balance sheet concept or traditional concept.
 Operating cycle concept.

BALANCE SHEET CONCEPT OR TRADITIONAL CONCEPT

It shows the position of the firm at a certain point of time. It is calculated on the basis of balance sheet prepared
at a specific date. In this method there are two types of working capital.
 Gross working capital
 Net working capital

GROSS WORKING CAPITAL

It refers to a firm’s investment in current assets. The sum of the current assets is the working capital of the
business. The sum of the current is quantitative aspect of working capital which emphasizes more on quantity
than on its quality, but it fails to reveal the true picture of the financial position of the business because every
increase in current liabilities will decrease the gross working capital.
NET WORKING CAPITAL
It is difference between the current assets and current liabilities or the excess of total current assets over total
current liabilities. It can also be defined as that part of a firm’s current asset which is financed with long term
funds. It may be either negative or positive. When the current assets exceed the current liabilities, the working
capital is positive and vice-versa.

OPERATING CYCYE CONCEPT

The duration or time required to complete the sequence of events right from the purchase of raw materials for
cash to the realization of sales in cash is called operating cycle or working capital cycle. The operating cycle
consists of three phases:
In phase 1, cash gets converted into inventory. This would include purchase of raw materials, conversion of raw
materials into work-in-progress, finished goods and terminate in the transfer of goods to stock at the end of the
manufacturing process. In the case of trading organization, this phase would be shorter as there would be no
manufacturing activity and cash will be converted into inventory directly. The phase will, of course, be totally
absent in case of service organizations.
In phase 2 of the cycle, the inventory is converted into receivables as credit sales are made to customers. Firms
which do not sell on credit will obviously not have phase 2 of the operating cycle.
The last phase, phase 3, represents the stage when receivables are collected. This phase completes the operating
cycle. Thus, the firm has moved from cash to inventory, to receivables and to cash again.
FIXED/PERMANENT WORKING CAPITAL
To carry on business, a certain level of working capital is necessary on a continuous and uninterrupted basis, for
all practical purpose, the requirement has to be met as with other fixed assets. Permanent working capital
represents the minimum level of raw materials, work-in-progress, finished goods, stores, accounts receivables
and cash which are in circulation to ensure continuity of production.
Permanent working capital is again divided into two parts: regular working capital and reserve working capital.
The portion of fixed working capital which is utilized to carry out the cyclical operation of current assets in the
form of conversion of liquid cash into raw materials, raw materials into finished goods, finished goods into
debtors and debtors into liquid cash in a continuous manner is known as regular working capital. On the other
hand, the portion of fixed working capital, which is preserved for meeting uncertain and emergent working
needs (like sudden price hike, abnormal scarcity in times of war, natural calamity, etc) is known as reserve
working capital.
VARIABLE/TEMPORARY WORKING CAPITAL
Besides fixed working capital, a business may need additional working capital to meet the growing demands of
busy seasons at stated intervals. If the demand for the products of the business goes up at any time it needs
additional funds to pay for more materials, labour and other expenses and to meet the requirement of cash
balance to be maintained in the changed situation. This additional working capital needed to feed the operating
cycle in busy business periods is known as variable or temporary working capital. It is called variable or
temporary because the business does not need it always but it is required according to the need of the situation.
Generally the importance of variable working capital is more acute in business concern having seasonal market
demands. Variable or temporary working capital may be further sub- divided into (a) seasonal working capital
and (b) special working capital.
The additional working capital required by a concern to carry out its operating activities in busy seasons of high
market demands is known as seasonal working capital. Businesses which mostly have seasonal demands of their
products like ice- cream, cold drinks, wool and likely products manufacturing concern may need huge amount
of seasonal working capital. In other business concerns too the market may rise to the peak in some particular
time period. So in all types of business a portion of working capital may be preserved for meeting seasonal
needs. On the other hand, the portion of working capital that is needed by a concern to meet the extraordinary
requirements of special situations is known as special working capital. This is called special working capital
because it is needed in special situations and not in normal circumstances.

Diagrammatic representation of the concept of working capital

IMPORTANCE OF WORKING CAPITAL

 The adequate reserve of working capital ensures a steady flow of raw materials to the production
process.
 The adequate reserve of working capital indicates the good solvency position of the concern and helps it
to get loan from the market at favorable terms.

 The adequate stock of working capital makes it possible for a concern to purchase the trading goods in
cash and cash purchase always carries the benefit of getting cash discount.

 A strong working capital base is probably the only remedy to overcome the odd situations like dull
market conditions, scarcity of raw materials and other components in case of any emergency, sudden
market fluctuations, etc.

 A business concern can exploit the market opportunities with the help of adequate working capital.

 The regular flow of adequate working capital makes possible efficient use of fixed assets, reduces
wastage, ensures quick replying of current assets, and establish a well- tuned working environment.

 A quick rotation of working capital cycle and an efficient management of working capital reduce cost
and increases production and sales. The combined effect of all these favorably add to the profitability of
the concern.

 The adequate amount of working capital and its quick rotation increases profit. The rate of dividend of
the shareholders also increases as a result of such increase in profit.

 Sufficient working capital helps in research and development to face the present era of cut throat
competition and quick technological advancement.

DETERMINANTS OF WORKING CAPITAL

The total working capital requirement is determined by a wide variety of factors. It should be, however, noted
that these factors affect different enterprises differently. They also vary from time to time. In general, the
following factors are involved in a proper assessment of the quantum of working capital required:-

GENERAL NATURE OF BUSINESS:

The working capital requirements of an enterprise are basically related to the conduct of the business.
According to the nature of business they have to maintain a sufficient amount of cash, inventories and book
debts. The industrial concerns require fairly large amounts of working capital though it varies from industry to
industry depending on their assets structure.

PRODUCTION CYCLE:
Another factor which has a bearing on the quantum of working capital is the production cycle. The term
“production or manufacturing cycle” refers to the time involved in the manufacture of goods. It covers the time-
span between the procurement of raw materials and the completion of the manufacturing process leading to the
production of finished goods. To sustain such activities the need of working capital is obvious.

BUSINESS CYCLE:
The working capital requirements are also determined by the nature of the business cycle. The variations in
business conditions may be in two directions:
(i) upward phase when boom conditions prevail
(ii) downward phase when economic activity is marked by a decline. During the upswing of the business
activity the need of working capital is more as opposed to the downward phase of the business.

PRODUCTION POLICY:
The requirement of working capital also depends on the production policy of the firm. In manufacturing
concerns having mostly seasonal demand for the product the production policy is a significant determinant of
working capital.

CHANGES IN PRICE LEVEL:

General increase in price level increases working capital need of a firm because the firm has to pay more for
maintaining the previous level on working capital
GROWTH AND EXPANTION:
As a company grows, it is logical to expect that a larger amount of working capital will be required. The critical
fact is however, is that the need for increased working capital funds does not follow the growth in business
activities but precedes it.

AVAILABILITY OF RAW MATERIALS:

In case raw materials are easily available on soft terms the firm does not require maintaining a huge inventory
of raw materials. Such a firm does not require blocking up huge amount of working capital for this purpose. On
the contrary if raw materials are scarce and its supply is irregular and seasonal in nature the firm needs to store a
reasonable quantity of raw materials in hand. The working capital need of such a firm is significantly high.

DIVIDEND POLICY:
The payment of dividend consumes cash resources and, thereby, affects working capital to that extent.
Conversely, if the firm does not pay dividend but retains the profits, working capital will increase.

DEPRECIATION POLICY:
Depreciation policy also exerts an influence on the quantum of working capital. Depreciation charges do not
involve any cash outflow. The effect of depreciation policy on working capital is, therefore indirect.
At DSP depreciation is provided on straight line method at the rates specified in schedule- XIV to the
companies act, 1956. However where the historical cost of the depreciable asset undergoes a change, the
depreciation on the revised amortized depreciable amount is provided prospectively over the residual useful life
of the asset based on the rates specified in schedule- XIV to the companies act, 1956. Depreciation on assets
installed/ disposed off during the year is provided with respect to the month of addition/ disposal thereof.

STRUCTURE OF WORKING CAPITAL

The structure of working capital includes a study of the components of current assets and current liabilities.

CURRENT ASSETS:
The list of current assets comprises inventories (including raw materials, work-in-progress and finished goods
and spares), sundry debtors including receivables, readily realizable securities and tax reserve certificates, short-
term investments, accrued incomes, prepaid expenses (not in the nature of deferred charge), cash at bank, and
cash in hand.
In Durgapur Steel Plant current assets are:
 Inventories (stores & spares, raw materials, semi-finished products)

 Sundry debtors

 Cash & bank balances

 Interest receivable/accrued

 Loans & advances etc.

CURRENT LIABILITIES:
The list of liabilities includes trade creditors, accounts payable, outstanding or accrued expenses, bank
overdraft, outstanding liabilities, short-term loans and borrowings and certain obligations including different
provisions, i.e., provision for taxation, proposed dividend etc.
In Durgapur Steel Plant current liabilities are:
 Sundry creditors

 Advances from customers

 Security deposit

 Other liabilities etc.

FACTORS TO BE CONSIDERED WHILE ESTIMATING WORKING CAPITAL
REQUIREMENT
 Total costs incurred on materials, wages and overheads.
 The length of time for which raw materials remain in stores before they are issued to production.

 The length of the production cycle or work-in-progress, i.e., the time taken for conversion of raw materials
into finished goods.

 The length of the Sales Cycle during which finished goods are to be kept waiting for sales.

 The average period of credit allowed to customers.

 The amount of cash required to pay day-to-day expenses of the business.

 The amount of cash required for advance payments if any.

 The average period of credit to be allowed by suppliers.

 Time-lag in the payment of wages and other overheads.

SOURCE OF WORKING CAPITAL FOR JK TYRE PLANT

A. Permanent OR FIXED
1. Shares
2. Debentures
3. Public Deposits
4. Ploughing Back of profits (Retained Earning)
 5. Loans from Financial Institution
B. Temporary Or Variable
1. Commercial Banks
2. Indigenous Bankers
3. Trade Creditors
4. Installments Credit
5. Advance Institutuions
6. Accounts Receivable Credit/ Factoring
7. Accrued Expenses
8. Commercial Paper

IMPORTANCE OF WORKING CAPITAL RATIOS

Ratio analysis can be used by financial executives to check upon the efficiency with which working capital is
being used in the enterprise. The following are the important ratios to measure the efficiency of the working
capital. The following, easily calculated, ratios are important measures of working capital utilization.
RATIOS Formulae Result Interpretation

Current Ratio Total Current =X It is the relationship between the amount

Assets/Total times of current assets and the amount of
Current Liabilities current liabilities. It measures the short-
term liquidity position of the firm.
Acid-Test Ratio Total Current =X Similar to the Current Ratio but takes
Assets- times account of the fact that it may take time
Inventories/ to convert inventory into cash.
Total Current
Liabilities
Working Capital Sales/Working =X A Higher Working Capital Ratio means
Turnover Ratio Capital times lower investment in working capital and
better profitability.

Stock Turnover Sales/Inventory =X days On average, you turn over the value of
Ratio(in days) your entire stock every x days. You may
need to break this down into product
groups for effective stock management.

Current Assets Sales/Current =X It reflects the efficiency in generating

Turnover Ratio Assets times sales by Current assets.

4.9 THE DANGERS OF EXCESSIVE WORKING CAPITAL

1. It results in unnecessary accumulation of inventories thus chances of inventory mishandling

waste theft and losses increases.
 2. It is an indication of defective credit policy and slack collection period. Consequently higher
incidence of bad debts results, which adversely effect degenerated into management co
placement, which degenerated into managerial inefficient.

3. Excessive working capital makes management complacent, which degenerates into managerial
efficiency.

4. Tendencies of accumulating inventories to make speculation profits grow this may tend to make
dividend policy liberal and difficult to cope with in future when the firm is unable to make
speculative profits.

INADEQUATE WORKING CAPTIAL

1. It stages growth and become difficult for the firm to undertaken profitable projects for non-
availability of working capital funds.

2. It becomes difficult to implement operating plans and achieve the firms profit target.

3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day

commitments.

4. Fixed assets are not efficiently utilized for the lack of working capital funds thus the firms
profitability would deteriorate.

5. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities
etc.

6. The firm losses its reputation when it is not in position to honor its short term obligation as
result the firm faces tight credit terms.
Thus, enlightened management should therefore maintains a right
amount of working capital on a continuous basis which helps to develop the organization effectively
and efficiently.

4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL MANAGEMENT:

1. Working capital management requires must of the finance manger time as it represent a large
position of investment is assets.

2. Working capital management requires much of the finance management time as it represent
larger position of investment in assets.

3. Action should be taken to curtail unnecessary investment in current assets.

4. All precautions should be taken for the effective and efficient management of working capital.

5. Larger firms have to manage their current assets and current liabilities very carefully and should
see that the work should be done properly in order to achieve predetermined organization goals.

6. The financial manger should pay special attention to the managements of current assets on
continuing basis.

CHAPTER –V
DATA ANALYSIS & INTERPRETATION
BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
CALCULATION

Current ratio= Current Assets / Current Liabilities

DESCRIPTION 2008 2009

Current Assets 5865 6133

Current Liabilities 3107 2388
Current Ratio 1.89 2.56

QUICK RATIO = Liquid Assets / Current Liabilities

=
FINDINGS

1. Current Ratio increasing in the year 2005 – 06 with respect to 2006-07

2. Quick Ratio is showing increasing trends in the year 2005-06 with respect to year 2006-07
3. As Current Ratio quick Ratio and cash ratio is also increasing in the year 2005-06 with respect to
year 2006-07