WORKING CAPITAL MANAGEMENT

The prime objective of any management is to make maximum profit. For attaining
maximum profit which enables the organization to accomplish to other objectives of the
business firms. Working capital management involves the administration of current assets
of a firm namely cash, receivables, and inventory.
Administration of fixed assets comes with in the preview of capital budgeting while
the management of working capital is a continuing function which involves controlling of
every day ebb and flow of financial resources circulating in the bunnies. There fore a
business can not survive in the absence of satisfactory ratio between current assets and
current liabilities
Before going to deal with various aspects of working capital management it is better
to under take definition and concepts of working capital.
Definitions and concepts of working capital:-
“Working capital is the excess of current assets over current liabilities”
_____ J. S. Mill
“Working capital refers to the firm’s investment in the short term assets like cash,
account receivable and inventories”
_____Western and Brigham.
Working capital management is also known as current assets management.
“Working capital management usually is considered to involve the administration of
current assets namely cash and marketable serenities, receivables and inventories and the
administration of current liabilities”
___ James C. Van Horne

Working capital concept can be categorized into two categories. Viz.

1. Net concept
According to the gross concept “working capital refers to sum total of all current
assets”
____ R. M. Srivastava

1
 Gross working capital rupees to the firm’s investments in current assets.Net working
capital rupees to the difference between current assets and current liabilities the net working
capital indicates (a) liquidity position of the firm (b) suggests the extents to which working
capital need may be financed by permanent sours of funds.

Types of working capital

Working capital is different types. The following are the important types of working
capital.
1. Permanent or regular working capital
Permanent or regular working capital is the minimum amount which should always
be there in minimum current asset like inventory or cash balance in order to carry out the
business smoothly.
2. Variable working capital
The amount of working capital over and above the permanent working capital is
known as variable working capital. The extra working capital need to support the changing
production and sales activities is called the fluctuating or variable or temporary working
capital.
It may be further divided into two types namely
(a) Seasonal working capital.
(b) Special working capital.
Seasonal working capital is a required to meet seasonal demands.
Seasonal demands
Special working capital is required for meeting the contingencies like fire accidents,
strikes and advertisement campaign.

Need for working capital

The bunnies firm has to invest maximum funds on current assets for the success of
sale activity. Current assets are need because when the sale is not converting into cash
immediately. There is always an operating cycle involving in the conversion of sales into
cash.

Operating Cycle

2
 The times require to complete the sequence of events in the case of manufacturing
firm is called operating cycle.

Debtors Sales

Cash Finessed
Product

Raw Working
materials programs

Fig: 1.1. Operating Cycle of the Manufacturing firm

The operating cycle consist of 3 phases. In the 1st phase cash gets converted into
inventory. This includes purchase of raw material, conversion of raw material in to work-
in-process and working in program to finished product.

In the 2nd phase the stock is converted into receivables it credit sales are made.
In the 3rd phase the conversion of receivable into cash after certain period. the
operating cycles of a non manufacturing firm is

Accounts
receivables

Cash

Stock
finished good

Fig: 1-2 operation cycle of non manufacturing firm

3
“The operating cycle refers to the length of time necessary to complete the following cycle
of events”.

Working Capital

Working capital is the excess of current assets over current liabilities.

Current Assets Current Liabilities

1. Cash 1. Bank over draft

2. Bank balance 2. Bills payable

3. Short term investment 3. Trade creditors
4. Bills receivable 4. Provision for taxation
5. Trade debtors 5. proposed dividends

6. Short term loans & advances 6. Unclaimed dividends

7. Inventories 7. Advance payments & unexposed
discounts.

8. Prepaid payments 8. Occurred interest on unexpired discounts.

9. Outs trading expenses

Operational Definitions of the Concepts

Working Capital Working Capital may be regarded as that proportion of a firm’s total
capital, which is employed in financing its day-to-day operations. It is the amount of funds,
which a firm holds, in the form of current assets to meet its current liabilities.
Net Working Capital (NWC) Net Working Capital is the difference between current assets
and current liabilities
Gross Working Capital (GWC) Gross working Capital refers to the firm’s total
investment in current assets.

4
Current assets Current assets are those assets which can be converted into cash within an
accounting year or within the operational cycle, without under going diminution in value of
or disrupting operational cycle. They include cash, short-term securities debtors. Bill
receivable and stock (inventory).

Current liabilities Current liabilities are those of outsides that are expected to mature for
payment with in an accounting year (or operating cycle). They include creditors. Bills
payable and out standing expenses that are the short-term sources.

Cash Cash is the money the firm can disburse immediately without any restriction. It
includes coins, currency, cheque held by the firm and balance in bank accounts. Some times
mere cash items such as marketable securities or bank time deposits are also included in
cash. The basic characteristics of near cash assets are that they readily convertible into cash.

Inventories Inventory refers to stock of goods or products of the company. It may be in the
firm of raw material, work-in-progress and finished goods.

DESIGN OF THE STUDY

5
 Working capital management is very significant aspect in the management of finance of
any organization. By checking the level of working capital one can easily identify and
profitability position of the firm and the decision regarding.

1. The level of working, which can be determined, by the level of current assets and
current liabilities.

2. The composition of current assets and current liabilities

3. Financing of current assets and current liabilities are of at most importance and
significant in the financial management of the business because it not only shows
the financial efficiency of business but also it credit worthiness which has gained
importance in these days of credit squeeze. This fact has been justified by many
industries which have failed frequently due to faulty management of working
capital, especially with regard to effect of various suggestions and regulations laid
by tendon, chore Mara the committee is very necessary.

It is this view that a case study has been made on working capital management in
GV Films.

Objectives of the study

1. To study the various changes in working capital of “GV Films”.

2. To study the working capital management with regards to cash, and

inventory of GV Films.

3. To study the liquidity position of GV Films

4. To study the creditors conversion period of GV Films.

Methodology
The data were collected from secondary sources.

6
The secondary data were obtained from the published annual reports of GV Films, from
2004-2005 to 2006-2007.
The collecting the data were analyzed by changes in working capital, cash,
inventory, liquidity ratio.
The cash analysis is done by cash to networking capital ratio.
The receivable analysis is done by debtor’s turnover ratio, average collection period
and incremental investment in receivables.
The inventory analysis is done by percentage of inventory to total current assets,
inventory turnover ratio, holding period of inventory and changes in sales and inventory.
The liquidity analysis is done by current ratio, quick ratio and absolute liquid ratio
Scope of the Study
Financial management is that the managerial activity which is concerned with the
planning and controlling of the firm’s financial resources. Though it was a branch of
economics till 1890 as a separate activity or discipline, it is of recent origin. Still it has no
unique body of knowledge of its own and heavily on economics for its theoretical concepts
even today.
The present study aims at the following
• Highlighting the necessity of current and current liabilities.
• Explain the principle s of current assets, investment and financing.
• Focus on the proper mix of short term and long term financing for current assets.
• Emphasis the need and goal of establishing a sound credit policy.
• Explain the need for holding cash.
• Highlight the need for and a nature of inventory.

Limitations

The study will be only a provisional or based on the data collected from the published
annual reports during 2004-2007.

7
Plan of analysis

Chapter –1 it gives an introduction in working capital management and also gives a

brief theoretical background on working capital management.

Chapter –2 It contains the design of the study including objectives of study,

operational definition, methodology of study, tools for collecting data and plan of
analysis

Chapter –3 it contains a brief profile of the company given.

Chapter-4 It gives an overview of the pattern of changes in working capital

management in GV Films ltd.,

Chapter –5 It discusses the manner in which cash is managed in GV Films ltd.,

Chapter –6 It analyses the inventory management.

Chapter –7 Findings and conclusion.

8
 Profile of Film industry

The film industry consists of the technological and commercial institutions of

filmmaking: i.e. film production companies, film studios, cinematography, film production,
screenwriting, pre-production, post production, film festivals, distribution; and actors, film
directors and other film personnel.

Though the expense involved in making movies almost immediately led film
production to concentrate under the auspices of standing production companies, advances in
affordable film making equipment, and expansion of opportunities to acquire investment
capital from outside the film industry itself, have allowed independent film production to
evolve.

The Birth of Film

A two second experimental film, Round hay Garden Scene, filmed by Louis Le
Prince in October 1888 in Leeds, Yorkshire, is generally recognized as the earliest
surviving motion picture.

William Kennedy Laurie Dickson, chief engineer with the Edison Laboratories, is
credited with the invention of a practicable form of celluloid strip containing a sequence of
images, the basis of a method of photographing and projecting moving images. Celluloid
blocks were thinly sliced, the slice marks were then removed with heated pressure plates.
After this, the celluloid strips were coated with a photosensitive gelatin emulsionIn 1893 at
the Chicago World Fair Thomas Edison introduced to the public two pioneering inventions
based on this innovation: the Kinetograph, the first practical moving picture camera, and the
Kinetoscope. The latter was a cabinet in which a continuous loop of Dickson's celluloid film
(powered by an electric motor) was backlit by an incandescent lamp and seen through a
magnifying lens.

The spectator neared an eye piece. Kinetoscope parlours were supplied with fifty-foot
film snippets photographed by Dickson, in Edison's "Black Maria" studio. These sequences
recorded mundane events s well as entertainment acts like acrobats, music hall performers
and boxing demonstrations.

9
Rise of the feature film and film as art

The standard length of a film remained one reel, or about ten to fifteen minutes,
through the first decade of the century, partly based on producers' assumptions about the
attention spans of their still largely working class audiences.

The Australian film The Story of the Kelly Gang (also screened as Ned Kelly and
His Gang) is widely regarded as the world's first "feature length" film. Its 80 minute
running time was unprecedented when it was released in 1906. In 1906 Dan Barry and
Charles Tait of Melbourne produced and directed 'The Story of the Kelly Gang.' It wasn’t
until 1911 that countries other than Australia began to make feature films. By this time 16
full length feature films had been made in Australia.

Soon Europe created multiple-reel period extravaganzas that were even longer. With
international successes like Queen Elizabeth (France, 1912), (Italy, 1913) and Cabiria(Italy,
1914), the feature film began to replace the short as the cinema's central form.

The Sound Era

Experimentation with sound film technology, both for recording and playback, was
virtually constant throughout the silent era, but the twin problems of accurate
synchronization and sufficient amplification had been difficult to overcome (Eyman, 1997).
In 1926, Hollywood studio Warner Bros. introduced the "Vita phone" system, producing
short films of live entertainment acts and public figures and adding recorded sound effects
and orchestral scores to some of its major features. During late 1927, Warners released The
Jazz Singer, which was mostly silent but contained the first synchronized dialogue (and
singing) in a feature film.

It was a great success, as were follow-ups like Warners' The Lights of New York
(1928), the first all-synchronized-sound feature. The early sound-on-disc processes such as
Vitaphone were soon superseded by sound-on-film methods like Fox Movietone, DeForest
Phonofilm, and RCA Photophone.The trend convinced the largely reluctant industrialists
that "talking pictures", or "talkies," were the future.

10
1970s: The 'New Hollywood' or Post-classical cinema

The New Hollywood' and 'post-classical cinema' are terms used to describe the
period following the decline of the studio system during the 1950s and 1960s and the end of
the production code. During the 1970s, filmmakers increasingly depicted explicit sexual
content and showed gunfight and battle scenes that included graphic images of bloody
deaths.

Post-classical cinema' is a term used to describe the changing methods of

storytelling of the "New Hollywood" producers. The new methods of drama and
characterization played upon audience expectations acquired during the classical/Golden
Age period: story chronology may be scrambled, storylines may feature unsettling "twist
endings", main characters may behave in a morally ambiguous fashion, and the lines
between the antagonist and protagonist may be blurred. The beginnings of post-classical
storytelling may be seen in 1940s and 1950s film noir movies, in films such as Rebel
Without a Cause (1955), and in Hitchcock's Psycho.

1980s: sequels, blockbusters and videotape

During the 1980s, audiences began increasingly watching movies on their home
VCRs. In the early part of that decade, the movie studios tried legal action to ban home
ownership of VCRs as a violation of copyright, which proved unsuccessful. Eventually, the
sale and rental of movies on home video became a significant "second venue" for exhibition
of films, and an additional source of revenue for the movie companies.

The Lucas-Spielberg combine would dominate "Hollywood" cinema for much of the
1980s, and lead to much imitation. Two follow-ups to Star Wars, three to Jaws, and three
Indiana Jones films helped to make sequels of successful films more of an expectation than
ever before. Lucas also launched THX Ltd, a division of Lucasfilm in 1982 [2], while
Spielberg enjoyed one of the decade's greatest successes in E.T. the same year. American
independent cinema struggled more during the decade, although Martin Scorsese's Raging
Bull (1980), After Hours (1985), and The King of Comedy (1983) helped to establish him as
one of the most critically acclaimed American film makers of the era. Also during 1983
Scarface was released, was very profitable and resulted in even greater fame for its leading

11
actor Al Pacino. Probably the most successful film commercially was vended during 1989:
Tim Burton's version of Bob Kane's creation, Batman, exceeded box-office records. Jack
Nicholson's portrayal of the demented Joker earned him $60,000,000 (the most money an
actor has ever made from one film) and it brought Tim Burton and Michael Keaton great
fame.

British cinema was given a boost during the early 1980s by the arrival of David
Puttnam's company Goldcrest Films. The films Chariots of Fire, Gandhi, The Killing Fields
and A Room with a View appealed to a "middlebrow" audience which was increasingly
being ignored by the major Hollywood studios. While the films of the 1970s had helped to
define modern blockbuster motion pictures, the way "Hollywood" released its films would
now change. Films, for the most part, would premiere in a wider number of theatres,
although, to this day, some movies still premiere using the route of the limited/roadshow
release system. Against some expectations, the rise of the multiplex cinema did not allow
less mainstream films to be shown, but simply allowed the major blockbusters to be given
an even greater number of screenings. However, films that had been overlooked in cinemas
were increasingly being given a second chance on home video and later DVD

2000s

The documentary film also rose as a commercial genre for perhaps the first time, with the
success of films such as March of the Penguins and Michael Moore's Bowling for
Columbine and Fahrenheit 9/11. A new genre was created with Martin Kunert and Eric
Manes' Voices of Iraq, when 150 inexpensive DV cameras were distributed across Iraq,
transforming ordinary people into collaborative filmmakers. The success of Gladiator lead
to a revival of interest in epic cinema. Home theatre systems became increasingly
sophisticated, as did some of the special edition DVDs designed to be shown on them. The
Lord of the Rings trilogy was released on DVD in both the theatrical version and in a
special extended version intended only for home cinema audiences.

Future: Problems of digital distribution to be overcome -- higher compression, cheaper

technology. Content security. Expiration of copyrights, enforcing copyright

12
 PROFILE OF GV FILMS Ltd
Introduction

GV FILMS LIMITED burst into the Indian Film Market in the year 1989. The main
object of the company was production and distribution of feature films in various
languages. This is the first company in the movie business to get listed in the Indian
bourses and having shareholders through the length and breadth of India.

The Company was promoted by Mr. Venkateswaran, who was a Chartered

Accountant by profession.

The company's contribution to the South Indian Film Industry is enormous more
particularly to the Tamil Film Industry which is the third biggest in India next to Hindi and
Telugu Film Industry.

Management team
A. Venkataramani - Director
• A commerce graduate, promoted kaashyap Radiant Systems ltd and is
Chairman& Managing Director.
• Having been part of the leading corporate in the country for over two
decades he played a major role in team building and growth of the
respective organizations.
• Marketing and people management is his forte.
• Has been in the media business having produced several teleserials and
movies.
• His expertise and acumen will help the company to growth manifold.
Raghu Raman – Director
• A graduate in commerce.
• Prior to joining he was the Director in one world Media Network Infotainment
Ltd., Chennai.

13
 • Has experience over five years in handling administration, operation, HR and
Finance.
V. Ravee alias V. Ramasubramanian - CEO
• Has more than 25 years of experience in the media business including film
making.
• Apart from being responsible for the overall operations of the company, he will be
in charge of managing the multiplexes, production, and other activities if the
company.
K. Muthuswamy – Executive Director
Theatere Division – Thanjavur
• He has more than five decades of administrative and managerial experience in
managing theaters.

Entertainment Industry in India comprises of Film Industry and Television Industry.

The Indian entertainment industry is among the fastest growing sectors
in the country. In the past two decades entertainment industry in India has witnessed
explosive growth. In television alone, from a single state owned television network,
Doordarshan in 1991, today there are over 300 national, regional and local channels being
beamed across the country. Indian film industry is the largest film industry in the world,
producing on an average, close to a thousand films a year in all languages. In terms of film
production India exceeds Hollywood's production volume by over three times. Some of the
fastest growing segments in the Indian entertainment industry include music, cable and
satellite television, animation and FM.

According to an estimate by FICCI and Ernst and Young Indian entertainment

industry would worth more than Rs. 400,000 million in 2008. Several positive
developments like the accordance of the 'industry' status to the film industry, satellite
channel penetration, the retail boom in the channels for music sales (Music World & Planet
M), the use of digital technology in all spheres of entertainment and the growth of
multiplexes have contributed to the growth of this sector.
Entertainment industry in India is presently in a consolidation phase as boundary
lines between films, music and television are fast disappearing. Skills and resources are

14
being pooled extensively. Besides adaptation to high-end digital technology, the
entertainment industry is also witnessing rapid development of state-of-the-art studios and
post production facilities. In terms of employment, an estimated 6 million people earn their
livelihood from the entertainment industry and this number is all set to grow.
Entertainment industry in India is projected to be one of the major economic driving
forces of the country. In India, television is the major segment of entertainment industry.
Presently, India has the third largest television market in the world behind only china and
the USA. Today, television reaches about hundred million Indian households. India has the
world's biggest movie industry in terms of the number of movies produced. Presently, the
technology of film-making in India is perhaps the best among all developing countries.
Indian film industry is now increasingly getting professional and a lot of production houses
such as Yash Raj Productions, Dharma Productions Mukta Arts etc. are now working on
corporate lines.
The popularity of Indian entertainment industry goes well beyond the geographical
frontiers of the country. Indian television channels and films are viewed and enjoyed across
the entire South Asia. Across the Middle East, parts of South East Asia and Africa, large
expatriate populations ensure that Indian TV channels and films are a regular part of their
entertainment bouquet. In UK and North America (USA and Canada), Indian TV channels
and films are increasingly finding a foothold beyond the expatriate pockets as the audience
there has started to enjoy and identify with the contemporary Indian culture. Quite a few of
Indian film stars are also getting good offers from Hollywood.

The future prospects of Indian entertainment industry look to be extremely

good. As India's profile rises on the global stage outside interest in India's culture and
entertainment industry is also bound to grow.

15
 ANALYSIS OF DATA

Working capital analysis

The goal of working capital management is to manage the firms current assets and
current liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain a satisfactory level forced into bankruptcy.
The current assets should be large enough to cover its current liabilities in order to ensure a
reasonable margin of safety. Each of current assets must be managed efficiently in order to
maintain the liquidity of the fir, while not keeping too high level of any of one of them. The
interaction between assets and current liabilities is. Therefore the main them of working
capital management.
Accessing working capital management
Working capital management is the life blood and controlling never center of
business. No business can successfully run with out an adequate amount of working capital.
To avoid the shortage of working capital at once, an estimate of working capital
requirements should be made in advance so that arrangement can be made to procure
adequate working capital. But estimation of working capital requirements is not an easy task
and large number factors have to be taken into consideration while an estimate of working
capital requirements
Total cost incurred on material, wage and over heads
The length of time for which raw material are to remain in store before they are
issued for production.
The length of production cycle or work –in- progress is, the time taken for
conversion of raw material in to finished goods.
The length of sale cycle during which finished goods are to be kept waiting for sale.
The average period of credit allowed to customer.
The amount of cash required to pay day-to- day expense of the business.
The average amount of each cash required making a advance payment, if any
The average credit period expected to be allowed by suppliers.
Time lag in the payment of wages and other expenses.

16
 From the total amount blocked in current assets estimated on the basis of the first
even items given above, the total of current liabilities that is the last two items is deducted
to find out the requirement of working capital. In order to provide for contingencies, some
extra amount generally calculated as fixed percentage of working capital can be aided as a
margin of study.

Working capital management in GV Film ltd

The working capital in GV Film ltd., nearly 60% of total capital employed. Hence working
capital become an importance portion in the GV Films ltd.,

Factors of influencing the working capital requirements in GV Film ltd.,

Production Program
It is production program films, TV Serials, and film distribution, customer affect the
working capital requirements of GV Film ltd., thus the size of the working capital
requirement is determined on the basis of the production program.
Finance
Availability of finance that is, the cash and bank credit affects the working capital
requirements of GV Film Ltd., to considerable extent
Period of Credit
The period of credit allowed by the suppliers and purchases and period of credit allowed to
customers on sale also have their own influence on working capital requirement of GV Film
ltd.,
Sources of finance of Working capital
The working capital requirements is estimated through the preparation of capital and
revenue budgets. The main source form the GV Film finances is working capital needs are
Realization cash
Cash credit from bank
Cash credit form financial institutions and trade credit

17
Analysis Changes in working capital in GV Films ltd.
Components of working capital in GV Films Limited.
The Working capital in GV films consists of different components like inventory
,sundry debtors, cash and bank balance , current liabilities etc.,Which are show in the
following table along with amount invested in each for the period of three years.
The structure of working capitals is presented in the table for the purpose of effective
analysis of current assets :current liabilities and net working capital have been calculated.
Each component of current assets and current liabilities and expressed as proposition to
total assets total liabilities.
Table1.1 showing the components of working capital and %for 3 years of GV Film
limited:

Particulars 2004-05 % (100) 2005-06 % (100) 2006-07 % (100)

Current Assets

Inventory 1153292421 93.47 309860757 56.93 310169940 17.41

Sundry Debtors 46478319 3.77 131677934 24.20 223544213 12.54
Cash& Bank 7089397 0.57 42121418 7.74 680169326 38.18
Loans Advance 27015551 2.19 60600377 11.13 567451340 31.87
Total Current 1233875688 544260486 4781334819
Assets
Current
Liabilities
Sundry Creditor 38395687 52.60 28826350 40.11 10030008 12.47
Other liabilities and Advance22528504 30.87 34061252 47.39 39094883 48.62
Dues to Director 12045875 16.50 4723206 6.57 3458660 4.30
Provision for 20000 0.03 4262280 5.93 23047271 28.66
Tax
FBT - - - - 603287 .75
FCCB interest - - - - 4171464 5.19
provision
Total Current 72990066 71873088 80405572
liability
Net W. Capital 1160885622 472387398 1700929247
Trend of Net 100.00% 40.69% 146.52%
working Capital

Source: published annual report of GV Films limited 2004 to 2007.

Note: The trend of net working capital are calculated by Taking the year 2004 as bases as
100%.

18
Analysis: The inventory are 93.47%of total current assets during 2004 - 2005 and 56.93%in
2005 - 2006 and 17.41% in 2006-2007.it shows the levels of inventory gradually increased
2004 –05 and decreased from 2005-2006&2006-2007.
The sundry debtors are 3.77 %, of total current assets during 2004-2005, 24.20% in
2005-2006and 12.54% 2006-2007. It shows that the Amount of sundry debtors has been
decreased during the period 2004-2005.
The cash and bank balance are 0.57% of total current assets in 2004 –2005.and 7.74%
in 2005-2006. And 38.18% in 2006-2007 it shows increased from every yearly.
Loans and advance there is 2.19% of total current assets in 2004 –2005 and 11.13% in
2005-2006 and 31.87% in 200-2007 here we can say that company was taking more loans
and advances from the year 2006-2007.
The sundry creditors are 52.69 of the total liabilities in 2004-2005 and 40.11% in
2005-2006 And 12.47% in 2006-2007. It shows a gradually decrease in creditors up to
2006-2007.
Graph showing components of Working Capital of GV Film Ltd.,

Components of Working Capital

200%
Working Capital
Percentage of

150%
100% Series1
50%
0%
2004-05 2005-06 2006-07
Years

The above graph showing changes trend percentage of working capital of GV Film Ltd.

Showing the Statement of Change in working Capital 2004-2005

19
 Working Capital 2004 2005 Increase Decrease
Current Assets
Inventories 1150448946 1153292421 2843475 -
Sundry Debtors 37375924 46478319 9102395 -
Cash &Bank 8156347 7089397 - 1066950
Loans & Advance 18993763 27015551 8021788 -
Total (A) 1214974980 1233875688
Current Liabilities
Current Liabilities 57132621 72990067 -- 15857446
Total (B) 57132621 72990067
A–B 1157842359 1160885621
Net Increase in 3043262 3043262
Working Capital
1160885321 1160885621 19967658 19967658

Source
Published annul reports of GV Films ltd., 2004-2005
Analysis

Above table shows statement of changing working capital during 2004-2005 which has net
increase working capital in Rs.3043262.

20
Showing the Statement of Change in working Capital 2005-2006

Working Capital 2005 2006 Increase Decrease

Current Assets
Inventories 1153292421 309860757 - 843431664
Sundry Debtors 46478319 131677934 85199615 -
Cash &Bank 7089397 42121418 35032021 -
Loans & Advance 27015551 60600377 33584826 -
Total (A) 1233875688 544260486
Current Liabilities
Current Liabilities 72990067 71873088 1116979 -
Total (B) 72990067 71873088
A–B 1160885621 472387398
Net Decrease in 688498223 688498223
Working Capital
1160885621 1160885621 843431664 843431664

Source
Published annul reports of GV Films ltd., 2005-2006

Analysis
Above table shows statement of changing working capital during 2005-2006 which has net
decrease working capital in Rs. 688498223.

21
Showing the Statement of Change in working Capital 2006-2007

Working Capital 2006 2007 Increase Decrease

Current Assets
Inventories 309860757 310169940 309183 -
Sundry Debtors 131677934 223444213 91866279 -
Cash &Bank 42121418 680169326 638047908 -
Loans & Advance 60600377 567451340 506850963 -
Total (A) 544260486 1781334819
Current Liabilities
Current Liabilities 71873088 80405572 8532484
Total (B) 71873088 80105572
A–B 472387398 1700929247
Net Increase in 1228541849
Working Capital
1700929247 1700929247 1237074333 1237074333

Source
Published annul reports of GV Films ltd., 2006-2007

Analysis
Above table shows statement of changing working capital during 2006-2007 which has net
increase working capital in Rs. 1228541849.

22
 CASH MANAGEMENT
Cash is an important component of current assets and is most essential for business
operations. Cash is the basic input needed to keep the business running on a continues
basis. It is also the ultimate output expected to be realized by selling the service and
product manufactured by the firm. Cash is both the beginning and the end of the working
capital cycles i.e. cash, inventories, receivables and cash
____R.K.Mishra,
Its effective management is the key determinates of sufficient working capital
management. Cash in the business enterprise may be compared to the blood of the
human body. Blood gives life the strength to the human body, and cash imports life and
strength, profit and solvency to the business organization.
____ P.V. Kulakarni,
Motives for holding cash:
There are four motives for main training cash balances.
1. Transaction motive
2. Precautionary motive
3. Speculative motive
4. Compensating motive
Objectives of cash management:
The basic objectives of cash management are as follows.
1. To meet the payments schedule.
2. Minimizing funds committed to cash balances.
Functions of cash management:
1. Cash planning
2. Managing the cash flows
3. Determining optimum cash balance
4. Investing idle cash.
Cash Management in GV Films Limited

23
CASH MANAGEMENT IN GV FILM LTD

Sources of Cash
The main sources through with GV Films gets Cash are the collection from debtors,
advances on Sales and other sources.

Payment of Cash
The companies main item of expenditure are wages , salaries, bonus , Expenditure
salaries , expenditure on development, sales tax, income tax, excise duty , payment to
creditors , interest on borrowing.
All the payment to creditors is make through cheque and cash even expenses are
paid , wages salaries exiles duties is paid monthly .

Showing cash to Networking capital of GV Films

2004-05 2005-06 2006-07

Particulars
(Amount in Rs) (Amount in Rs) (Amount in Rs)
Cash & Bank Balance 7089397 42121418 680169326
Net Working Capital 1160885621 472387398 1700929247
Cash to NWC Ratio 0.61 8.9 39.98
(Times)

Sources
Published annual reports of GV Films ltd 2004-2007.

Analysis
Table 2.1 portrays the size of cash and bank balance in GV Films from 2004-2005 to
2006-2007 as a percentage of net working capital. The cash and bank balance were
0.61(times) of net working capital during 2004-2005, 8.9 (times) during 2005-
2006,39.98 (times) during 2006-2007.

24
 Graph Showing Cash to Net Working Capital Ratio

Cash to NWC

45
40
35
Cash to NWC

30
25
Series1
20
15
10
5
0
2004-05 2005-06 2006-07
Years

Interpretations
This ratio indicates the proportion of cash and bank balance maintained by GV
Films. It is assumes per amount importance of the level of cash balance decides the
liquidity Profitability, aspects of the company. The lower the cash to networking
capital the grater may be the profitability of the concern and vice-versa. It any
company holds too low cash and bank balances in the relation to net working capital
, it implies the ability of firm to meet day to day requirement of cash in the present
study cash to current ration of GV Films ltd., reveals it was 0.61 in 2004-2005and it
was increased to 8.9% in 2005-2006 and 39.98 % in 2006-2007respectively. Practice
of holding cash balance in relation to net working capital indicates good cash
management in sales

INVENTORY MANAGEMENT

25
 Inventory management involves the control of assets being produced for the
purposes of sale in the normal courses of the company’s operation. Inventories include raw
material, work-in-process and finished good inventory. The main goal of effective
inventory
management is to minimize the total costs direct and indirect that are associated with
holding inventories. How ever the importance of inventory management to the company
depends upon the extent of investment in inventory.

Meaning
The term “inventory” refers to the stock file of the product which a firm is offering
for sale and the components that male the product.

Nature of inventories

Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exist in a
manufacturing company.
1. Raw materials
Raw materials are basic inputs that are converted in to finished product. Raw
materials inventories are those units which have been purchased and stored for future
productions.
2. Work-in-process
Work in process inventories are semi manufactured products. They represent
products that need more work before they become finished products for sale.

3. Finished goods
Finished goods inventories are those completely manufactured products which are
ready for sale.

Stocks of raw materials and work-in-process facilitate production, while stock of

finished goods is required for smooth maturing operation. Thus inventories serve as a link
between the production and consumption of goods.

26
 A firm also maintains a fourth kind of inventory or stores and spares. This category
includes those products which are accessories to the main products produced for the
purpose of sale.
Ex: bolts, nuts, clamps, screws etc.

Purpose of Inventories
The purpose of holding inventories is to allow the firm to separate the processes of
purchasing, manufacturing and marketing of its primary products. The goal is to achieve
efficiencies in are as where costs are involved and to achieve sales at competitive prices in
the market place.
The main purposes are
1. Avoiding lost sales
2. Gaining quantity discount
3. Reducing order cost
4. Achieving efficient production rum.
Avoid losses of
sales
Purchasing

Gain Quantity
discounts
Producing
Firms holding
Inventories
Reduce Order
Costs

Selling
Achieve efficient
production

Fig;-Purpose of inventory

Objectives of Inventory management

The main objectives of inventory management as follows
1. Ensure a continuous supply of raw materials to facilitate uninterrupted production.

27
 2. Maintain sufficient stocks of raw materials in periods of short supply and anticipate
price changes.
3. Maintain sufficient finished goods inventory for smooth sales operation, and
efficient customer service.
4. Minimize the carrying cost and time.
5. Control investment in inventories and keep it at an optimum level.

Inventory control
A firm needs an inventory control system to effectively mange its inventory.
Inventory control is concerned with the acquisition storage, handling and use of inventories
so as to ensure the availability of inventory when ever needed provide adequate cushion for
contingency and derive maximum economy and minimize wastage and losses
– R. K. Ghosh and G. S. Gupta,

Objectives of Inventory control

To minimize the possibility of delay in production through regular supply of raw
materials, stores and spares, tools and other equipment and when required.
1. To avoid unnecessary capital locker up in inventories.
2. To exercise economies in ordering, the obtaining and storing of materials

Ordering system of inventories

In managing inventories, the firm’s objective should be in Constance with the share
holder wealth maximization principle. To achieve this, the firm should determine the
optimum level of inventory.

To mange inventories efficiency, answers should be sought to the following two

questions like
a. How much should be ordered
b. When should it be ordered

There are three important systems of ordering materials they are

1. Economic order quantity (EOQ)
Or

28
 2. Fixed period order system or periodic re ordering system or periodic review system.
3. Single order and scheduled part-deliveries system.
Methods of valuing material issues
The stock of given material will, there fore consist of purchases made at different
times at different prices, which poses a problems as to what should be the price when the
material is issued. There are many methods of pricing material issues the important
A. cost price methods
I. First in first out
ii. Lost in first out
iii. Average cost
iv. Inflated price
v. Specific price
vi. Base stock
vii. Highest in first out
B. Market price method
I. Replacement Price
II. Realizable Value
C. Standard price methods
I. Current standard price
ii. Basic standard price
Role of inventory in working capital management
Inventories are components of current assets. Some characteristics are important in
the broad context of working capital management including.
1. A current assets
2. Level of liquidity
3. Liquidity lags
4. Circulating activity

INVENTORY TOTAL CURRENT ASSTES

Particular 2004-2005 2005-2006 2006-2007
Inventories 1153292421 309860757 310169940
Total current assets 1233875688 544260486 1781334819

29
% Of inventory to 93.46 56.93 17.41
total current assets

Sources
Published annual reports on GV Film ltd., from 2004-2007
Analysis
Inventory to total current assets as the percentage of the total current assets in the year
2004-2005 93.46, in the year 2005-2006 56.93%, in the year 2006-2007 17.41%.

Interpretation
The total inventory as a percentage of the total current assets as 93.46% in the year
2004-2005 it has gown down to 17.41%, in the year 2006-2007

This percentage of inventories to current assets indicates that the inefficiency of

inventory management in GV Films limited ., gown down from 2005-2006. Since there is
decreased in the percentage indicates the efficiency of inventory management has
decreased
Inventory Turnover Ratio
Inventory turnover Ratio indicates the efficiency of the firm in producing and selling in
products
Sales
Inventory turnover Ratio = ---------------------------------

30
 Average inventory

Showing inventory Turnover Ratio of GV Films Ltd.,

Particular 2004-2005 2005-2006 2006-2007
Sales 28850521 187986374 426563766
Average Inventory 1151870684 731576589 170438875
Inventory Turnover 2.51 0.25 2.50
Ratio

Sources
Published the annual report on GV Film ltd from 2004-2007
Analysis
The table shows calculated inventory turnover ratio , it has 2.51% in the year 2004-2005 ,
in the year 2005-2006 0 .25%, in the year 2006-2007 2.50%.

InventoryTurnoverRatio

4
Times

0
2004-05 2005-06 2006-07
Years

Interpretation
Inventory Turnover ratio measures the velocity and to ;measure the efficiency of the
company selling it s products. In the year 2004-2005 it was 2.51%, and 0.25% in the year
2005-2006 decreased .the firm has not to maintain efficient management of Inventory.

Showing Holding Period of Inventory

Years Inventory Turnover Ratio Number of Days Numberofdays

for Inventory
2004_2005 2.51 360 143 Days
2005-2006 0.25 360 120 Days

31
 2006-2007 2.50 360 144 Days

Sources
Published annual report of GV Films ltd., from 2004-2006
Analysis
In the year 2004-2005 the holding period was 143 days, 120 days in 2005 –2006, 144 days
2006-2007.

Holding Period of Inventory

400
350
300
250
Days

200
150
100
50
0
2004-05 2005-06 2006-07
Years

The above graph showing changes in the holding period of inventories GV Films ltd.,
Interpretation
Shows the inventory holding period of through out under the study in the 2005-2006
the inventory was sold with in 120 days it is less period compared to other years.
Changes in Sales and Inventory:
Particular 2004-2005 2005-2006 2006-2007
Sales 28850521 187986374 426563766
Inventory 1153292421 309860757 310169940
Changes in Sales 100% 65.81% 147.8%
Change in Inventory 100% 2.68% 26.89%

Sources

32
Published annual report on GV Films ltd.,2004-2007.
Note: the percentage in sales and inventory or calculated by taking the year 2005 as basis as
100%.
Analysis
Depicts the change in sales and inventory over the period under the study, change in
inventory was decreased by2.68% in 2005-2006 26.89% and 2006-2008 respectively.

The above graph showing changes in sales and inventory of GV Films ltd.,
Interpretation

The study of inventory and change in sales , inventory was not improved and sales are
improved. This is because, the sales as increased in the year 2006-2007.

DISCUSSES THE LIQUIDITY OF GV FILMS LTD.,

Introduction
The liquidity position of GV Films is analyzed by calculating current ratio , quick ration,
absolute quick ratio

Current ratio

33
Current ratio to measure the firm’s short term solvency of indicates the availability of
current assets in rupees for every one of current liability. A ratio grater than means that the
firm as more current assets the current liability
Current Assets
Current Ratio =
Current Liability

Showing of Current Ratio of GV Film ltd:

Particular 2004-2005 2005-2006 2006-2007

Current Assets 1233875688 544260486 1781334819
Current Liability 72990067 71873088 80405572
Current Ratio 16.90 7.57 22.15

Source

Published annual report of GV Film ltd., from 2004-2007.

The calculated current ration indicates the proportion of current assets to current
liabilities in all years is below then the standard ratio.

Analysis
The calculated current ratios are 16.90 in 2004-2005, 7.57%in 2005- 2006,22.15%in
2006-2007 since the ratio is grater than its standard in all the year the shot term financial
position of the company is very good.

34
The above graph showing current ration of GV Films ltd.

Interpretation

Shows that the firm calculated current ration is grater than standard ratio (2:1) in all
years from 2004-2005 to 2006-2007. current ratio indicates sufficient level of investment in
current assets in all years.

35
Liquidity Ratio

Liquidity ration indicate that a relationship between quick or liquid assets and
current liabilities. An assets is liquid if it can be converted in to cash immediately of
reasonable soon with out a loose of values.

Quick (or) Liquid Assets

Liquidity Ratio= --------------------------------------
Current liabilities

Liquid or Quick Assets = Current Assets – (Inventory + Prepaid Exp)

Showing of Liquidity Ratio of GV Films Ltd.,

Particular 2004-2005 2005-2006 2006-2007

Liquid Assets 80583267 234399729 1471164879
Current Liabilities 72990067 71873088 80405572
Liquid Ratio 1.10 3.26 18.29

Source

Published annul report of GV Films ltd., 2004-2007

Analysis

The calculated liquidity ratio is 1.10% in 2004-2005 ,3.26% in 2005-2006, in 18.29%

2006-2007 .

The above graph showing liquidity position of GV Films ltd.,

Interpretation

The liquid ratio 1.10% in 2004-2005,3.26% in 2005-2006, 18.29% in 200-2007 the

company liquid ratio is good, it maintain sufficient amount of liquid assets.

36
Absolute liquid Ratio

Since cash is most liquid asset a financial analysis may examine the ration of cash
and its equivalent to current liabilities . trade investment on marketable secularity are
equivalent to cash. There for may be including in computation of its ratio.

Absolute liquid Asset

Absolute liquid Ratio = ------------------------------
Current liabilities

Showing of Absolute liquid Ratio of GV Films Ltd.,

Particulars 2004-2005 2005-2006 2006-2007

Absolute Liquid Assets S7089397 42121418 680169326
Current Liabilities 72990067 71873088 80405572
Absolute Liquid Ratio 0.097 0.58 8.45

Source

Published annual reports of GV Films ltd.,2004-2007.

Absolute liquid ratio market cash in hand and at bank and marketable security or
temporary investment. The acceptable norm i.e. rate 10/- worth absolute liquid asset or
considered adequate to pay 20 Rs Worth . current liabilities in time as all creditors or not
expected to demand cash at same time and then as may also be realized from debtors and
inventory’s

Analysis

This calculated absolute liquid ratio are 0.097 in 2004-2005, 0.58in 2005-2006 ,
8.45in 2006-2007.

37
The above graph showing absolute liquidity position of GV films ltd.,

Interpretation

In the all the years firm calculated cash ratio is higher than the acceptable standard
ratio with indicated the firm has been maintain sufficient level cash to meet its data to day
obligation.

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 FINDINGS
The following of the findings of the GV Films Ltd with regards to working capital
management 2004-2007.
 The investment in inventory gradually decreases from 93.47 % to 17.41 % during
2004-07.

 The amount of sundry debtor has been increased from 3.77% of total current assets
to 24.20% during 2005-06 there was a decrease in 2006-07, 12.54% declined in
current assets.

 Sundry Creditors have been decreased during the period under study from 52.60% to
12.47% of the total current liabilities

 The net increase in working capital during the year 2004-2005 is Rs: 3043262.

 The net decrease in working capital during the year 2005-2006 is Rs:688498223

 The net increase in working capital during the year 2006-2007 is Rs: 1228541849.
 The calculated current ratio 16.90 in 2004-2005, 7.57 in 2005-2006, 22.15 in 2006-
2007.
 The liquid ratio is 1.10 in2004-2005, 3.26 in 2005-2006, 18.29 in 2006-2007.

 Except 2004-07 the liquid ratio was more than standard ratio, therefore liquidity
position of the origination is satisfactory.

 Cash and bank balance vary between 0.6 (times) and 8.9 (times) in 39.98(times) in
GV Films how ever the parties of holding cash balance in relation in net working
capital indicate good cash management in GV Film Ltd.

 The total investment in inventory has been decreased from 2004-2007,it indicates
poor performance in inventory management this is due to low investment in raw
materials and low production.

39
 SUGGESTIONS

 The cash ratio is of the company is not satisfactory through the period of under
study, because in all the year cash ratio is below the standard. Hence it is suggested
to improve cash and bank balance to meet day to day obligations.

 It is suggested to make investment in inventories and to improve the performance in

inventory management.

40