EXECUTIVE SUMMARY

Supertech Group “Pioneer in Real Estate Development over 20 years”, Supertech Group is a

prominent name for development of high quality residential, commercial and shopping centres,

Malls, Multiplexes and Hotels in NCR and other prominent places UP and Uttrakhand.

Supertech was promoted by Mr. R.K. Arora aged 48 years who is Civil engineer by profession,

having more that 25 years experience in construction and allied activities. Supertech Group started

long back in 1995 with their flagship company “Supertech Construction Private Limited” (Name

of the same company was changed to Supertech Limited subsequently). Supertech Limited is a

company incorporated under the Indian Companies Act 1956. The group grew from small

company to a large corporate house of well known brand “Supertech”.

Supertech limited has developed and constructed several prestigious group housing, Malls, Hotels,

Multiplexes and Commercial complexes in and around Delhi. The group is known for its high

quality construction, innovative designs and well planned amenities at prime location. The brand

“Supertech” is well known in real estate industry and the group has successfully completed a

number of residential and commercial complexes in Delhi NCR and Western U.P.

My Project is Study of Working Capital Management At Supertech Limited.

The study was conducted at the corporate office of Supertech Limited in Noida (U.P.).

The project was of 2 months duration. During the project I interviewed the executives & staff to

collect the data, & also made use of company records & annual reports. The data collected were

then compiled, tabulated and analyzed.

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Working Capital Management is a very important facet of financial management due to:

 Investments in current assets represent a substantial portion of total investment.

 Investment in current assets & the level of current liabilities have to be geared quickly to

change sales.

Some the points to be studied under this topic are:

 How much cash should a firm hold?

 What should be the firm’s credit policy?
 How to & when to pay the creditors of the firm?
 How much to invest in inventories?

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 OBJECTIVE OF THE STUDY

 Evaluating company s performance relating to financial statement analysis.

 To know the liquidity position of the company to pay their debt.
 To understand the annual requirement of working capital in the company.
 To understand the credit policy providing to the customers.
 To know about the sales turnover & its impact on the receivable management.

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 COMPANY PROFILE

Supertech Group, founded in 1988 , has set new trends and benchmarks of architectural

excellence in the contemporary global scenario. An ISO 9001:2000 certified company;

Supertech has successfully completed 20 years in real estate business and today it has

revolutionized the real estate arena. Under the dynamic and pragmatic leadership of Mr.

R.K.Arora, Chairman & CMD and experienced Board Members, Supertech Group is

scaling new heights and touched the horizon of excellence. Their vision and entrepreneurial

acumen and have taken the group to the greater heights.

All this dedication and commitment has enabled us to receive the coveted “Udyog Ratan

Award”, 2001 for unparalleled contribution to this area. The greatest contributory factor to

this landmark achievement is the vision of Mr. R.K. Arora whose entrepreneurial skills and

business acumen have steered the group diligently on a growth path. Mr. Arora has also

been bestowed with “Excellence Award” for the year 2001 for his outstanding contributions

to real estate industry.

Supertech Group has already converted more than 33 million sq. ft. area of residential and

commercial entity into architectural landmarks and more than 36 projects that

accommodates nearly 30000 families. Its various projects viz. Residential & Commercial

Townships, Shopping Malls, Hotels and IT Parks have either completed or about to

complete. We are inspired by our clients to endeavour the dreams turning into reality. Our

commitment to deliver quality with aesthetic design surges ahead with the enterprising

vision of creating value through excellence. World class architecture shows true modern

lifestyle.

~4~
In a span of 20 years, Supertech Limited has achieved an impressive growth. The annual

turnover for the year ending 31st March 2012 stands at Rs. 1410 crores and profit after tax

(PAT) at Rs. 110 crores. The tangible net worth of Supertech Limited is more than Rs. 430

crores as on 31st March 2012. ‘Supertech’ as a brand name is registered with the registrar

of Trade Marks . The group has completed three shopping malls called “Shopprix” at

sector-61, Noida, sector-5 Vaishali and Kaushambhi, Ghaziabad respectively. The Group has

completed group housing projects like “Supertech Residency”, “Supertech Estate” at

Vaishali, Housing project “Rameshwar Orchid” at Kaushambhi and Housing Project “Icon”

at Indrapuram, Ghaziabad, Emerald Court, at Expressway Noida. The presently ongoing

projects of the group include Residential Townships, Large Group Housing Complexes,

Commercial Complexes, Multi Cineplex’s & 5 Star Hotel Projects etc.

~5~
COMPANY’S CHAIRMAN PROFILE:

R K Arora (Chairman & Managing Director)

Mr. R K Arora is a Chairman & Managing Director of the Supertech Ltd. He has reappointed on

April 2012 by the board of directors in 16 th Annual General Meeting. He has good entrepreneur

skills which lead to the organization to maintain a sustainable growth. He is B.E. in civil

engineering & has more than 28 years experience of this sector. He has also get Excellence Award

for the year 2001 for his outstanding contribution to real estate industry.

In Board of Directors company also have 5 other directors who have a great entrepreneur &

business skills whish leads organization to achieve a sustainable growth. They all have a more

than 18 year of experience of different market sectors or corporate world.

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Board of Directors:

Mrs. Sangita Arora (JMD)

Mr. Mohit Arora Mr. Anil Sharma

(Director) (Director)

Mr. G.L.Khera Mr. Vikas Kansal

(Director) (Director)

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Corporate Social Responsibility (CSR):

Realty major Supertech Ltd., a socially aware company, is significantly contributing towards

growth of the society. The company is aware about its social responsibility to give back a certain

share to the socio-economic growth. As part of the CSR the various initiatives of the company

include:

Supertech provides public amenities like running of community centres, adoption and

maintenance of parks and walkways where families spend time together further enriching their

lives. The need of the project area and CSR programmes are developed keeping in mind the

identified need. Also, provision of ample greenery and open space at our residential projects.

The company believes in Social responsibility is about giving something back, and we do this with

every project we take on. It believes in giving their clients a place to live, work and flourish. It

builds developments that enhance their surroundings that enrich people's lives.

The company has just started 'Kaksha' a CSR activity at its ongoing projects to educate the poor

children in the area and the labourers working at construction project. The programme is an

initiative of "Supertech Foundation" a Trust established by Mr. R. K. Arora and his family

members.

~8~
Quality Policy:

Supertech Group has been awarded an internationally recognized ISO 9001:2001 certification and

“Udyog Ratan” Award for its quality standard. Supertech Group is constantly working towards

creating new benchmarks of architectural excellence in the contemporary global environment. In

this new environment, the demand for multi-faceted real estate development has become crucial

for keeping pace with the progress. Capitalizing on these demand dynamics, we at Supertech

Group have always taken new initiatives and emerged as one of the prominent entities.

Supertech introducing quality into every aspect of the Company ranging from Process, Human

Resource, Technology and Services to create an all-encompassing quality culture. Developing

collective willingness towards the discipline of doing things right by using perfect planning &

state of the art technology and delivering highest quality Standard to the clients. Our strong

Quality Consciousness and quest for continuous up gradation for ultra modern life-style and

luxurious living standard. Our clients’ interests are paramount priority for us. We want all our

clients' investment to be safe & profitable.

We always try to research, innovate and improve on service quality. We also provide the most

accurate information and added value in order to fulfil our clients’ demands.

~9~
 Organization Chart:

Board of Directors

R.K. Arora Sunita Arora

(Chairman & Managing Director) (Joint Managing Director)

Director-IT Director-Projects Company Secretary CFO Director

(Mktg & Sales)

Vice president (HR) VP/AVP VP/AVP

GM (Finance)
SGM/GM GM-HR Project Head GM (Mktg)
GM (Accounts)
Mgr. Mgr.

Mgr.
AM-IT AM-HR Engineers AM-Fin. AM/TL-Sales

AM-Acct.

EXEC.-IT SUPERVISOR SUPERVISOR EXEC.-FIN. EXEC.-FIN

EXEC.-IT

EXEC.-HR EXEC.-HR
EXEC.-ACC. EXEC.-ACC EXEC

~ 10 ~
Financial Results of the Company:

The Company’s performance during the financial years is summarized below:

(Rs. in crores)

Particulars 2009-10 2010-11 2011-12

(Audited) (Audited) (Provisional)

Total Income 337.66 1333.67 1883.47
Less: Operative Expenses 283.41 1,189.01 1674.06
Profit before Interest, Depreciation and Taxation 54.25 144.65 209.41
Less: Depreciation 0.68 2.33 6.71
Less: Interest 5.53 5.05 63.59
Less: Prior Period Item - 10.53 -
Profit Before Taxation 48.04 126.74 139.34
Less: Provision For Taxation
-Current 10.41 27.36 29.30
-Deferred 0.03 0.16 0.25
Profit After Tax 37.59 99.22 111.56
Add: Profit Brought Forward 176.44 213.58 311.9
Balance Available For Appropriation 214.03 312.80 423.46
Appropriation
Proposed Dividend on Equity Shares 0.39 0.78 -
Tax on Proposed Dividend 0.06 0.13 -
Balance Carried to Balance Sheet 213.58 311.89 423.46

EXEC.

~ 11 ~
~ 12 ~
Company has excellent track record in paying interest and repayment of loan. Company has not

defaulted even for a single day in interest & loan repayment. No account so far has been

restructured with any bank. They have term loan facilities from following bankers:

1. Corporation Bank
2. Punjab National Bank
3. Indian Overseas Bank
4. Bank Of India
5. Indian Bank
6. ICICI Bank Ltd.
7. Oriental Bank Of Commerce(OBC)
8. UCO Bank
9. Kotak Mahindra Bank
10. HUDCO

COMPANY’S NEW PROJECT:

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 SUPERNOVA

SUPERNOVA:

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It is the most awaited project of Supertech Limited. Supertech Group, after the successful launch

of North Eye-North, India’s tallest residential development, has launched Supertech Supernova,

situated in NOIDA. This splendid project, which is the biggest project in North India, has mixed-

use development spread over the area of 5 million sq. ft. The new township is set on beautiful lush

green area to offer its residents luxurious lifestyle. Each plot has 70% open area. The project

involves a 300 meter tall building that is going to be the tallest in North India.

Supertech Supernova is build by keeping in mind the necessities of prominent clients who desire

to have luxurious lifestyle, and it is comprised with all modern facilities like well appointed

apartments with modern conveniences such as a clubhouse, jogging track, swimming pool and

more. Supernova is having five towers. “Spira” – is the iconic tower, which is India’s tallest mixed

use development having 80 floors which stands at 300 meters. Supertech Supernova is offering

mixed use development and offering Residential, Serviced Apartment, Hotels, Shopping Malls,

Office Spaces and Recreational centres. Mixed use development and its benefits redefine this

project as an Epicentre. This project reveals luxurious amenities, world class modern

conveniences all around inside this complex.

This project is very well scheduled and designed with prominent architects and consultants, who

are working to offer high class facilities with long-lasting designs. Supertech Supernova as a

residential community is contained with two luxurious hotels, premium and luxurious retail brands

offices, deluxe residences, fully furnished serviced apartments, free entry and exits for all verticals

etc.

~ 15 ~
Revenue Model of this project is as under:

Particulars Of Project Revenue Model

Hotel-1(Super Luxury) Revenue from operations of Hotel

Hotel-2(Five Star) Revenue from operations of Hotel

Retail Lease Model

Office Area 50% sale 50% Lease

Service Apartments Revenue From Operations

High end residential Apartments/ Sale Model

Branded Residential Apartment

Cost of Project & Means of Finance –

(Rs. in Crores)

~ 16 ~
Detail of Towers

Name Of Spira Hotel & Nova East Nova West Astralis

Tower Serviced
Apartment

No. Of 79 45 39 38 28
Floors

The Table Containing Combination of various segments in Different towers is as follows:

~ 17 ~
 INTRODUCTION TO THE TOPIC

WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash,

marketable securities. Net current assets or net working capital refers to the current assets less

current liabilities.

Symbolically, it means,

Net Current Assets = Current Assets- Current Liabilities

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital:

1) “Working capital is the difference between the inflow and outflow of funds. In other

words it is the net cash inflow “.

2) “Working capital represents the total of all current assets. In other words it is the Gross

working capital, it is also known as Circulating capital or Current capital for current assets

are rotating in their nature”.

3) “Working capital is defined as the excess of current assets over current liabilities and

provisions. In other words it is the Net Current Assets or Net Working Capital”.

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IMPORTANCE OF WORKING CAPITAL

 Working capital may be regarded as the lifeblood of the business. Without insufficient

working capital, any business organization cannot run smoothly or successfully.

 In the business the Working capital is comparable to the blood of the human body.

Therefore the study of working capital is of major importance to the internal and external

analysis because of its close relationship with the current day to day operations of a

business. The inadequacy or mismanagement of working capital is the leading cause of

business failures.

 To meet the current requirements of a business enterprise such as the purchases of services,

raw materials etc. working capital is essential. It is also pointed out that working capital is

nothing but one segment of the capital structure of a business.

 In short, the cash and credit in the business, is comparable to the blood in the human body

like finance s life and strength i.e. profit of solvency to the business enterprise. Financial

management is called upon to maintain always the right cash balance so that flow of fund

is maintained at a desirable speed not allowing slow down. Thus enterprise can have a

balance between liquidity and profitability. Therefore the management of working capital

is essential in each and every activity.

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WORKING CAPITAL MANAGEMENT

Working Capital is the key difference between the long term financial management and short term

financial management in terms of the timing of cash.

Long term finance involves the cash flow over the extended period of time i.e. 5 to 15 years, while

short term financial decisions involve cash flow within a year or within operating cycle.

Working capital management is concerned with the problems that arise in attempting to manage

the current assets, the current liabilities & the inter relationship that exists between them. The

current assets refer to those assets which can be easily converted into cash in ordinary course of

business, without disrupting the operations of the firm.

There are basically four components have to be managed in the working capital management

because whole working capital management based on its components management.

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Composition of working capital:

 Major Current Assets

1) Cash

2) Accounts Receivables

3) Inventory

4) Marketable Securities

 Major Current Liabilities

1) Bank Overdraft

2) Outstanding Expenses

3) Accounts Payable

4) Bills Payable

The Goal of Capital Management is to manage the firm s current assets &liabilities, so that the

satisfactory level of working capital is maintained. If the firm cannot maintain the satisfactory

level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To

maintain the margin of safety current asset should be large enough to cover its current assets.

Main theme of the theory of working capital management is interaction between the current assets

& current liabilities.

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CONCEPT OF WORKING CAPITAL:

There are 2 concepts:

 Balance Sheet Concept

 Operating Cycle Concept

Balance Sheet Concept:

There are two interpretation of working capital under Balance Sheet Concept.

Gross working capital: - It is referred as total current assets. Focuses on,

 Optimum investment in current assets:

Excessive investments impair firm’s profitability, as idle investment earns nothing. Inadequate

working capital can threaten solvency of the firm because of its inability to meet its current

obligations. Therefore there should be adequate investment in current assets.

 Financing of current assets:

Whenever the need for working capital funds arises, agreement should be made quickly. If

surplus funds are available they should be invested in short term securities.

Net working capital (NWC) - define in 2 ways;

 Difference between current assets and current liabilities.

 Net working capital is that portion of current assets which is financed with long term

funds.

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

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If the working capital is efficiently managed then liquidity and profitability both will improve.

They are not components of working capital but outcome of working capital. Working capital is

basically related with the question of profitability versus liquidity & related aspects of risk.

Implications of Net Working Capital:

Net working capital is necessary because the cash outflows and inflows do not coincide. In general

the cash outflows resulting from payments of current liability are relatively predictable. The cash

inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will

be required. But where the cash inflows are uncertain, it will be necessary to maintain current

assets at level adequate to cover current liabilities that are there must be NWC.

For evaluating NWC position, an important consideration is trade off between probability and risk.

The term profitability is measured by profits after expenses. The term risk is defined as the

profitability that a firm will become technically insolvent so that it will not be able to meet its

obligations when they become due for payment. The risk of becoming technically insolvent is

measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If

firm wants to reduce the risk, the profitability will decrease.

Operating Cycle Concept

A company’s operating cycle typically consist of three primary activities. Purchasing resources,

Producing the product and Distributing (Selling) the product. If the firm is to maintain liquidity

and function properly, it has to invest funds in various short term assets (Working Capital) during

~ 23 ~
this cycle. It has to maintain a cash balance to pay the bills as they come due. In addition the

company must invest in account receivables to extend credit to its customers.

We can show the operating cycle of a company in this way-

Purchase Pay for resources Sell Product Receive

Resources Purchases on Credit Cash

Inventory Receivables

Conversion Period Conversion Period

Payables Cash

Deferred Period Conversion Cycle

Operating

Cycle

Operating cycle= Inventory conversion period + Receivable conversion period

Operating Cycle In Supertech Ltd

In the above said statement it concludes that, there is a different procedure of operating cycle in

this company, compare to others core manufacturing sector because it’s a real estate company

which is not a core manufacturing sector. So it is difficult to ascertain operating cycle for a

particular period. Basically company follow the operating cycle in this way e.g. company purchase

raw material, Construction and selling it to the customers and after a certain period company

~ 24 ~
generate cash from it. Here it is quite difficult to make relationship between the construction and

cash generated from the sale.

NOTE- Therefore we can say it is quite difficult to calculate the exact operating cycle period

because it is difficult to ascertain in how much period product would be sold which can not

identified here.

PLANNING OF WORKING CAPITAL

Working capital is required to run day to day business operations. Firms differ in their requirement

of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn

sufficient return from its operations.

WCM is a significant facet of financial management. Its importance stems from two reasons:

 Investment in current asset represents a substantial portion of total investment.

 Investment in current assets and level of current liability has to be geared quickly to

change in sales.

Business undertaking required funds for two purposes:

 To create productive capacity through purchase of fixed assets.

 To finance current assets required for running of the business.

The importance of WCM is reflected in the fact that financial managers spend a great deal of time

in managing current assets and current liabilities.

The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are

necessary for earning profits. However, sales do not convert into cash instantly; there is invariably

a time lag between sale of goods and the receipt of cash. WC management affect the profitability

~ 25 ~
and liquidity of the firm which are inversely proportional to each other, hence proper balance

should be maintained between two.

To convert the sale of goods into cash, there is need for WC in the form of current asset to deal

with the problem arising out of immediate realization of cash against good sold. Sufficient WC is

necessary to sustain sales activity. This is referred to as the operating or cash cycle.

WORKING CAPITAL CYCLE

A firm requires many years to recover initial investment in fixed assets. On contrary the

investment in current asset is turned over many times a year. Investment in such current assets is

realized during the operating cycle of the firm.

Each component of working capital (namely inventory, receivables and payables) has two

dimensions ... TIME ......... and MONEY. When it comes to managing working capital - TIME IS

MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors

more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to

sales), the business will generate more cash or it will need to borrow less money to fund working

capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free

money available to support additional sales growth or investment. Similarly, if you can negotiate

improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively

create free finance to help fund future sales.

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If

you do pay cash, remember that this is now longer available for working capital. Therefore, if cash

is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly,

if you pay dividends or increase drawings, these are cash outflows and, like water

~ 26 ~
Flowing down a plughole, they remove liquidity from the business

AR Converted
Into Cash

Cash Converted to
Prepaid expenses and
Inventory

Goods/Services
Converted into AR

WORKING CAPITAL CYCLE

~ 27 ~
CASH MANAGEMENT

Cash management is one of the key areas of WCM. Apart from the fact that it is the most liquid

asset, cash is the common denominator to which all current assets, that is, receivables & inventory

get eventually converted into cash. Cash is oil of lubricate the ever-turning wheels of business:

without it the process grinds to a shop.

Motives for holding cash:

Cash with reference to cash management is used in two senses:

It is used broadly to cover currency and generally accepted equivalents of cash, such as cheques,

drafts and demand deposits in banks. It includes near-cash assets, such as marketable securities &

time deposits in banks.

The main characteristic of these is that they can be readily sold & converted into cash. They serve

as a reserve pool of liquidity that provides cash quickly when needed. They provide short term

investment outlet to excess cash and are also useful for meeting planned outflow of funds.

CASH IS MAINTAINED FOR FOUR MOTIVES:

A. Transaction motive:

Transaction motive refer to the holding of cash to meet routine cash requirements to finance the

transactions which a firm carries on in a variety of transactions to accomplish its objectives which

have to be paid for in the form of cash. E.g. payment for purchases, wages, operating expenses,

~ 28 ~
Financial charges like interest, taxes, dividends etc. Thus requirement of cash balances to meet

routine need is known as the transaction motive and such motive refers to the holding of cash to

meet anticipated obligations whose timing is not perfectly synchronized with cash receipts.

B. Precautionary motive:

A firm has to pay cash for the purposes which cannot be predicted or anticipated. The unexpected

cash needs at the short notice may be due to:

 Floods, strikes & failure of customer

 Slowdown in collection of current receivables

 Increase in cost of raw material

 Collection of some order of goods as customer is not satisfied

The cash balance held in reserves for such random and unforeseen fluctuations in cash flows are

called as precautionary balance. Thus precautionary cash provides a cushion to meet unexpected

contingencies. The more unpredictable are the cash flows, the larger is the need for such balance.

~ 29 ~
C. Speculative motive:

It refers to the desire of the firm to take advantage of opportunities which present themselves at

unexpected moment & which are typically outside the normal course of business. If the

precautionary motive is defensive in nature, in that firms must make provisions to tide over

unexpected contingencies, the speculative motive represents a positive and aggressive

Approach. The speculative motive helps to take advantages of:

 An opportunity to purchase raw material at reduced price on payment

Of immediate cash.

 A chance to speculate on interest rate movements by buying securities

 When interest rates are expected to decline.

 Make purchases at favourable price.

 Delay purchase of raw material on the anticipation of decline in prices.

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OBJECTIVES OF CASH MANAGEMENT

 In the normal course of business firms have to make payment of cash on a continuous and

regular basis to the supplier of goods, employees and so son. Also the collection is done

from the debtors. Basic objective is to meet payment schedule that is to have sufficient

cash to meet the cash disbursement needs of the firm.

 To minimize the funds committed to cash balances First of all if we keep high cash

balance, it will ensure prompt payment together with all the advantages. But it also implied

that the large funds will remain idle, as cash is the non-earning asset and firm will have to

forego profits. On the other hand, low cash balance mean failure to meet payment

schedule. Therefore we should have optimum level of cash balance.

FACTORS DETERMININING CASH NEEDS

 Synchronization of cash - need for the cash balances arise from the non-synchronization

of the inflows & outflows of cash. First need in determining cash needs is the extent of

non-synchronization of cash receipts & disbursements. For this purpose cash budget is to

be prepared. Cash budget point out when the firm will have excess or shortage of cash.

 Short cash- Cash period reveals the period of cash shortages. Every shortage of cash

whether expected or unexpected involves a cost depending upon the security, duration &

frequency of shortfall & how the shortage is covered. Expenses incurred as a shortfall are

called short costs.

There are following costs included in the short cash:

~ 31 ~
  Transaction cost: this is usually the brokerage incurred in relation to the some short-term

near-cash assets like marketable securities.

 Borrowing costs: these include interest on loan, commitment charges & other expenses

relating to loan.

 Loss of cash discount: that s a loss because of temporary shortage of cash.

 Cost associated with deterioration of credit rating.

 Penalty rates: By a bank to meet a shortfall in compensating balances.

 Excess cash balance - cost associated with excessively large cash balances is known as

excess cash balance cost. If large funds are idle the implication is that the firm has missed

the opportunity to invest those funds and has thereby lost interest. This loss of interest
is primarily the excess cost.

 Procurement & Management cost: cost associated with establishing and operating cash

management staff and activities. They are generally fixed and accounted for by salary,

handling of securities etc.

 Uncertainty: the first requirement in cash management is Precautionary cushion to cope

with irregularities in cash flows, unexpected delays in collection &disbursements, defaults

and unexpected cash needs.

DETERMINING THE CASH NEEDS IN A COMPANY

~ 32 ~
There are two ways to determine the cash needs-

 Planned way
 Unplanned way

~ 33 ~
Planned way:

Cash needs can be determined through preparing cash budget, for the year, month, week etc.

Cash reports, providing a comparison of actual development with forecast figures, are helpful in

controlling and revising cash forecasts on a continual basis. The important cash reports are-

 The daily cash reports

 Daily treasury reports

 The monthly cash report

By preparing of these reports cash needs can be easily identified and fulfilled accordingly.

Unplanned way:

There is no requirement to make a cash budget or any other statement relating to fulfil the cash

needs here. In this way as timely requirement has to be generated, it has to be fulfilled from cash

available. As such in this regard there in no certain plan to meet out the cash needs.

~ 34 ~
Inventory management

Inventory Management is concerned with keeping enough products on hand to avoid running out

while, at the same time maintaining a small enough inventory balance to allow for a reasonable

return on investment. Proper Inventory management is important for the financial help of the

corporation. Being out of stock forces customers to turn to competitors or results in a loss of sales.

Excessive level of inventory, however, results in large inventory carrying cost, including the cost

of the capital tied up in inventory warehouse fee, insurance etc.

A major problem with managing inventory is that a demand for a corporation’s product is to a

degree uncertain. The supply of the raw material used in its production process is also somewhat

uncertain. In addition the corporation’s own production contains some degree of uncertainty due to

possible equipment breakdowns and labour difficulties. Because of these possibilities, inventory

acts as a shock absorber between product demand and product supply. If product losing sales unit

production can be stepped up enough to select the unexpected demand. However, inventory is

difficult to manage because it crosses so many line so of responsibility

Why Inventories Exist?

Some function of the firm, such as the purchase of the raw materials, processing and having

finished goods available for sale, have a sequential, physical dependence. Maintenance of

inventories allows the firm to decuple these functions so that each can be planned, schedule and

operated independently.

~ 35 ~
Types of inventories

Raw Materials- An inventory of raw materials allows separation of production scheduling from

arrival of basic inputs to the production process. Factors affecting the amount of the raw materials

inventory include proximity to the supplier, relationship with the supplier, predictability of the

production process, lead time required to place an order, transportability of materials.

Work in Progress- An inventory of partially completed units allows the separation of different

phases of the production process. The amount of work in process inventory is in part a function of

the type of product, the measurement period and the nature of the production process.

Finished Goods- An inventory of finished goods allows separation of production from selling.

With a stock of finished merchandise on hand, a firm can fill orders as they are received rather

than depend upon the completion of production to satisfy customer demands.

Motives of holding of Inventory-

Economists have established three motives of holding inventories are as follows-

~ 36 ~
Transactions motive-

The transaction motive for holding inventory is to satisfy the expected level of activities of the

firm.

Precautionary Motive –

The precautionary motive is to provide cushion in case the actual level of activity is different than

anticipated.

Speculative Motive-

The speculative motive for holding inventory might entice a firm to purchase a larger quantity of

materials than normal in anticipation of making abnormal profits. Advance purchase of raw

materials in inflationary times is one form of speculative behaviour. A second reason for

speculative inventory purchase may involve an anticipated change in a product.

Factors to be considered when determining optimum stock levels include:

 What are the projected sales of each product?

 How widely available are raw materials, components etc.?

 How long does it take for delivery by suppliers? Can you remove slow movers from your

product range without compromising best sellers?

~ 37 ~
Receivable Management

Receivable Management refers to the decisions a business makes regarding to overall credit and

collection policies and the evaluation of individual credit applications. In formulating an optional

credit policy, marginal benefits and costs associated with changes in credit standards, credit terms ,

collection efforts etc. Receivable management proves for a firm, both, an asset and a problem: an

asset because of the promise of a future cash flow and a problem because of the need to obtain

financing while waiting for the future cash flow.

Company Credit Policy- Company is providing a credit period of 30days to its customers.

Basically it’s not a core manufacturing company. It’s a real estate company. If any Customer is not

able to pay the due amount to the company in given period that condition company provides a 15

days extension in existing period but for this there is an approval required signed by the CEO of

the company.

Cost of maintaining Receivables

Cost of financing- The credit sales delays the time of sales realization and therefore the time gap

between incurring the cost and the sales realization is extended. This result is blocking of funds for

a longer period. On the other hand company has to arrange funds to meet its obligation. These

funds are to be procured at some explicit cost or implicit cost.

Administrative Cost- a firm will also be required to incur various costs in order to maintain the

record of credit customers both before the credit sales as well as after the credit sales. Before

credit sales, costs are incurred on obtaining information regarding credit worthiness of the

customers.

~ 38 ~
Delinquency Costs- over and above the normal administrative cost of maintaing and collection of

receivables, the firm may have to incur additional costs, if there is delay in payment by a

customer.

Cost of Default by Customers- if there is a default by a customer and the receivables becomes,

partly or wholly, unrealizable then this amount, known as bad debt, also becomes a cost to the

company.

In receivable Management there are four things which is to be managed by the company as

follows-

Credit Sales- Changing credit standards can also be expected to change the volume of sales. As

standards are relaxed, sales are expected to increase with relaxation in credit standards and

decrease if credit standards become more restrictive

Credit Policy- the credit policy of a company can be regarded as a kind of trade –off between

increased credit sales regarding to increase in profit and the cost of having larger amount of cash

locked up in the form of receivables and the loss due to the incidence of bad debts.

Factoring cost – this cost have to be beard by the company if it choose an external agency or

institution for collecting the money from debtors.

Opportunity cost of investment- if the company provide a more relaxation in credit period in

that situation more funds have to be blocked, the result is company will lose opportunity to invest

somewhere else for this company have to be beard some cost.

~ 39 ~
Payable Management

Creditors are a vital part of effective cash management and should be managed carefully to

enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing

function can create liquidity problems. Consider the following:

 Who authorizes purchasing in your company - is it tightly managed or spread among a

number of (junior) people?

 Are purchase quantities geared to demand forecasts?

 Do you use order quantities, which take account of stock holding purchasing costs?

 Do you know the cost to the company of carrying stock?

 Do you have alternative sources of supply? If not, get quotes from major suppliers and

shop around for the best discounts, credit terms, and reduce dependence on a single

supplier.

 How many of your suppliers have a returns policy?

 Are you in a position to pass on cost increases quickly through price increases to your

customers?

 If a supplier of goods or services lets you down can you charge back the cost of the delay?

~ 40 ~
  Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-

time basis?

There is an old adage in business that if you can buy well then you can sell well. Management of

your creditors and suppliers is just as important as the management of your debtors. It is important

to look after your creditors -slow payment by you may create ill feeling and can signal that your

company is inefficient (or in trouble!).

Company Policy

 Company purchase cement always on cash basis from some major suppliers i.e. ACC

Cement, Ultratech Cement & J.K.Cement etc.

 Company purchase iron rods and other Materials on the basis of 30days credit basis from

the suppliers.
 Company purchase electronics items on the basis of 15 days.

~ 41 ~
 RESEARCH METHODOLOGY

Research Type:

This Is an Analytical Research which is to be based on secondary data.

Data Collection

The whole secondary data have to be collected from various sources like-

 Formal Interaction with employees.

 Annual Reports of the company.

 Policy documents of finance departments.

 Tally & SAP softwares.

After collection of these data analysis has to be done for fulfilling the research objective

~ 42 ~
 ANALYSIS & DATA INTERPRETATION

CURRENT RATIO:

Current Assets

CURRENT RATIO-

Current Liabilities

(Rs. in Crores)

Year 2009-10 2010-11 2011-12

Current Assets 811.11 2175.25 2750.79

Current Liabilities 415.07 1684.74 1862.69

Current Ratio 1.95:1 1.29:1 1.48:1

~ 43 ~
Interpretation:

In 2012 company current ratio is 1.48 which is good in comparison to last year for a company to

pay their obligations but in 2009 company have a current ratio of 1.95 which showed that

company have a more current assets in that year.

~ 44 ~
QUICK RATIO:

Liquid Assets

Quick Ratio-

Current Liabilities

( Rs. in Crores)

Year 2009-10 2010-11 2011-12

Liquid Assets 258.11 845.25 2177.09

Current Liabilities 415.07 1684.74 1862.69

Quick Ratio 0.67 0.49 1.17

~ 45 ~
Interpretation:

In 2009 company had a quick ratio i.e. 0.67 which was goes down in 2010 i.e. 0.49 but in 2012

company have a better quick ratio i.e. 1.17 in comparison to last two years which shows that

company has able to reduce the blockage in inventory this year and also able to generate the more

liquidity for the company.

~ 46 ~
Debtors Collection Period:

12 months

Debtors Collection Period-

Debtors Turnover Ratio

Particulars 2009-10 2010-11 2011-12

Period In Months 12 12 12

DT Ratio 5.2 9.11 3.2

DCP in months 2.30 1.31 3.75

~ 47 ~
Interpretation:

In 2012 company have a collection period of 3.75 months in compare to last two years in this

time period company has able to collect due amount as per the company credit policy and it is also

helpful to reduce the blockage of funds which gives a more opportunity to invest somewhere but

in 2010 company had a 1.31 moths collection which showed more blockage of funds and in 2009

company had the very good level in collection period in compare to 2009.

~ 48 ~
CREDITORS PAYMENT PERIOD:

12 Months

Creditors Payment Period-

Creditors Turnovers Ratio

Particulars 2009-10 2010-11 2011-12

Period in months 12 12 12

C.T.R. 2.02 1.94 1.95

C.P.P. 5.94 6.18 6.15

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Interpretation:

2010-11 shows the highest CPP i.e. 6.18 because in this year creditors variation in regards to

purchase are satisfactory and have also increased compare to 2009-10 or 2011-12 therefore CTR

is also higher which affect the CPP. In 2009-10 CPP is lower because in this year purchase have

more varied in compare to creditors therefore CTR more which affect the CPP. But in 2011-12

there is a minor variation in to CTR & CPP because creditors increased in to a same way in which

purchase have increased.

~ 50 ~
INTEREST COVERAGE RATIO:

EBIT

Interest Coverage Ratio-

Interest

(Rs.in Crores)

Particulars 2009-10 2010-11 2011-12

Interest 5.53 5.05 63.01

EBT 48.04 126.74 139.34

EBIT 53.57 131.79 202.35

I.C.R.(in times) 9.69 26.09 3.21

~ 51 ~
Interpretation:

In 2010 company have a good interest coverage ratio 26.90 which shows that company have very

good image in paying the interest but in 2012 company have a ratio of 3.21 times which is not for

a good because it shows that company is not able to pay its obligations and it also shows the

blockage of funds.

~ 52 ~
DEBT TO EQUITY RATIO:

Total Debts

Debt Equity Ratio-

Equity (Sh. Capital+ Reserve & Surplus)

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Equity 221.35 320.24 430.18

Total Debt 238.63 296.39 587.11

D.T.E.R. 1.07 0.90 1.36

~ 53 ~
Interpretation:

In 2011 company have 1.34 debt equity ratios which is more in compare to last two years its

shows that company are using more debt in their capital structure. The reason of increasing debt is

in this year company having taken more loans because of launching of some new projects. In 2010

company have a satisfactory situation but in 2009 it is 1.07 which is more in compare to 2010

~ 54 ~
GROSS PROFIT RATIO:

Gross Profit

Gross Profit Ratio:- ×100

Sales

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Gross Profit 48.03 137.28 139.45

Sales 330.37 1333.67 1883.81

G.P. Ratio (in %) 14.53 10.29 7.40

~ 55 ~
Interpretation:

It shows that company have a highest gross profit ratio i.e. 14.53 in 2010 but its goes down in

2011 & 2012 doe to increase of expenses i.e. finance cot & other expenses in compare to last two

year. In 2012 company have a G.P. ratio of 7.4 which is least to last two years due to high

increment in expenses.

~ 56 ~
TOTAL ASSETS TURNOVER RATIO:

Net Sales

Total Assets Turnover Ratio:-

Average Total Assets

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Total Fixed Assets(Opening + Closing) 6.03 29.17 37.95

Average Fixed Assets(Opening + Closing)/2 3.02 14.62 18.95

Total Current Assets(Opening + Closing) 811.11 2175.25 2750.79

Average Current Assets 405.55 1087.625 1375.395

(Opening + Closing)/2

Average Total Assets(AFA+ACA) 408.57 1102.245 1394.345

Net Sales 337.66 1333.66 1883.81

Total assets Turnover Ratio 0.826 1.21 1.35

~ 57 ~
Interpretation:

In 2010 company having a total assets turnover ratio of 0.826 which is increased in 2011 by 0.384

due to increase in sales i.e. 337.66 to 1333.66 but in 2012 there is a slight increment in total assets

turnover ratio is 0.14 . It has happened also because of increment in sales of 550.15 crores.

~ 58 ~
WORKING CAPITAL TURNOVER RATIO

Net Sales

WORKING CAPITAL TURNOVER RATIO:

Net Working Capital

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Net Sales 337.66 1333.66 1883.47

Net Working Capital 385.17 460.25 860.32

WCTR 0.88 2.89 2.19

~ 59 ~
Interpretation:

In 2010 company have 2.89 working capital turnover ratio which is more in compare to 2011 i.e.

0.88 it means company have more blockage of funds in 2011 but in 2012 it is 1.64 which is less

from2011it means company effectively utilized their resources.

~ 60 ~
WORKING CAPITAL AND SALES

As on 31st March

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Working Capital 385.17 460.25 860.32

Sales 337.66 1333.66 1883.17

% Of Sales 114.29 34.66 45.68

Interpretation:

In 2009-10 company is having a highest share of sales due to blockage of funds but in 2010-11 &

2011-12, company having a favourable condition.

~ 61 ~
DEBTORS AND WORKING CAPITAL

As on 31st March

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Debtors 73.68 217.41 943.35

Working Capital 385.17 460.25 860.32

% of WC 19.12 47.23 109.65

Interpretation:

Debtors ratio in regarding to working capital is increasing year by year which shows that company

is providing relaxation in credit period to enhance the sales.

~ 62 ~
CREDITORS AND WORKING CAPITAL

As on 31st March

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Creditors 415.07
1684.75 1862.58

Working Capital 385.17 460.25 860.32

As a % of WC 107.76 366.05 216.43

Interpretation:

Creditors share in working capital increasing year by year but in 2011-12 it became approximately

double to the 2010-11 year because in this time period company had purchased more materials for

their new projects.

~ 63 ~
DEBTORS AND SALES

As on 31st March

(Rs. in Crores)

Particulars 2009-10 2010-11 2011-12

Debtors 73.68 217.41 943.35

Sales 337.66 1333.66 1883.17

As a % sales 21.82 16.30 50.09

Interpretation:

Debtors have a near about 50% of the sales in 2011-12 which is the highest part of the sales in

compare to last two years it is just because of increment in sales & more relaxation in credit

period which make the debtors share approximately 4.5 times increased.

~ 64 ~
 FINDINGS

 Company revenue is increasing year by year which shows its growth.

 Increment in Gross Profit in compare to last year.
 Company have a Liquidity Ratio of 1.17 in current year which shows that company have a

sufficient liquidity to pay their obligations.

 Company have a 6.15 creditor’s payment period in compare to debtor’s collection period

i.e. 3.75 in current year. It means company have a more opportunity for investment.
 Company have a 1.64 working capital turnover ratio in current year which is less from last

year i.e. 2.89 it shows company’s operating effiency.

~ 65 ~
 LIMITATION OF STUDY
 Operating cycle cannot be clearly determined here because it is a Real Estate Company

rather than core manufacturing company.

 Company used unstructured way to meet out the daily expenses from available cash

balance.
 Optimum inventory level cannot be determined here.

~ 66 ~
 CONCLUTION

 Company is in a growth stage and its revenue increasing year by year which shows that

company’s business policy is very good it will also help to acquire the good market image

& better customer relationship with their customers.

 In 2011-12 company is having the more opportunities for investment because it’s have

sufficient funds for it.

 Company’s working capital requirement is going down in 2011-12 which shows that

company has effectively utilised their working capital.

 Company is continuously analyzing their customer’s needs and come up with the

innovation in their projects which can be easily differentiate from its competitors.

~ 67 ~
 SUGGESTIONS

 Reduce the receivable period so that blockage of funds can be reduced.

 Timely payment of interest on long term Debts.
 Long term Debts are not reliable for the company because its increase long-term liabilities

of the company.
 Increment in Volume based sales so as to stand in the competition.
 Material should be purchased on long term basis for the payments from suppliers to get the

more opportunities for the investment.

~ 68 ~
 ANNEXURE

Statement of Changes in Working Capital (2009-10)

Particulars 2009 2010 Increase Decrease

A) Current Assets
Inventory 319.17 553.03 233.86
Sundry Debtors 53.38 73.68 20.3
Cash & Bank 22.33 48.53 26.2
Loan & Advances 80.99 135.9 54.91
Total Current Assets 475.87 811.14
B) Current Liabilities
Sundry Creditors 126.31 415..07 288.76
Provision 7.28 10.87 3.59
Total Current Liabilities 133.59 425.94
Net Current Assets 342.28 385.2
Net Increase in Working Capital 42.92

~ 69 ~
Statement of Changes in Working Capital (2010-11)

Particulars 2010 2011 Increase Decrease

A) Current Assets
Inventory 553.03 1330.02 776.99
Sundry Debtors 73.68 216.41 142.73
Cash & Bank 48.53 248.11 199.58
Loan & Advances 135.9 380.71 244.81
Total Current Assets 811.14 2175.25
B) Current Liabilities
Sundry Creditors 415.07 1684.75 1269.68
Provision 10.87 28.26 17.39
Total Current Liabilities 425.94 1713.01
Net Current Assets 385.2 462.24
Net Increase in Working Capital 77.04

~ 70 ~
 Projection of Changes in Working Capital (2011-12)

Particulars 2011 2012 Increase Decrease

A) Current Assets
Inventory 1330.02 573.7 756.32
Sundry Debtors 216.41 943.35 726.94
Cash & Bank 248.11 115.55 132.56
Loan & Advances 380.71 1118.18 737.47
Total Current Assets 2175.25 2750.78
B) Current Liabilities
Sundry Creditors 1684.75 1862.58 177.83
Provision 28.26 561.27 533.01
Total Current Liabilities 1713.01 1890.46
Net Current Assets 462.24 860.32
Net Increase in Working Capital 710.84

Comparative Balance Sheet for Three Years

PARTICULERS AS AT AS AT AS AT

31.3.2010 31.3.2011 31.3.2012

SOURCES OF FUNDS

~ 71 ~
SHAREHOLDER’S

FUNDS(A)
Capital 7,77,00,000 7,77,00,000 7,77,00,000
Reserves and Surplus 2,13,58,07,783 3,11,89,60,308 4,23,12,58,710
Share Application - 56,66,700 56,66,700

Money(pending allotment)
LOAN FUNDS
Secured Loans(B) 2,33,91,46,897 2,86,85,62,309 5,77,54,65,414
Unsecured Loans(C) 4,71,94,214 9,53,34,014 9,56,80,457
TOTAL(A+B+C) 4,59,98,48,894 6,16,62,23,331 10,18,57,71,281
APPLICATION OF FUND
FIXED ASSETS(D)
Gross Block 8,74,28,613 34,22,14,848 49,69,86,596
Less: Accumulated Depreciation 2,71,41,393 5,04,67,682 6,70,21,537
NET BLOCK (1) 6,02,87,220 29,17,47,166 37,94,97,376
Investment(E) 68,41,26,430 1,25,18,17,837 1,20,76,07,837
Deferred tax Assets/Liability(2) 680,741 (963,662) (45,83,076)

CURRENT ASSET,LOANS

AND ADVANCES
Inventories(F) 5,53,00,00,985 13,30,02,08,898 5,73,70,23,205
Sundry Debtors(G) 73,68,03,369 2,16,41,14,233 9,43,35,47,853
Cash and Bank Balance(H) 48,52,60,801 2,48,10,93,076 1,15,55,50,106
Loans and Advances(I) 1,35,90,52,209 3,80,71,12,586 11,18,17,76,444
8,11,11,17,364 21,75,25,28,793 27,50,78,97,608
LESS:CURRENT

LAIBILITIES AND

PROVISION
Current Liabilities(J) 4,15,07,22,371 16,84,74,63,161 18,62,58,64,528
Provision(K) 10,86,79,342 28,26,31,918 27,87,83,936
NET CURRENT ASSETS (3) 3,85,17,15,651 4,62,24,33,714 8,60,32,49,144

{(F+G+H+I)-(J+K)}
Miscellaneous Expenditure to 30,38,852 11,88,276 18,50,576

the Extent Not Written Off Or

Adjusted (L)
TOTAL(1+E+2+3) 4,59,98,48,894 6,16,62,23,331 10,18,57,71,281

~ 72 ~
~ 73 ~
Profit & Loss Account for the years (2009-10, 2010-11, 2011-12)

(Rs. In Crores)

PARTICULARS AMOUNT AMOUNT AMOUNT

(Audited) (Audited) (Provisional)

(2009-10) (2010-11) (2011-12)

I. Revenue from Operations 330.37 1322.42 1859.62
II. Other Income 7.3 11.24 24.19
III. Total Revenue(I+II) 337.66 1333.66 1883.81
IV. Expenses
Cost of material Consumed 64.12 273.58 273.58
Changes in Inventories of FG,WIP 208.71 (780.81) 749.16

& Stock In Trade

Employee benefits Expenses 4.60 36.97 32.93
Finance Cost 5.53 37.67 63.59
Depreciation and Amortization 0.68 2.32 6.71
Other Expenses 5.99 1626.66 618.55
Total Expenses 289.62 1196.39 1744.36
V. Profit before Exceptional, 48.03 137.28 139.45

Extraordinary items & tax

VI. Exceptional Items - - -
VII. Profit Before Extraordinary items & 48.03 137.28 139.45

tax[V-VI]
VIII. Extraordinary Items - 10.53 .060
IX. Profit Before Tax 48.03 126.74 139.40
X. Tax expense:
(1) Current Tax
(2) Deferred Tax 10.41 27.36 27.87

.03 1.6 3.6

XI. Profit/loss for the period 37.59 99.21 111.15

~ 74 ~
~ 75 ~
 BIBLIOGRAPHY

The information provided in this project is collected from various sources like;

Books

Bhalla V. K., Working Capital Management (16th Ed.), Anmol Publications, 2006

Internet Sites and Intranet

www.supertechlimited.com

Annual General Reports of 3 years.

~ 76 ~