TABLE OF CONTENT

SR Page
Particulars
No. No.
1. Executive Summary 01
2. COMPANY INFORMATION 02

1.1 Introduction 04
1.2 Brief History 05
1.3 Managing Team 06
1.4 Group of Companies 07
1.5 Forms of organization and Size of Unit 08
1.6 Organization Structure 10
1.7 Contribution of Unit 11
3. WORKING CAPITAL MANAGEMENT 12

2.1 Introduction 13
2.2 Need of Working Capital 14
2.3 Concept of W.C. Management 15
2.4 Types of Working Capital 16
2.5 Importance of W.C. Management 19
2.6 Determination of Working Capital 20
2.7 Sources of working capital 22
2.8 Working Capital Components 23
4. RESEARCH METHODOLOGY 35

3.1 Introduction 36
3.2 Objective of the Study 37
3.3 Scope and Limitation of the Study 38
3.4 Linear Correlation Co-Efficient
39
3.5Types of data collection
3.6 Data Analysis 41
 Return on Investments 42
 Working Capital Size & Level Analysis 43
 Working Capital Ratio Analysis and Comparison with 45
Return on Investments. 57

3
Chap. 1

Company
Information

3
 PROJECT AT A GLANCE

Name of the unit :- DLW.

Plant &registered office :- Survey No. 86, Plant No.1-4,
Near Microwave Tower,
National Highway 8-B,
Shapar (veraval),
Rajkot – 360 002.Gujarat.
Telephone & Fax No. :- +91 02827 2652996 / 98 / 99
Fax :- +91 2827 – 52254
Website :- www.atulautoltd.co.in
Established year :- 1983
Size of the organization :- Large Scale Industry
Form of organization :- Public Limited Company
Founder :- Jentibhai Chandra
Bankers :- State Bank of India
State Bank of Saurashtra
Citizens Co-op. Bank ltd.
Laxmi Vilas Bank Ltd.
HDFC Bank
Auditors :- Maharishi & Co.
Chartered Accountant.
Weekly off :- Wednesday

3
 INTRODUCTION
Diesel Locomotive Wo rks (DLW) is production unit under the
ministry of railways. This was setup in collaboration with American
locomo tive co mpany (ALCO) USA in 19 61 and the first locomotive
was rolled out in 196 4. This unit produces diesel electro nic
locomotives and DG sets for Indian railways and ot her customers in
India and Abroad.

Subseq uent ly a contract for transfer of techno lo gy of 4000 HP

Microprocessor Controlled AC/AC Freight (GT 46 MAC) / passenger
(GT 46 PAC) locomot ives and family of 71 0 engines has been signed
with electro motive divisio n of general mo tors of USA for
manufacture in DLW. the prod uction of these loco motives has now
started and thus DLW is the only manufacturers of Diesel Electric
Locomo tives wit h both ALCO and General motors technologies in the
world.

3
 Brief History

The Diesel Locomotive Works (DLW) in Varanasi, India, is a

production unit owned by Indian Railways, for which it manufactures
diesel-electriclocomotives and spare parts.

Founded in 1961, the DLW rolled out its first locomotive three
years later, on January 3, 1964. It manufactures locomotives which are
variants based on the original ALCO designs dating to 1960s and
the GM EMD designs of the 1990s. DLW has an annual production
capacity of 150 locomotives and plans to increase it to 200 based on
the current demand.
DLW locomotives have power outputs ranging from 2,600 horsepower (1,900 kW) to 4,000
horsepower (3,000 kW). Currently DLW is producing EMD GT46MAC and EMD GT46PAC locomotives
under license from Electro-Motive Diesels (formerly GM-EMD) for Indian Railways.

Varanasi, one of the oldest populated cities in the world and has a
promising place in the international ground both as a hub of traditions
and technology. One side the humming of divine and holy bells of the
temples brings the city to life; on other side Diesel Locomotive Works
(DLW) Varanasi is one of the largest industrial unit in eastern part of
the nation. DLW catch the attention of lot of foreign tourist students to
observer on going amazing locomotive manufacturing process in
Varanasi. Diesel Locomotive works Varanasi is located at the North
end of the city and about 8 Km away from the Holy River Ganges
Ghats. DLW is an ISO 9002, ISO 14001 & OHS 18001 Certified
Organisation .

3
 Diesel Locomotive Works, Varanasi (DLW) is one of the main
manufacturing units run by the Indian Railways. This manufacturing
unit came into existence in year 1961, as a “Green Field Project” in
industrial association with ALCO, USA. This unit generate all the
Diesel Electric Locomotives. In year 1964, the first locomotive was
manufactured and it was devoted to the country. Diesel Locomotive
Works, Varanasi produces only Electric Diesel locomotives and
auxiliary parts of locomotives. However it is an Indian corporation but
it has supplied locomotives to some foreign countries also, includes
Angola, Bangladesh, Malaysia, Myanmar, Sri Lanka, Vietnam and
Tanzania.Engine section manufacture more than 2000 machinery,
which comprise ALCO turbo superchargers, cylinder heads, connecting
rods, camshafts, lubricating oil pumps, chrome plated cylinder liners
and
Vehicle section of DLW unit works on different fields that include
Currently, Diesel Locomotive Works, Varanasi constructs locomotives
and DG sets. In locomotives section, again it manufactures two
different types of products, one is EMD and another is ALCO.

MILE STONES

August 1961DLW set up as a green field project in technical collaboration with ALCO,
USA for manufacture of Diesel Electric Locomotives

3
January 1964First Locomotive rolled out and dedicated to the Nation
January 1976Entered Export market, first locomotive exported to Tanzania
Decemb
1977First Diesel Generating Set commissioned
er
October 1995 The Transfer of Technology agreement was signed
March 2002The first indigenous EMD WDG4 freight loco manufactured
Novemb
20023600 HP Engine produced
er
March 2003The first indigenous passenger version of EMD loco WDP4 manufactured
Septem Development of 16 cylinder 3300 HP Power upgraded DLW engine, WDM3D
2003
ber locomotive
2006 5000th locomotive produced
Novemb DLW manufactured first WDG4 locomotive equipped with IGBT based
2006
er converter
March 2007First WDP4 locomotive equipped with IGBT based converter
DLW has successfully switched over to use of microprocessor based control
April 2007
system on all its locomotives.
257 locomotives manufactured in 2008-09, highest ever locomotive
March 2009
production
Novemb
20095690 locomotives upto 30th Nov’2009(including 348 EMD locos)
er

PRODUCT

 EMD
 WDG4 - 4000 HP GOODS LOCOMOTIVE

3
 Broad Gauge freight traffic Co-Co diesel electric locomotive
with 16 Cylinder 4000 HP engine, AC-AC transmission,
microprocessor controlled propulsion and braking with high traction
First turned out in 1999 with transfer of technology from General
Motor (USA), this locomotive has exceptional fuel efficiency and
very low maintenance requirements. It is specifically designed for
heavy haul freight traffic requirements of Indian Railways for the
21st Century.
The heart of loco Traction Control Converter uses the GTO
devices (obsolete technology). Now the IGBT devices, has been
introduced from Oct?2006. It is the latest technology and will be cost
effective. .
The locomotive power has been upgraded to 4500 BCV and the
first Loco (Loco No 12114) was manufactured in May?07

Diesel Engine Transmission

3
 16 Cylinder 710 G3B, 2
stroke, turbocharged ? after cooled
 Fuel Efficient Engine
 Injection System ? Direct
Unit Injector
 Governor ? Woodward
 Compression Ratio- 16:1
 Lube Oil Sump Capacity ?
950 Lts
Truck
 High adhesion
HTSC ( High Tensile Steel Cast)
truck of bogie
 Adhesion ? 0.42
General Characteristic
 Electrical AC-AC
 6 Traction motor ( 3 in
parallel per bogie)
 Suspension ? Axle hung /
taper roller bearing
 Gear Ratio ? 90:17
Brakes
 Electronic Air
Brake System ( KNORR-NYAB-
Computer Controlled Braking)
 Air , hand , dynamic
brake
 Pure air brake
3
  Installed Power  4000 HP
 Axle Load  21 T
 Gauge  1676 mm
 Wheel arrangement  Co-Co
 Wheel diameter  1092 mm
 Height  4201 mm
 Width  3127 mm
 Overall Length (Over  19964 mm
Buffer Beam)  126 T
 Weight  54 T
 Max tractive effort  100 Kmph
 Maximum speed  6000 lts
 Fuel tank capacity
 EM 2000 with SIBAS-
 Locomotive Control 16 Traction Control

TRACTIVE EFFORT &

WDG4-4000 HP GOODSPOWER CHART
LOCOMOTIVE

 WDP4
 4000 HP PASSENGER LOCOMOTIVE

State-of-Art, Microprocessor controlled AC-AC, Passenger

Locomotive Powered with 16-710G3B 4000HP Turbo charged Two

3
 stroke engine.

Fabricated rigid design Under frame, two stage suspension,

High Traction High Speed 3 axle (HTSC) light weight cast truck frame
attribute to high adhesion performance.

First turned out in 2003, this locomotive has exceptional fuel

efficiency and very low maintenance requirements. It is specifically
designed for heavy haul passenger traffic requirements for Indian
Railways.

The WDP4 fleet is being upgraded by provision of hotel load

feature along with power upgradation to 4500 HP. The prototype will
be manufactured in the year 2007.

Diesel Engine Transmission

 16 Cylinder 710 G3B, 2  Electrical AC-AC
stroke, turbocharged ? after cooled  4 Traction motor ( 3 in
 Fuel Efficient Engine parallel per bogie)
 Injection System ?  Suspension ? Axle hung
Direct Unit Injector / taper roller bearing
 Governor ? Woodward
 Compression Ratio-  Gear Ratio ? 77:17

3
16:1

 Lube Oil Sump

Capacity ? 1073 Lts

Truck Brakes
 High adhesion HTSC (  Electronic Air Brake
High Tensile Steel Cast) truck or bogie System ( KNORR-NYAB-Computer
Controlled Braking)
 Adhesion ? 0.42  Air , hand , dynamic
brake with fully blended with
automatic brakes

 Pure air brake

General Characteristic

3
  Installed Power  4000 HP
 Axle Load  19.5 T
 Gauge  1676 mm
 Wheel arrangement  A-A-I I-A-A
 Wheel diameter  1092 mm
 Height  4201mm
 Width  3127 mm
 Overall Length  19964 mm
(Over Buffer Beam)  117 T
 Weight  27 T
 Max tractive effort  160 Kmph
 Maximum speed  4000 lts
 Fuel tank capacity
 EM 2000 with
 Locomotive SIBAS-16 Traction Control
Control

WDP4-4000 HP GOODS TRACTIVE EFFORT

LOCOMOTIVE & POWER CHART

1. ALCO
1350 HP CAPE GAUGE LOCOMOTIVE
VDM 4

3
 TECHNICAL INFORMATION

1350 HP Locomotive having fabricated cape gauge Co-Co bogie. hese locomotives have been
supplied to Angola and Sudan.

Wheel Co – Co
Arrangement
Track Gauge 1067 mm Cape
gauge
Weight 72 t
Overall 15600 mm
Length
Wheel 921 mm
Diameter
Gear Ratio 18: 93
Maximum 90 Kmph
Speed
Diesel Engine Type : ALCO 251 D 6
Cyl. in line.
HP 1350
Transmission Electrical AC/DC
Brake 28LAV-1 system
Loco Air, dynamic, parking
Train Air & Vacuum
Fuel Tank 3000 Litres
Capacity

3
 2300 HP CAPE GAUGE LOCOMOTIVE

3
 TECHNICAL INFORMATION

2300 HP Main Line Locomotive, having fabricated cape gauge Co-Co bogies. These
are provided with two drivers cabs, one at each end. These locomotives have been supplied
to Angola and Sudan.

Wheel Co-Co
Arrangement
Track Gauge 1067 mm Cape Gauge
Weight 102 t
Overall Length 17620 mm
Wheel 921 mm
Diameter
Gear Ratio 18 : 93
Maximum 100 Kmph
Speed
Diesel Engine Type : ALCO 251-B 12
Cyl. V- Engine
HP 2300
Transmission Electrical AC/DC
Brake IRAB-1
Loco Air, Dynamic, parking
Train Air


 2300 HP METER GAUGE LOCOMOTIVE

TECHNICAL INFORMATION

2300 HP Main Line Locomotive, having fabricated meter gauge Co-Co bogies. These

3
are provided with two drivers cabs, one at each end. These locos have been supplied to
Malaysia, Senegal and Mali.

Wheel Co-Co
Arrangement
Track Gauge 1000 mm Meter Gauge
Weight 102 t
Overall 17620 mm
Length
Wheel 921 mm
Diameter
Gear Ratio 18 : 93
Maximum 100 Kmph
Speed
Diesel Engine Type : ALCO 251-B 12 Cyl.
V- Engine
HP 2300
Transmission Electrical AC/DC
Brake IRAB-1
Loco Air, Dynamic, parking
Train Air
Fuel Tank 3000 Litres
Capacity

 3000 HP CAPE GAUGE LOCOMOTIVE

TECHNICAL INFORMATION
( Provisional Specifications)

3000 HP Micro Processor Controlled, Main Line, Cape Gauge Locomotive with

3
improved Cab, under development for Mozambique Railway.

Wheel Co-Co
Arrangement
Track Gauge 1067 mm Cape Gauge
Weight 114 t
Overall 18632 mm
Length
Wheel 1000 mm
Diameter
Gear Ratio 19 : 92
Maximum 100 Kmph
Speed
Diesel Engine Type : ALCO 251-C 16 Cyl.
V- Engine
HP 3000
Transmission Electrical AC/DC
Brake IRAB-1
Loco Air, Dynamic
Train Air
Fuel Tank 6000 Litres
Capacity

 1350 HP METER GAUGE LOCOMOTIVE

YDM4

TECHNICAL INFORMATION

3
 1350 HP Locomotive having cast / fabricated meter Gauge Co-
Co bogie. Such locomotives have been supplied to Vietnam and
Myanmar.

Wheel Co – Co
Arrangement
Track Gauge 1000 mm
Weight 72 t
Overall 15600 mm
Length
Wheel 965 mm
Diameter
Gear Ratio 18: 93
Maximum 96 Kmph
Speed
Diesel Engine ALCO 251 D 6 Cyl. in line.
HP 1350
Transmission Electrical AC/DC
Brake IRAB ? 1 system / 28LAV-1
Loco Air, dynamic, parking
Train Air / Dual (Air and Vacuum)
Fuel Tank 3000 Litres
Capacity

3
  BROAD GAUGE MAIN LINE FREIGHT LOCOMOTIVE
WDG 3A

TECHNICAL INFORMATION

Diesel Electric main line, heavy duty goods service locomotive, with 16 cylinder ALCO engine
and AC/DC traction with micro processor controls.

Wheel Co-Co
Arrangement
Track Gauge 1676 mm
Weight 123 t
Length over 19132 mm
Buffers

3
 Wheel Diameter 1092 mm
Gear Ratio 18 : 74
Min radius of 117 m
Curvature
Maximum Speed 105 Kmph
Diesel Engine Type : 251 B,16
Cyl.- V
HP 3100
Brake IRAB-1
Loco Air, Dynamic
Train Air
Fuel Tank 6000 litres
Capacity

 BROAD GAUGE MAIN LINE MIXED SERVICE

LOCOMOTIVE
WDM 3D

TECHNICAL INFORMATION

Diesel Electric Locomotive with micro processor control suitable for main line mixed
Service train operation.

Wheel Co-Co
Arrangement
Track Gauge 1676 mm

3
 Weight 117 t
Max. Axle 19.5 t
Load
Length over 18650 mm
Buffer
Wheel 1092 mm
Diameter
Gear Ratio 18 : 65
Maximum 120 Kmph
Speed
Diesel Engine Type : 251 B-16 Cyl. ?V?
type (uprated)
HP 3300 HP (standard UIC
condition)
Transmission Electric AC / DC
Brake IRAB-1 system
Loco Air, Dynamic, Hand
Train Air
Fuel Tank 5000 litres
Capacity

3
  BROAD GAUGE SHUNTING LOCOMOTIVE
WDS 6AD

TECHNICAL INFORMATION

A heavy duty shunting Diesel Electric Locomotive for main line and branch line train
operation. This locomotive is very popular with Steel Plants and Port Trusts.

Wheel Co-Co
Arrangement
Track Gauge 1676 mm
Weight 113 t
Length over 17370 mm
Buffer
Wheel 1092 mm
Diameter
Gear Ratio 74 : 18

3
 Maximum 50 Kmph
Speed
Diesel Engine Type : 251 D-6 Cyl. in-line
HP 1350 / 1120 HP (std.)

MANUFACTURING PROCESS

 Engine Division

 COMPONENT MACHINING

Over 2000 components are manufactured in-

house at DLW. These include ALCO turbo
superchargers, lubricating oil pumps, cam
shafts, cylinder heads, chrome plated cylinder
liners, connecting rods and various gears. Our
well-equipped Machine Shops have dedicated
lines for operations like turning, milling, gear
hobbling, drilling, grinding and planning etc.
In addition, DLW is equipped with a variety of
special purpose machines and a large number of
state-of-the-art CNC machines to ensure quality
and precision.
Associated manufacturing processes like heat treatment and induction
hardening are also carried out in-house.
A completely new Chrome Plating Shop for Cylinder Liners has been
set up with modern infrastructure like fume extraction system and
Programmable Logic Controlled material movement system.

3
 Engine Assembly & Testing

Pre-inspected engine block, crankshaft, camshafts, cylinder

liners, pistons, connecting rods, cylinder heads, exhaust
manifold, turbo-supercharger and all related
piping is used in assembly of engine.
Electrical machines like traction alternator,
auxiliary generator and exciter are thereafter
coupled on the engine.
The complete power pack with electrics are
tested on Computerised Engine Test Beds to verify horsepower
output. Vital parameters of engine are checked to assure the
quality of product.

Only after the engine parameters are found perfect the power
packs are cleared for application on locomotives.

 Vehicle Division

 Component Fabrication
Precision cutting and forming of sheet metal
is utilised for manufacture of superstructures
including drivers cab, engine hoods, and
compartments for housing electrical
equipment. All activities connected with
pipes like pickling, bending, cutting, forming
and threading of pipes of various sizes are
undertaken in another well-equipped work area.
All electrical equipment is assembled in the fabricated control
compartments and driver?s control stands is done in another
work area.

3
  Under frame Fabrication
Under-frames are fabricated with due care
to ensure designed weld strength. Requisite
camber to the under-frame is provided
during fabrication itself. Critical Welds
areas are tested radio-graphically. Welder
training and their technical competence are
periodically reviewed. EMD under-frame is fabricated using
heavy fixtures, positioners to ensure down hand welding.

Fixtures are used to ensure proper fitting of components and

quality welding in subsequent stages.

 BOGIE MANUFACTURING
Special purpose machines are utilised for
machining cast and fabricated bogie frames.
Axle and wheel disc machining is undertaken
on sophisticated CNC machines. Inner
diameter of wheel discs are matched with the outer diameter of
axles and assembled on wheel press. The complete truck (bogie),
including bogie frames, wheels and axles, brake rigging and
traction motors are assembled which is ready for application to
locomotive.

 LOCOMOTIVE ASSEMBLY
Tested engines are received from Engine Division. Similarly under-
frames are received from Loco frame Shop and
Assembled trucks from Truck Machine Shop.
Superstructures and contractor compartments are
received from respective manufacturing and
assembly shops of Vehicle Division. Important
alignments like crank shaft deflection,
compressor alignment and Eddy Current clutch/radiator fan
alignment are done during assembly stage.

3
 Electrical control equipments are fitted and control cable harnessing
is undertaken. The complete locomotive is thus assembled before
being sent onwards for final testing and painting.
all locomotive systems are rigorous tested as per laid down test
procedures before the locomotive is taken up for final painting and
dispatch.
 Block Division

 Flame Cutting of Components

Steel plates are ultrasonically tested before being

precision cut by numerically controlled flame
cutting machines, Plasma Cutting Machine.
Components are straightened and machined prior to
fitting & tacking on fixture designed specially for
engine block fabrication to ensure close tolerance on engine block.
 Fabrication of Engine Block
Components after flame cutting and various
machining operations are fit and tack
welded before taking on rollovers. Heavy
Argon-CO2 welding is done on these
rollovers. High quality of welding is done
by qualified welders. Weld joints are
subjected to various tests like ultrasonic, X-rays, Visual etc.

Down-hand welding is ensured using specially designed

positioners.

Fabrication of engine block is completed by

submerged arc welding using semi-
automatic welding machines.
Special fixtures are used for making down-
hand welding possible in inaccessible areas. Critical welds are
subjected to radiographic examination. All welders are

3
 periodically tested and re-qualified for the assigned.

After complete welding weldment is stress relieved and marking

is done for subsequent machining.

 Portal Milling Machine

Engine block machining is done on Portal

Milling Machine which is a 5 axis CNC
machine with SIEMENs 840-D state of art
system control with dedicated tool management
system. This machine performs milling, drilling,
tapping and boring operations in single setting.
The machine accuracy of 10 micron enables adhering to the tolerance
required on engine block.

 Angular Boring Machine

Angular boring "V" boring is done of special
purpose machine. This special purpose
machine has two high precision angular
.
boring bars.
WORKSHOP
 Light Machine Workshop(LMS)
 Engine Testing(ET)
 Truck Machine Shop(TMS)
 Loco Assembly Shop(LAS)

This shop deals with the matching of vario us small co mpo nents

3
required fo r the power pack unit such as, cam shaft, co nnecting rod,
liners, gears levers, F.P. Support, Piston pin, nuts and bo lts bushes,
various shafts etc.

The light machine shop divided into the following section:-

 Econometric section
 Grinding section
 Gear section
 Cam shaft sect ion
 A.T.L. section
 Belching section
 Connect ing rod section
 Lathe section
 Liners section
 Drilling section
 Milling section

Organizational Strength

 A flagship production unit of Indian Railways offering complete

range of products in its area of operation with annual turnover of
over 2124 Crore.
 State of the art Design and Manufacturing facility to manufacture
200 locomotives per annum with wide range of related products
viz. DG Sets, Loco components and sub-assemblies.
 Supply of spares required to maintain Diesel Locomotives and
DG sets.
 Unbeatable trail-blazing track record in providing cost-effective,
eco-friendly and reliable solutions to ever increasing

3
 transportation needs for over four decades.
 Fully geared to meet specific transportation needs by putting
Price - Value - Technology equation perfectly right.
 A large base of delighted customers among many countries viz.
Myanmar, Sri Lanka, Malaysia, Vietnam, Bangladesh, Tanzania,
Angola, to name a few, bearing testimony to product leadership
in its category.

Our Quality Policy

 Quality, Environment, Health & Safety Policy

Diesel Locomotive Works is a Production Unit of Indian Railways,

manufacturing Diesel-electric Locomotives, Diesel Generating sets
and their spares for Indian Railways, Non-Railway Customers and
exports.

 We are committed to achieve excellence by:

 Continual improvement of the Quality,

Environmental and Health & Safety - at- work -
place performance.
 Preventing pollution by all means including
minimizing resource consumption and waste
generation using cleaner technologies, material
substitution and process changes.
 Preventing all injuries and loss of property
including environmental performance through
continuous safety inspections.
 Striving for compliance with all applicable
Environmental and Health & Safety legislations.

3
 Striving for "Right first time" and safe working
practice through system improvement and training.
 Enhancing Customer Satisfaction through
improvement in reliability and performance of
products.
 Preventing all employees from occupational
diseases and health hazards.

 We shall:
 Set objectives & targets and periodically monitor
their progress through internal audit and
management review.
 Communicate Quality, Environment and Health &
Safety policy to the employees and to make it
available to the public on demand.

3
 Environmental/Societal Orientation

 Environmental Management
A healthy and congenial environment alone can produce and
promote healthy citizens we firmly believe. In order to have a clean
and green DLW, we have a well defined integrated environmental
policy. This promotes an ever motivated work-force, giving rise to
products of International standard.

 Environmental Objectives:
 Reduction in Resourceconsumption
 Reduction in Fire Emergencies -10%
every year
 Improvement in Emergency
preparedness
 Monitoring of water & ambient air periodically
 Sewage Treatment Plant:
STP is mainly concerned with the treatment of domestic and
industrial sewage. The treated water is used for
irrigation purpose up to nearby Lohta farm and
kitchen gardening at DLW premises.The
digested sludge is sent to sludge drying beds,
later to be used as manure. Methane gas mainly
produced from the digester is collected in the gas holder and
supplied to the canteen.

 Industrial Effluent Treatment Plant:

IETP does the job of treatment of industrial
effluent which mainly contains oil and
grease . The treated water is sent to nearby
villages for farming and kitchen gardening
at DLW.

3
  Chromium Treatment Plant:
CTP deals with the treatment of effluents from
CRP shop (Chrome Plating Shop). This has
varying concentration of hexavalent chromium.
This hexavalent chromium is converted into
trivalent chromium in acidic condition and is
precipitated. This sludge, after drying in the form of cakes, is stored
in a covered tank made of concrete. Water after treatment is used for
irrigation in nearby villages.

 Occupational Health & Safety Management:

DLW is OHSAS-18001 certified since September, 2005.
OHSAS formulates the work-procedures, defines hazards,
assesses the risks involved therein and
generates awareness regarding use of
personal protective equipments at
workplace. This enhances safety at work-
place, reduces chances of accidents and
makes workers more confident leading to
increase in productivity.

OHS Objectives:
 Reduction in HOD cases -10% every year
 Improvement in use of PPEs (100%)
 Recharging of Ground water

3
Chap. 2

Working
Capital
Management

3
2.1 INTRODUCTION

Working capital management is concerned with the problems arise in attempting

to manage the current assets, the current liabilities and the inter relationship that
exist between them. The term current assets refers to those assets which in
ordinary course of business can be, or, will be, turned in to cash within one year
without undergoing a diminution in value and without disrupting the operation of
the firm. The major current assets are cash, marketable securities, account
receivable and inventory. Current liabilities ware those liabilities which intended
at there inception to be paid in ordinary course of business, within a year, out of
the current assets or earnings of the concern. The basic current liabilities are
account payable, bill payable, bank over-draft, and outstanding expenses.

The goal of working capital management is to manage the firm’s current assets
and current liabilities in such way that the satisfactory level of working capital is
mentioned. The current should be large enough to cover its current liabilities in
order to ensure a reasonable margin of the safety.
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.

Definition :
According to Guttmann & Dougall-

“Excess of current assets over current liabilities”.

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts receivables,
inventories) over current items owned to employees and others (such as salaries
& wages payable, accounts payable, taxes owned to government)”.

3
2.2 NEED OF WORKING CAPITAL MANAGEMENT

The need for working capital gross or current assets cannot be over emphasized.
As already observed, the objective of financial decision making is to maximize
the shareholders wealth. To achieve this, it is necessary to generate sufficient
profits can be earned will naturally depend upon the magnitude of the sales
among other things but sales can not convert into cash. There is a need for
working capital in the form of current assets to deal with the problem arising out
of lack of immediate realization of cash against goods sold. Therefore sufficient
working capital is necessary to sustain sales activity. Technically this is refers to
operating or cash cycle. If the company has certain amount of cash, it will be
required for purchasing the raw material may be available on credit basis. Then
the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress, and ultimately finished goods.
These finished goods convert in to sales on credit basis in the form of sundry
debtors. Sundry debtors are converting into cash after expiry of credit period.

Thus, some amount of cash is blocked in raw materials, WIP, finished goods, and
sundry debtors and day to day cash requirements. However some part of current
assets may be financed by the current liabilities also. The amount required to be
invested in this current assets is always higher than the funds available from
current liabilities. This is the precise reason why the needs for working capital
arise.

3
2.3 CONCEPT OF WORKING CAPITAL
MANAGEMENT

There are two concepts of working capital management

1. Gross working capital

According to this concept, the total assets are termed as the gross working
capital. It is also known as quantitative or circulating capital. Total current assets
include, cash, marketable securities, account receivables, inventory, prepaid
expense, advance payment of tax, etc. To quote Weston and Brigham, “Gross
working capital refers to firm’s investment in short term assets such as cash, short
term securities, accounts receivable and inventories.” This concept helps in
making optimum investment in current assets and their financing. According to
Walker, “Use of this concept is helpful in providing for the current amount of
working capital at the right time so that the firms are able to realize the greatest
return on investment.

2. Net working capital

Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which 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
Efficient working capital management requires that firms should operate with
some amount of net working capital, the exact amount varying from firm to firm
and depending, among other things; on the nature of industries.net working
capital is necessary because the cash outflows and inflows do not coincide. The
cash outflows resulting from payment of current liabilities are relatively
predictable. The cash inflow are however difficult to predict. The more
predictable the cash inflows are, the less net working capital will be required. The
concept of working capital was, first evolved by Karl Marx. Marx used the term
‘variable capital’ means outlays for payrolls advanced to workers before the
completion of work. He compared this with ‘constant capital’ which according to
him is nothing but ‘dead labour’. This ‘variable capital’ is nothing wage fund
which remains blocked in terms of financial management, in work-in- process
along with other operating expenses until it is released through sale of finished
goods. Although Marx did not mentioned that workers also gave credit to the
firm by accepting periodical payment of wages which funded a portioned of
W.I.P, the concept of working capital, as we understand today was embedded in
his ‘variable capital’.

3
2.4 TYPES OF WORKING CAPITAL

The operating cycle creates the need for current assets (working capital).
However the need does not come to an end after the cycle is completed to explain
this continuing need of current assets a destination should be drawn between
permanent and temporary working capital.

Working Capital

Permanent Working Variable Working

Capital Capital

Initial Regular Seasonal Special

W.C. W.C. W.C. W.C.

1. Permanent working capital

The permanent working capital refers to that part of the working capital which is
necessary for maintaining stock of raw material and finished goods at their
normal level and for paying wages and salaries regularly. It is minimum amount
of current assets which is needed for the smooth running of business. In other
words, permanent working capital is that which is permanently locked up in
current assets. Permanent working capital is off two kinds: A. Initial working
capital and B. Regular working capital

A. Initial working capital

In the initial period of its operation, a company must have enough money to pay
certain expenses. This amount will have to be supplied the owners themselves,
because in the initial years, credit facilities may not be available from creditors,
bank do not grant loans or overdrafts and credit-sales will have to be made.

3
B. Regular working capital
It is the working capital required to continue the regular business operations. It is
required for maintaining regular stock of finished goods to meet the customers
demands, to pay regular business expenses etc. Regular working capital is the
excess of current assets over current liabilities. This part of the working capital
needed for smooth operations of the business.

Temporary W.C.

W.C.

Permanent W.C.

Time

2. Temporary working capital

It is the part of the working capital which is needed to meet the seasonal demands
and special needs. This is called variable working capital because its amount
varies according to the extent of extra demand. Variable working capital is of two
types A. Seasonal working capital and B. Special working capital.

A. Seasonal working capital

Some business enterprises require a larger amount of current assets during a
particular season. For instance sugar mills have to purchase sugarcane and
employ more people to process it during a particular season.

3
B. Special working capital
In any business enterprise some unforeseen events take place when extra funds
are needed to meet with the situation. E.g. during depression prices and sales
decline considerably which necessitates extra working funds. During inflationary
conditions, prices of raw material and finished goods up, hence extra money is
needed to maintain the same level of stock. Unforeseen contingencies like strikes
and lockouts fire and looting, etc. also force the management to provide for extra
funds.

3
2.5 IMPORTANCE OF WORKING CAPITAL
MANAGEMENT

Working capital is considered as central nervous system of a firm. The

importance of working capital management is reflected in the time most spent by
financial managers in managing current assets and current liabilities.
Maintenance of adequate working capital is necessary in order to discharge day
to day liabilities and protect the business from adverse effects in times of
emergencies. It aims at protecting the purchasing power of assets and maximizes
the return on investment.

The goal of working capital management is to minimize the cost of working

capital while maximizing a firm’s profit. The working capital management is
concerned with determination of relevant levels of current assets and their
efficient use as well as the choice of financial mix. The efficiency of a firm to
earn profits depends largely on its ability to manage working capital. In other
words, working capital management policies have a crucial effect on firm’s
liquidity and profitability. Hence, working capital has to be effectively planned,
systematically controlled and optimally utilized.

3
2.6 DETERMINATION OF WORKING CAPITAL

1. Nature of business

Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. These businesses sell services and not
the commodities and that too on cash basis. As such, no founds are blocked in
piling inventories and also no funds are blocked in receivables. E.g. public utility
services like railways, infrastructure oriented project etc. there requirement of
working capital is less. On the other hand, there are some businesses like trading
activity, where requirement of fixed capital is less but more money is blocked in
inventories and debtors.

2. Length of production cycle

In some business like machine tools industry, the time gap between the
acquisition of raw material till the end of final production of finished products
itself is quit high. As such amount may be blocked either in raw material or work
in progress or finished goods or even in debtors. Naturally there need of working
capital is high.

3. Size and growth of business

In very small company the working capital requirement is quit high due to high
overhead, higher buying and selling cost etc. as such medium size business
positively has edge over the small companies. But if the business start growing
after certain limit, the working capital requirements may adversely affect by the
increasing size.

4. Business/ Trade cycle

If the company is the operating in the time of boom, the working capital
requirement may be more as the company may like to buy more raw material,
may increase the production and sales to take the benefit of favorable market, due
to increase in the sales, there may more and more amount of funds blocked in
stock and debtors etc. similarly in the case of depressions also, working capital
may be high as the sales terms of value and quantity may be reducing, there may
be unnecessary piling up of stack without getting sold, the receivable may not be
recovered in time etc.

3
5. Terms of purchase and sales

Some time due to competition or custom, it may be necessary for the company to
extend more and more credit to customers, as result which more and more
amount is locked up in debtors or bills receivables which increase the working
capital requirement. On the other hand, in the case of purchase, if the credit is
offered by suppliers of goods and services, a part of working capital requirement
may be financed by them, but it is necessary to purchase on cash basis, the
working capital requirement will be higher.

6. Stock Turnover

By turnover is meant the ratio of sales to average stock held in business. The
greater the turnover, the larger the volume of business that can be conducted with
a given working capital. In other words, if the turnover is rapid, burden of
working capital is not heavy.

7. Profitability

The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability will
positively reduce the strain on working capital requirement of the company,
because the profits to the extend that they earned in cash may be used to meet the
working capital requirement of the company.

8. Attitude of Management

If the attitude of the management is aggressive and they are primarily risk-takers,
the need for working capital is reduced.

9. Operating efficiency

If the business is carried on more efficiently, it can operate in profits which may
reduce the strain on working capital; it may ensure proper utilization of existing
resources by eliminating the waste and improved coordination etc.

3
2.7 SOURCES OF WORKING CAPITAL

The main sources of working capital are as under:

1. Shares and Debentures

2. Retained Earnings
3. Commercial Banks
a. Loans
b. Bank Overdraft
c. Cash Credit
4. Commercial Paper
5. Certificate of Deposit
6. Commercial Bills Market
7. Factoring
8. Trade Creditor or Trade Creditors
9. Public Deposits
10.Indigenous Bankers and Money Lenders

3
2.8 WORKING CAPITAL COMPONENTS
Mainly three components of working capital management

1. Receivables Management
2. Inventory Management
3. Cash Management

Above three has equal importance to manage or handle working capital of any
firm. Now we discuss detail of above three components.

3
1. RECEIVABLES MANAGEMENT

The term receivable is defined as “debt owed to the firm by customers arising
from sales of goods or services in the ordinary course of business.”

Receivables or debtors are the one of the most important parts of the current
assets which is created if the company sells the finished goods to the customer
but not receive the cash for the same immediately. Trade credit arises when firm
sells its products and services on credit and dose not receive cash immediately. It
is essential marketing tool, acting as bridge for the movement of goods through
production and distribution stages to customers. Trade credit creates receivables
or book debts which the firm is expected to collect in the near future. The
receivables include three characteristics

1. It involve element of risk which should be carefully analysis.

2. It is based on economic value. To the buyer, the economic value in goods
or services passes immediately at the time of sale, while seller expects an
equivalent value to be received later on.
3. It implies futurity. The cash payment for goods or serves received by the
buyer will be made by him in a future period.

Objective of Receivable Management

Maximizing the value of the firm: The basic objective of debtor’s management
is to maximize the value of the firm by achieving a trade off between liquidity
(risk) and return. The main purpose of receivables management is to minimize
the risk of bad debts and not maximization of order. Efficient management of
receivables expands sales by retaining old customers and attracting new
customers.

Optimum Investment in Sundry Debtors: allowing credit, expands sales, but

they involve block of funds, that have an opportunity cost, which can be reduced
by optimum investment in receivables. Providing liberal credit increases sales
consequently profits will increase, but increases investment in receivables result
in increased costs.

3
Control and managing the cost of trade of credit: when there are no credit
sales, there will not be any trade credit cost. But credit sales increases profits, it is
possible only when the firm is able to keep the costs at minimum.

Size of Receivable in DLW.

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Sundry Debtors 62,934,110 87,395,034 81,660,540 39,619,066 35,213,006
Indices 100 138.87 129.75 62.95 55.95

Receivables Indices

Average Collection Period

The average collection period measures the quality of debtors since it indicate the
speed of there collection. The shorter the average collection period, the better the
quality of the debtors since a short collection period implies the prompt payment
by debtors. The average collection period should be compared against the firm’s
credit terms and policy judges its credit and collection efficiency. The collection
period ratio thus helps an analyst in two respects.

1. In determining the collectability of debtors and thus, the efficiency of

collection efforts.
2. In ascertaining the firm’s comparative strength and advantages related to
its credit policy and performance.

3
2. INVENTORY MANAGEMENT

The term ‘inventory’ is used to designate the aggregate of those items of tangible
assets which are

1. Finished goods (‘saleable’)

2. Work-in-progress (‘convertible’)
3. Material and supplies (‘consumable’)

In financial view, inventory defined as the sum of the value of raw material and
supplies, including spares, semi-processed material or work in progress and
finished goods. The nature of inventory is largely depending upon the type of
operation carried on. For instance, in the case of a manufacturing concern, the
inventory will generally comprise all three groups mentioned above while in the
case of a trading concern, it will simply be by stock- in- trade or finished goods.

3
Components of Inventory

Components of Inventory

Raw Work-in- Finished Stores and

Materials progress Product Spares

1. Raw Materials
Raw materials are those inputs that are converted into finished goods through
manufacturing process. A major input for manufacturing a product. In other
words, they are very much needed for uninterrupted production.

2. Work-in-Progress
Work-in-progress is that stage of stocks that are between raw materials and
finished goods. Work-in-progress inventories are semi-finished products. They
represent products that need to under go some other process to become finished
goods.

3. Finished Products
Finished products are those products, which are ready for sale. The stock of
finished goods provides a buffer between production and market.

4. Store and Spares

Stores and spares inventory (include office and plant cleaning materials like,
soap, brooms, oil, fuel, light, bulbs etc.) are those purchased and stored for the
purpose of maintenance of machinery.

3
Inventory Management Motives

Managing inventories involves block of funds and inventory holding costs.

Maintenance of inventory is expensive, then why to firm hold inventories? There
are three general motives of holding inventories.

1. Transaction Motive
Transaction motive includes production of goods and sale of goods. It facilitates
uninterrupted production and delivery of order at a given time (right time).

2. Precautionary Motive
This motive necessitates the holding of inventories for unexpected changes in
demand and supply factors.

3. Speculative Motive
This compels to hold some inventories to take the advantage of changes in price
and getting quantity discount.

3
Objectives of Inventory Management

In company there should be an optimum level of investment for any asset,

whether it is plant, cash or inventories. Again inadequate disrupts production and
causes losses in sales. Efficient management of inventory should ultimately result
in wealth maximization of owner’s wealth. It implies that while the management
should try to pursue financial objective of turning inventory as quickly as
possible, it should at the same time ensure sufficient inventories to satisfy
production and sales demand. The objectives of inventory management consist of
two counterbalancing parts:

1. To minimize the firms investment in inventory

2. To meet a demand for the product by efficiently organizing the firms
production and sales operation.

This two conflicting objective of inventory management can also be expressed in

term of cost and benefits associated with inventory. That the firm should
minimize the investment in inventory implies that maintaining an inventory cost,
such that smaller the inventory, the better the view point .obviously, the financial
manager should aim at a level of inventory which will reconcile these conflicting
elements. Some objective as follow

1. To have stock available as and when they are required.

2. To utilize available storage space but prevents stock levels from exceeding
space available.
3. To maintain adequate accountability of inventories assets.
4. To provide, on item – by- item basis, for re-order point and order such
quantity as would ensure that the aggregate result confirm with the
constraint and objective of inventory control.

To keep low investment in inventories carrying cost an obsolesce losses to the

minimum.

3
 Size of Inventory

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Raw Materials 44,769,200 67,035,755 125,346,150 111,552,584 145,870252
W.I.P. 26,221,991 28,418,545 64,199,726 71,465,522 24,723,408
Finished Goods 1,314,829 4,961,700 18,028,663 10,586,166 6,165,644
Total 72,306,020 100,416,000 207,574,539 193,604,272 176,759,304
Indices 100 138.88 287.08 267.76 244.46

Inventory Indices

Inventory components
The firm’s inventory consist following components

1. Raw material
2. Work- in-progress
3. Finished goods

To analyze the level of raw material inventory and work in progress inventory
held by the firm on an average it is necessary to examine the efficiency with
which the firm converts raw material inventory and work in progress into
finished goods.

3
3. CASH MANAGEMENT

Cash is common purchasing power or medium of exchange. As such, it forms the

most important component of working capital. The term cash with reference to
cash management is used in two senses, in narrow sense it is used broadly to
cover cash and generally accepted equivalent of cash such as cheques, draft and
demand deposits in banks.

The broader view of cash also induce hear- cash assets, such as marketable sense
as marketable securities and time deposits in banks. The main characteristics of
this deposits that they can be really sold and convert in to cash in short term.
They also provide short term investment outlet for excess and are also useful for
meeting planned outflow of funds. We employ the term cash management in the
broader sense. Irrespective of the form in which it is held, a distinguishing feature
of cash as assets is that it was no earning power. Company have to always
maintain the cash balance to fulfill the dally requirement of expenses.

Motives for Holding Cash

1. Transaction Motive
Cash balance is necessary to meet day-to-day transaction for carrying on with the
operation of firms. Ordinarily, these transactions include payment for material,
wages, expenses, dividends, taxation etc. there is a regular inflow of cash from
operating sources, thus in case of JISL there will be two-way flow of cash-
receipts and payments. But since they do not perfectly synchronize, a minimum
cash balance is necessary to uphold the operations for the firm if cash payments
exceed receipts.

Always a major part of transaction balances is held in cash, a part may be held
in the form of marketable securities whose maturity conforms to the timing of
anticipated payments of certain items, such as taxation, dividend etc.

3
2. Precautionary Motive
Cash flows are somewhat unpredictable, with the degree of predictability varying
among firms and industries. Unexpected cash needs at short notice may also be
the result of following:

1. Uncontrollable circumstances such as strike and natural calamities.

2. Unexpected delay in collection of trade dues.
3. Cancellation of some order for goods due unsatisfactory quality.
4. Increase in cost of raw material, rise in wages, etc.

The higher the predictability of firm’s cash flows, the lower will be the necessity
of holding this balance and vice versa. The need for holding the precautionary
cash balance is also influenced by the firm’s capacity to have short term
borrowed funds and also to convert short term marketable securities into cash.

3. Speculative motive
Speculative cash balances may be defined as cash balances that are held to enable
the firm to take advantages of any bargain purchases that might arise. While the
precautionary motive is defensive in nature, the speculative motive is aggressive
in approach. However, as with precautionary balances, firms today are more
likely to rely on reserve borrowing power and on marketable securities portfolios
than on actual cash holdings for speculative purposes.

4. Compensating Motive
According to I.M. Pandey, the amount of cash to be held for the first two
motives, which are two most important motives, the following factors must be
taken into account:

1. The expected cash inflows and outflows based on cash budget.

2. The degree of deviation between expected and actual net cash flows.
3. The maturity structure of the firm’s liabilities.
4. The firm’s ability to borrow at short notice in the event of any emergency.
5. The philosophy of management regarding liquidity and risk of insolvency.

3
Advantage of Cash Management

Cash does not enter in to the profit and loss account of an enterprise, hence cash
is neither profit nor losses but without cash, profit remains meaningless for an
enterprise owner.

1. A sufficient of cash can keep an unsuccessful firm going despite losses

2. An efficient cash management through a relevant and timely cash budget may
enable a firm to obtain optimum working capital and ease the strains of cash
shortage, fascinating temporary investment of cash and providing funds normal
growth.
3. Cash management involves balance sheet changes and other cash flow that do
not appear in the profit and loss account such as capital expenditure.

Size and Indices of cash in Atul Auto

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Cash & Bank 11,441,798 16,113,868 2,387,963 3,752,117 18,628,235
C.A. Indices 100 141.15 20.92 32.86 163.18

3
Cash cycle

One of the distinguishing features of the fund employed as working capital is that
constantly changes its form to drive ‘business wheel’. It is also known as
‘circulating capital’ which means current assets of the company, which are
changed in ordinary course of business from one form to another, as for example,
from cash to inventories, inventories to receivables and receivables to cash.

Basically cash management strategies are essentially related to the cash cycle
together with the cash turnover. The cash cycle refers to the process by which
cash is used to purchase the row material from which are produced goods, which
are then send to the customer, who later pay bills. The cash turnover means the
number of time firms cash is used during each year.

3
 Chap. 3

Research
Methodology

3
3.1 INTRODUCTION

Research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying now research is done systematically.
In that various steps, those are generally adopted by a researcher in studying his
problem along with the logic behind them.

It is important for research to know not only the research method but also know
methodology. ”The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.”
Methods comprise the procedures used for generating, collecting and evaluating
data. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will Be
largely depend upon now much accurate you will be able to collect and how
much time, money and effort will be required to collect that necessary data, this
is also important step.

Data collection plays an important role in research work. Without proper data
Available for analysis you cannot do the research work accurately.

3
3.2 OBJECTIVE OF THE STUDY

Study of the working capital management is important because unless the

working capital is managed effectively, monitored efficiently planed properly and
reviewed periodically at regular intervals to remove bottlenecks if any the
company can not earn profits and increase its turnover. With this primary
objective of the study, the following further objectives are framed for a depth
analysis.

1. To study the working capital management of DLW.

2. To study the optimum level of current assets and current liabilities of the
company.
3. To study the liquidity position through various working capitals relate
ratios.
4. To study the working capital components such as receivables accounts,
cash management, Inventory position.
5. To study the way and means of working capital finance of the DLW.
6. Compare the working capital ratios with the profitability ratio (ROI).

3
3.3 SCOPE & LIMITATIONS OF THE STUDY

Scope of the Study

The scope of the study is identified after and during the study is conducted. The
study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage, operating cycle etc. Further the study is based on last 5
years Annual Reports of Jain Irrigation Systems Ltd. And even factors like
competitor’s analysis, industry analysis were not considered while preparing this
project.

Limitations of the Study

Following limitations were encountered while preparing this project:

1. Limited data

This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection
because of confidentiality.

2. Limited period

This project is based on five year annual reports. Conclusions and

recommendations are based on such limited data. The trend of last five year may
or may not reflect the real working capital position of the company.

3. Limited Area

Also it was difficult to collect the data regarding the competitors and their
financial information. Industry figures were also difficult to get.

3
3.4 Linear Correlation Co-efficient
Meaning
Correlation is a measure of finding out the degree of relationship between two or
more variables. It means the tendency of the variables to move together.
Therefore, it means the movement of two or more variables in sympathy with
another. This movement may be in the same or reverse direction.

The number representing the measure (or degree) of linear correlation between
two variables is called the coefficient of correlation. It is represented by r. the
value of r is greater than or equal to -1 and smaller than or equal to 1.

Definition
The relationship between two variables such that a change in one is accompanied
by a positive or a negative change in the other and also a greater change in one is
accompanied by a corresponding greater change in the other, is called correlation.

Properties of Coefficient of correlation:-

(1) The coefficient of correlation is an absolute relation measure.
(2) The value of coefficient of correlation r is invariant under change in units
of measurement of variable X and Y.
(3) The coefficient of correlation between X and Y is equal to the coefficient
of correlation between Y and X I, e.; r(x, y) = r(y, x).
(4) The value of coefficient of correlation r is always greater than or equal to
-1 and less than or equal to 1. That is -1 ≤ r ≤ 1.
(5) The coefficient of correlation is invariant under the change of origin and
scale. That is r(x, y) = r (u, v).

3
Pearson product-moment correlation coefficient

In statistics, the Pearson product-moment correlation coefficient (sometimes

referred to as the PMCC, and typically denoted by r) is a measure of the
correlation (linear dependence) between two variables X and Y, giving a value
between +1 and −1 inclusive. It is widely used in the sciences as a measure of the
strength of linear dependence between two variables. It was developed by Karl
Pearson from a similar but slightly different idea introduced by Francis Galton in
the 1880s. The correlation coefficient is sometimes called "Pearson's r."

Pearson's correlation coefficient between two variables is defined as the

covariance of the two variables divided by the product of their standard
deviations:

Pearson Correlation Assumptions

 That the relationship between X and Y can be Represented by a straight

line, i.e. it is linear.

 That X and Y are metric variables, measured on an interval or ratio scale of

measurement.

 In using a t distribution to test the significance of the correlation

coefficient

That the sample was randomly drawn from the population, and That X and Y are
normally distributed in the population. This assumption is less important as the
sample size increases.

3
3.5 TYPES OF DATA COLLECTION

There are two types of data collection methods available.

1. Primary data collection

2. Secondary data collection

1. Primary data collection method

Primary data is that data which is collected fresh or first hand, and for first time
which is original in nature. Primary data can collect through personal interview,
questionnaire etc. to support the secondary data.

2. Secondary data collection

The secondary data are those which have already collected and stored. Secondary
data easily get those secondary data from records, journals, annual reports of the
company etc. It will save the time, money and efforts to collect the data.
Secondary data also made available through trade magazines, balance sheets,
books etc.

This project is based on primary data collected through personal interview of

head of account department, head of production department and other concerned
staff member of finance department. But primary data collection had limitations
such has matter confidential information thus project is based on secondary
information collected through five years annual report of the company. The data
collection was aimed at study of working capital management of the company.

Project is based on

1. Annual report of DLW. 2008-2009

2. Annual report of DLW. 2010-2011
3. Annual report of DLW. 2012-2014
4. Annual report of DLW. 2014-2015
5. Annual report of DLW. 2016-2017

3
3.6 DATA ANALYSIS

After collection of the data the second step is analyze the data. In this report we
use the Profitability Ratio (Return on Investment) and working capital Ratio. We
compare both ratios with the Karl Pearson’s correlation co-efficient statistical
tool.

With the help of primary data and mainly secondary data we could found the
below results.

 Return on Investments
 Working Capital Size and Level Analysis
 Working Capital Ratios Analysis
 Comparison between Working capital ratios and Return on Investment.

To compare Working capital ratios and Return on Investment we have used Karl
Pearson’s correlation co-efficient statistical tool. Because it is very effective

3
 Return on
Investment

3
 Return on Investment
The profitability of the firm is measured by establishing relation of net profit with
the total assets of the company. The ratio indicates the efficiency of utilization of
assets in generating revenue.

Net Profit
Return on Investment = X 100
Total Assets

Year 2004-05 2005-06 2006-07 2007-08 2008-09

Net Profit 30,155,499 41,980,321 31,438,941 12,669,841 4,596,564
Total Assets 390,094,141 583,793,974 690,831,938 733,998,355 778,616,638
ROI 7.73 % 7.19% 4.55% 1.73% 0.59%

Return on Investment

Observation

From year 2004-05 the return on investment were reduced continuously. Net
sales in Rs. was increase but the no. of unit is reduced because raw material price
and product prices hike. It’s happened due to the competition and competitors. In
the year 2008-09 the return on investment reduces by 92% as compare to the year
2004-05. Its shows the inefficient utilization of the available resources.

3
 Working
Capital Size &
Level Analysis

3
 WORKING CAPITAL LEVEL

The consideration of the level investment in current assets should avoid two
danger points excessive and inadequate investment in current assets. Investment
in current assets should be just adequate, not more or less, to the need of the
business firms. Excessive investment in current assets should be avoided because
it impairs the firm’s profitability, as idle investment earns nothing. On the other
hand inadequate amount of working capital can be threatened solvency of the
firms because of its inability to meet it’s current obligation. It should be realized
that the working capital need of the firms may be fluctuating with changing
business activity. This may cause excess or shortage of working capital
frequently. The management should be prompt to initiate an action and correct
imbalance.

Size of Working Capital (Amnt. In Rs.)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
A. Current Assets
Inventories 72,306,020 100,416,000 207,574,539 193,604,272 176,759,304
Sundry Debtors 62,934,110 87,395,034 81,660,540 39,619,066 35,213,006
Cash & Bank 11,441,798 16,113,867 2,387,963 3,752,117 18,628,235
Loans & Advances 56,145,885 94,058,239 63,045,027 76,001,619 77,265,386
Total of A
202,827,813 297,983,140 354,668,069 312,977,074 307,865,931
(Gross W.C.)
B. Current Liabilities
Current Liabilities 53,374,115 139,779,195 92,499,837 71,621,898 100,822,850
Provision 1,686,940 15,667,246 15,382,278 10,003,311 11,419,468
Total of B 55,061,055 155,446,441 107,882,115 81,625,209 112,242,318
Net W.C. (A-B) 147,766,758 142,536,699 246,785,954 231,351,865 195,623,613

3
WORKING CAPITAL TREND ANALYSIS

In working capital analysis the direction at changes over a period of time is of

crucial importance. Working capital is one of the important fields of
management. It is therefore very essential for an annalist to make a study about
the trend and direction of working capital over a period of time. Such analysis
enables as to study the upward and downward trend in current assets and current
liabilities and it’s effect on the working capital position.

“The term trend is very commonly used in day-today conversion trend, also
called secular or long term need is the basic tendency of population, sales,
income, current assets, and current liabilities to grow or decline over a period of
time”

“The trend is defined as smooth irreversible movement in the series. It can be

increasing or decreasing.”

Emphasizing the importance of working capital trends, “analysis of working

capital trends provide as base to judge whether the practice and privilege policy
of the management with regard to working capital is good enough or an
important is to be made in managing the working capital funds.

Further, any one trend by it self is not very informative and therefore comparison
with Illustrated their ideas in these words, “An upwards trends coupled with
downward trend or sells, accompanied by marked increase in plant investment.
Especially if the increase in planning investment by fixed interest obligation”

Working Capital Size trend

(Amnt. In Rs.)
Years 2004-05 2005-06 2006-07 2007-08 2008-09
Net W.C (A-B) 147,766,758 142,536,699 246,785,954 231,351,865 195,623,613
W.C. Indices 100 96.46 167.01 156.56 132.39

3
 Working Capital Indices

Observations
It was observe that in the year 2006-07 indices is very high because of mismatch
of current assets and current liabilities. Current Assets increase by 19% and
Current Liabilities decrease by 30%. After year 2006-07 company’s decreased its
working capital continuously. By reducing working capital company might be
increased its profitability in next years. The fall in working capital is a clear
indication that the company is utilizing its short term resources with efficiency.

3
Current Assets
Total assets are basically classified in two parts as fixed assets and current assets.
Fixed assets are in the nature of long term or life time for the organization.
Current assets convert in the cash in the period of one year. It means that current
assets are liquid assets or assets which can convert in to cash within a year.

Current Assets Size

(Amnt. In Rs.)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Inventories 72,306,020 100,416,000 207,574,539 193,604,272 176,759,304
Sundry Debtors 62,934,110 87,395,034 81,660,540 39,619,066 35,213,006
Cash & Bank 11,441,798 16,113,867 2,387,963 3,752,117 18,628,235
Loans & Advances 56,145,885 94,058,239 63,045,027 76,001,619 77,265,386
Other Assets
Total of C.A. 202,827,813 297,983,140 354,668,069 312,977,074 307,865,931
C.A. Indices 100 146.91 174.86 154.31 151.79

Current Assets Indices

3
Composition of current assets
Analysis of current assets components enable one to examine in which
components the working capital fund has locked. A large tie up of funds in
inventories affects the profitability of the business or the major portion of current
assets is made up cash alone, the profitability will be decreased because cash is
non earning assets.

Composition of Current Assets

(No. in %)
Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Inventories 35.65 33.70 58.33 61.86 57.41
Sundry Debtors 31.03 29.33 23.02 12.66 11.44
Cash & Bank 05.64 05.41 00.67 01.2 06.05
Loans & Advances 27.68 31.56 17.78 24.28 25.10
Total of C.A. 100 100 100 100 100 No. in %

Current Assets Components

3
Observation
It was observed that the size of current assets is increasing with increases in the
sales. The excess of current assets is showing positive liquidity position of the
firm but it is not always good because excess current assets then required, it may
adversely affects on profitability. Current assets include some funds investments
for which company pay interest.

The balance of current assets is maintained in the years 2004-05 and 2005-06. As
per my view in year 2006-07 is ideal because in this year Inventory was increase
and Sundry Debtors, Cash & Bank Balance and Loan & Advances were decrease
compare to last two financial years. In the year 2007-08 again Inventory was
increase and Sundry Debtors and Cash & Bank were decrease but Loans &
Advances increased. But it was not bed situation for the company.

In the year 2008-09 the Inventory was down by 7.19% compare to last year and
Cash & Bank Balance and Loans & Advances were decrease. But Sundry
Debtors was decrease by 9.64% compare to last year.

With the help of Composition of Current Assets company try to maintain and
increase the inventory level and it’s profitable for the company. In last five years
company reduces Sundry Debtors continuously, so we can say that company has
no more risk regarding Bed Debts.

3
Current liabilities
Current liabilities mean the liabilities which have to pay in current year. It
includes sundry creditor’s means supplier whose payment is due but not paid yet,
thus creditors called as current liabilities. Current liabilities also include short
term loan and provision as tax provision. Current liabilities also includes bank
overdraft. For some current assets like bank overdrafts and short term loan,
company has to pay interest thus the management of current liabilities has
importance.
Current Liabilities Size
(Amnt In Rs.)
Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Current Liabilities 53,374,115 139,779,195 92,499,837 71,621,898 100,822,850
Provision 1,686,940 15,667,246 15,382,278 10,003,311 11,419,468
Total of B 55,061,055 155,446,441 107,882,115 81,625,209 112,242,318
Indices 100 282.32 195.93 148.24 203.85

Current Liabilities Indices

Observation
Current Liabilities graph not shown continuous growth. In the year 2008-09
current liabilities in increase compare to 2006-07 and 2007-08 years. It means
company creates the credit in the market by good transaction. To get maximum
credit from supplier which is profitable to the company it reduces the need of
working capital of firm.

3
CHANGES IN WORKING CAPITAL
There may be long run trend of change e.g. The price of row material say oil may
constantly raise necessity the holding of large inventory. Cyclical changes in
economy dealing to ups and downs in business activity will influence the level of
working capital both permanent and temporary. Changes in seasonality in sales
activities.

The second major case of changes in the level of working capital is because of
policy changes initiated by management. The term current assets policy may be
defined as the relationship between current assets and sales volume. The third
major point if changes in working capital are changes in technology because
change sin technology to install that technology in our business more working
capital is required. A change in operating expanses rise or full will have similar
effects on the levels of working following working capital statement is prepared
on the base of balance sheet of last two year.

Statement of changes in Working Capital

(Amnt In Rs.)
Particulars 2007-08 2008-09 Changes in W.C.
Increase Decrease
A. Current Assets
Inventories 193,604,272 176,759,304 16,844,968
Sundry Debtors 39,619,066 35,213,006 4,406,060
Cash & Bank 3,752,117 18,628,235 14,876,118
Loans & Advances 76,001,619 77,265,386 1,263,767
Other Assets
Total of A 312,977,074 307,865,931 5,111,143
B. Current Liabilities
Current Liabilities 71,621,898 100,822,850 29,200,952
Provision 10,003,311 11,419,468 1,416,157
Total of B 81,625,209 112,242,318 30,617,109
Net W.C. (A-B) 231,351,865 195,623,613
Net Decrease in W.C. 35,728,252 35,728,252
Total 51,868,137 51,868,137

Observation
As per the table data current assets decreased and current liabilities increased so
the working capital decreased as compare to the previous year. Inventory
decreased by 9% and current liabilities increased by 41% as compare to previous
year.

3
WORKING CAPITAL LEVERAGE

One of the important objectives of working capital management is by

maintaining the optimum level of investment in current assets and by reducing
the level of investment in current assets and by reducing the level of current
liabilities the company can minimize the investment in the working capital
thereby improvement in return on capital employed is achieved. The term
working capital leverage refers to the impact of level of working capital on
company’s profitability. The working capital management should improve the
productivity of investment in current assets and ultimately it will increase the
return on capital employed. Higher level of investment in current assets than is
actually required means increase in the cost of Interest charges on short term
loans and working capital finance raised from banks etc. and will result in lower
return on capital employed and vice versa. Working capital leverage measures the
responsiveness of ROCE (Return on Capital Employed) for changes in current
assets. It is measures by applying the following formula,

% Changes in ROCE
Working capital Leverage =
% changes in Current Assets

EBIT
Return on Capital Employed =
Total Assets

The working capital leverage reflects the sensitivity of return on capital

employed to changes in level of current assets. Working capital leverage would
be less in the case of capital intensive capital employed is same working capital
leverage expresses the relation of efficiency of working capital management with
the profitability of the company.

3
 Calculation of working capital leverages

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

ROCE % 11.38 11.15 7.03 2.60 0.76
% Change in ROCE 0.611 -2.021 -36.950 -63.016 -70.769
% Change in C.A. 19.913 46.914 19.023 -11.755 -1.633
W. C. Leverages 0.031 -0.043 -1.942 5.361 43.337

Working Capital Leverage

3
 Working Capital Leverage Components

Observation

Working capital leverage increase in 2008-09 as compare to 2004-05 its shows

the efficient use of current assets and current liabilities. In year 2006-07 lowest
working capital leverages. Company reduces its current assets and tries to
increasing in profitability.

3
 Chap. 4

Findings,
conclusion and
Recommendation

3
Findings, Conclusion and Suggestion

Working capital management is important aspects of financial management. The

study of working capital of DLW. Has reviled that the efficiency and liquidity
ratios were as per the standard industrial practices but liquidity position of the
company showed an increasing trend. The study has been conducted on working
capital ratios analysis, working capital leverage, working capital size a level
analysis and comparison with profitability ratio (Return on Investment) which
helped the company to manage its working capital efficiency and affectively.

 Return on investment of the company reduced year by year. So the

profitability of the firm automatically down. Compare to year 2004-05
with 2008-09 return on investment down by 92%.

 Working capital size of DLW. not indicate any specific trend and fluctuate
every year. Company decrease the working capital size in year 2008-09 as
compare to previous year. Here lack of combination between current assets
and current liabilities so the profitability was reduced.

 Current assets are more than current liabilities indicates that company use
long term funds for short term requirements, where long term funds are
most costly than short term funds.

 Company has a more inventories in total current assets. It is very good

because inventory is essential for the smooth business operation. Company
increases the current liabilities size and tries to maintain liquidity ratios as
per standard industrial practices.

 DLW. Increase the working capital leverage but it’s failed to increased
profitability.

3
 Working capital turnover ratio leads towards profitability. Working capital
turnover ratio and ROI have a positive correlation (0.66). It means that
changes in working capital turnover directly effect on profitability of the
business. Thus, working capital turnover is very important for the business.

 Correlation between inventory turnover ratio and return on investment near

to perfect. If there is a positive change in inventory turnover ratio it gives
positive sign in profitability of the company and vice versa. So company
should keep the inventory as per the sales. Raw material is major part of
the inventory. Company required reducing the raw material size and
holding period so, company need less funds for working capital and
increase the profitability.

 There is a negative correlation between receivable turnover ratio and return

on investment. It is due to the strict credit policy of the DLW. It has given
negative impact on the sales of the company. Company should develop
liberal credit policy so, it will help in increasing sales and also the
profitability of the firm.

 Positive correlation of current assets turnover ratio and return on

investment. It means that current assets plays vital role in profitability.
Company’s current assets were always more than requirement it affect on
profitability of the company. The higher current assets turnover ratio
implies more efficient use of the funds.

 Current ratio of the company in last years above the ideal current ratio. It
indicates company’s good liquidity position and also indicates unnecessary
investment in current assets. Correlation with return on investment is –
0.19 and it is negative. It means that our funds have blocked in
unnecessary current assets.

 Quick ratio of DLW. also above the ideal ratio. We found moderate
correlation between quick ratio and return on investment. Here company
require to reduce some investment in current assets so the cost of fund
reduce and profitability increase.

3
  Correlation between absolute liquid ratio and return on investment is weak.
This ratio did not match with ideal ratio and it was below as compare to
ideal ratio. Its not big impact on profitability of the DLW. as per our view
it is good because cash is less performing assets in working capital.

DLW. working capital shows the good liquidity position. Positive working capital
indicates that company has the ability of the payments of short terms liabilities.
Working capital of DLW. not indicates any trend for particular period of time. All
over working capital management of the company is average and its impact on
profitability is average.

3
BIBLIOGRAPHY

Books Referred

1. I.M. Pandey - Financial Management - Vikas Publishing House Pvt. Ltd.

- Ninth Edition 2006
2. Ravi M. Kishore – Financial Management - Taxman Allied Services
Pvt. Ltd., New Delhi. 7th Edition 2008
3. G. Sudarsana Reddy – Financial Management - Himalaya Publication
House Pvt. Lt. Mumbai 1st Edition 2008.
4. Dr. R.S. Khandelwal – Quantitative Analysis For Management-Ajmera
Book Company-2nd Edition 2008

Websites References

1. www.atulauto.co.in

2. www.google.co.in

Annual Reports

1. Annual report of DLW. 2004-05

2. Annual report of DLW. 2005-06
3. Annual report of DLW. 2006-07
4. Annual report of DLW. 2007-08
5. Annual report of DLW. 2008-09