PROJECTworking Capital MGT

1.
INTRODUCTION
Working capital plays a key role in a business enterprise just as the role of art in the
human body. It acts as grease to run the wheels of fixed assets. It’s effective provisions
can ensure the success of a business while it’s in effective management can lead not
only to loss but also to the ultimate downfall of what otherwise might be considered as a
promising concern. In other words, efficiency of a business enterprise depends largely
on its ability to manage it’s working capital.
ABOUT THE TOPIC
MEANING
The term working capital refers to that portion of an organization capital which is
required in the short run to finance current assets. Such as cash, bank balance, debtors
and Inventories the value of the assets keeps changing over a period of time.
DEFINITION
According to the institute of chartered Accountants of India defines, “Working
capital means the funds available for day-to-day operations of an enterprise”.
According to Shubin defines working capital as, “capital required for purchase of
Raw Materials and for meeting day-to-day expenditure on sales, wages, rents and
advertising, etc”.
Working capital is also known as ‘revolving or circulating capital’ or ‘Fluctuating
capital’ or ‘short-term capital.
According to Ramamurthy “ working capital refers to the funds, which a company
must possess to finance it’s day to day operations. It’s concerned with the management
of the firms current assets and current liability.
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1.1 CONCEPT OF WORKING CAPITAL
According to I.M. Pandey, there are two concepts of working capital.
1. GROSS WORKING CAPITAL
The total current assets are termed as the gross working capital or circulating capital.
total current assets include the firms investment, in which can be converted in to cash
with in an accounting year and include cash, short-term securities, debtors, (accounts
receivable or book debts) bills receivable and stock (inventory).
2. NET WORKING CAPITAL
Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders which are expected to mature for
payment within an accounting year and include creditors, bills payable and outstanding
expenses.
A net working capital concept indicate or measures the liquidity and also suggests the
extent to which working capital needs may be financed by the permanent sources of
funds. Net working capital refers to the portion of firms current assets, which financed
with long – term funds.
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TYPES OF WORKING CAPITAL
1. PERMANENT WORKING CAPITAL
Permanent working capital is the minimum investment kept in the form of inventory of
raw material, work – in – process, finished goods, stores & spares and book debts to
facilitate and interrupted operation in the firm. Though this investment is table in short
run, it certainly various in long run depending upon the expansion program under taken
by a firm. It may increase or decrease over a period of time. The minimum level of
current assets maintained in a firm is usually known as permanent or regular working
capital
Permanent working capital may be of two kinds.
a. Initial working capital
Immediately after a company’s formation, for sometime a company will need
relatively large working funds to discharge its liabilities on account of purchase of raw
materials, payment of wages, salaries, so this is referred to as initial working capital.
b. Regular or Normal Working Capital
It is represented by excess of current assets over current liabilities and has
always to be maintained by a company. A business will always have to maintain
minimum levels of stocks of different items-raw materials, consumables, semi-
manufactured and manufactured goods only then the circulatory process of cash being
converted in to stores of raw materials/goods and back in to cash, can continue without
hindrance and generate a surplus in the hands of the company every time and this
capital is called as regular working capital.
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2. TEMPROARY OR VARIABLE WORKING CAPITAL
A firm is required to maintain an additional current assets temporarily over and above
permanent working capital to satisfy cyclical demands. Any additional working capital
apart from permanent working capital required to support the changing production and
sales activities is refer to as temporary or variable working capital. in other words, an
amount over and above the permanent level of working capital is temporary, fluctuating
or variable working capital.
There are two types.
a. Seasonal working capital
It is required to meet the financial needs of seasonal periods. Thus it is used to
buy raw materials, which are available only during a particular season.
b. Special working capital
It is required to meet situation, which cannot be foreseen and therefore no
advance preparation can be made to face them as they arise. For instance there may be
an abrupt increase in demand for the goods and services produced by a company. It
may succeed in securing a big contract or a large order for the execution of which large
order for the execution of which large investment have to be made in current Assets. So
the capitals required for such circumstance are called as special working capital.
3. Balance sheet working capital:
The balance sheet working capital is one, which is calculated from the items appearing
in the balance sheet.
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NEED FOR WORKING CAPITAL
The need for working capital cannot be over emphasized. Every business concern
requires some amount of working capital. The need for working capital arises due to the
time gap between production and realization of cash. Thus the working capital is needed
for the following.
1. For purchase of raw material and others stores for conversion into finished
goods.
2. To pay wages and salaries to workers and managerial staff.
3. To pay Expenses on account of running maintenance and servicing of plant and
machinery.
4. To pay rates and taxes such as import and custom duties.
5. To pay general administration we expenses such as salaries to office staff, rent,
interest, electricity and telephone bills.
6. To pay expenses on sales, such as expenses on packing, advertisements and
publicity, salaries and commission to salesman, descant and commission to
dealers, railway freight, loading charges and so on.
Though these are the general needs of working capital of a concern but the
amount needed as working capital in a new business concern depends primarily on its
size and ambitions of its promoters.
The amount of working capital needs goes on increasing with the growth and
expansion of business till it attains maturity. At maturity the amount of working capital
needed is called normal working capital.
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LIMITATIONS OF THE STUDY
 This study was made on the basis of past financial statements, past can never be
hundred percent representative of future; it can at least be guidance for the future
course of business actions and certainly not a exact forecast of events to take
place at later dates.
 The study made by using working capital ratios. Ratios are made by only clues
and the clues are not substituted for original figures. So the suggestions given on
the basis of ratios are difficult to implement in practice.
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FACTORS INFLUENCING WORKING CAPITAL
There are not set rules to determine working capital requirement of firm. A large number
of factors influence working capital needs of a firm. The following are the description of
factors which generally influence the working capital requirements.
 Nature and Size of Business
 Demand
 Availability of raw materials
 Production Policy
 Price level changes
 Credit Policy
 Availability of Credit
 Efficiency and performance
 Rapidity of turnover
 Length of the period manufacture
 Terms of purchase
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PRODUCTION CYCLE PROCESS
The term production or manufacturing cycle refers to the time involved in the
manufacturing of goods. Longer the production cycle, the higher will be the working
capital requirement and vice versa. It covers the time span between the procurement of
raw material and the completion of the manufacturing process leading to the production
of finished goods. Longer the production cycle, the higher will be the working capital
requirement and vice versa. Manufacturing firms have large production cycle firms
require less working capital.
PRODUCTION POLICY
Production policy means whether, it is continuous or seasonal demand for products.

What kind of production policy should be followed in above cases? There are goods are
two options to such companies, either they confine their production only to period when
goods are purchased or they follow a steady production policy throughout the year and
produce goods at a level to meet peak demand.
GROWTH AND EXPANSION
As company grows, it is logical to expect that a larger amount of working capital in

required. it is very difficult to determine the relationship between the growth in the
volume of business of a company and increase in its working capital required. It is very
difficult to determine the relationship between the growth in the volume of business of a
company and increase in its working capital required. Other things being equal, growth
industries required more working capital than those the static.
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PROFIT LEVEL
Firms may differ in their capacity to generate profit from business. some firms enjoy a
dominant position, due to quality product or good marketing management or monopoly
power in the market and earn a high profit margin. Other firms may earn low profits. The
net profit is a source of working capital to the extent that it has been earned in cash. A
high net profit margin contributes towards the working capital pool. A firms with high
profit level requires less working capital and vice versa.
AVAILIBILITY OF CREDIT
The need for working capital in a firm will be less, if it avails liberal credit facilities. A firm
enjoying banks credit facilities. Similarly, the availability of credit from banks also
influences the working capital needs of the firm. A firm enjoying bank credit facilities can
secure funds to finance its working capital requirement very easily, whenever it requires.
It can therefore, perform its business activities with less working capital than a firm
without such credit facility.
BUSINESS CYCLE
The amount of working capital requirements of a firm varies with every movements of
business cycle. The variations in the business conditions may be in two directions.
Upward phase & downward phase, upward phase are when boom conditions prevail, in
this case more working capital is required to cover the lag between the increased sales
and receipt of cash as well as to finance purchase of additional material. The downward
phase, in this case, the need for working capital will be very less, since there is no
growth in sales.
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ADVANTAGES OF MANAGING ADEQUATE WORKING CAPITAL
Working capital is the lifeblood and nerve centre of business. Just as circulation of blood
is essential in the human body for maintaining life, working capital is very essential
maintain the smooth running of a business.
1. Solvency of the business: Adequate working capital helps in maintaining
solvency of the business by providing uninterrupted flow of production.
2. Good will: Sufficient working capital enables a business concern to make
prompt payments and hence helps in creation and maintaining good will.
3. Easy loans: A concern having adequate working capital high solvency and good
credit standing can arrange loans from banks & others on easy and favorable
terms.
4. Regular supply of raw materials: Sufficient working capital ensures regular
supply of raw materials and continuous production.
5. Regular payments of salaries, wages & other day-to-day Commitments: A
company which has ample working capital can make regular payment of salaries,
wages and other day-to-day commitments which arises the morale of its
employees, increases efficiency, reduces wastages and costs and enhances
production and profits.
6. Cash Discounts: Adequate working capital also unable a concern to avail cash
discounts on the purchase and hence it reduces cost.
7. High morale: Adequacy of working capital creates an environment of security
confidence, high morale, and creates overall efficiency in a business.
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THE DANGERS OF EXCESSIVE WORKING CAPITAL ARE:
 It results in unnecessary accumulation of inventories. Thus, chances of Inventory
mishandling, waste, theft and business losses increase.
 It is an indication of defective credit policy and slack collection period.
Consequently higher incidence of bad debts results, which adversely affects not
only profits but the working capital funds also.
 Excessive working capital makes management co placement, which degenerates
the managerial efficiency.
 Tendencies of accumulation inventories to make speculative profits will grow.
This may tend to make dividend policy liberal and difficult to cope with at a future
date when the firm is unable to make speculative profits.
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2.1 OBJECTIVES OF THE STUDY
 To ensure optimum investments in current assets
 To find out relationship between working capital and liquidity position of the
company.
 To analysis the working capital trends. To ensure adequate flow of funds for
current operation.
 Working capital is mainly managed to attain a trade off between risk and
profitability i.e., if we hold more cash there is less risk of insolvency and also
profitability is low on the other hand. If we do not cash more cash it leads to
insolvency and more profitability.
 If we want to avoid risk i.e., not to become insolvent, we have to maintain more
working capital which increases net working capital or the current ratio. The more
liquid the firm, less chance is there for it to become insolvent that is in other
words less risk ( insolvent means unable to pay its obligations promptly).
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 If we want more profitability, we must be ready to take more risk. If we want to
reduce the risk the profitability also decreases. Both are directly related. Thus
working capital management involves trade off between risk and profitability.
2.2 SCOPE OF THE STUDY
This study is makes me necessary to analysis the company liquidity position as well as
the financial position. The scope of working capital management is reflected in the fact
that financial managers spend most of their time in managing current assets and current
liabilities. Adequate working capital needs to be maintained in order to discharge day to
day liabilities and protect the business from adverse effects in times of calamities and
emergencies.
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2.3 RESEARCH METHODOLOGY
METHOD OF DATA COLLECTION
Both primary and secondary data were collected by researcher.
PRIMARY DATA
Primary data consist of information from the discussion with the heads of the
departments, official staff of department.
Personal interviews with the personnel of finance department and their
related field employees were done.
Personal interview also with general manager (finance) has been done.
SECONDARY DATA
Only secondary data have been collected from the annual records of RR
Shipping Private Limited.
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RESEARCH AREA
The Research Area aimed to find out the position of working capital of the company.
This study was made with the main objective of making a retrospective study of the
financial transaction made by the company. For this purpose, various related areas have
been studied.
TOOLS USED
The following tools were adopted to analysis the working capital of RR SHIPPING PVT
LTD.
 Ratio Analysis
 Working capital management
1. Statement of changes in working capital
2. Funds flow statement
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2.4 REVIEW OF LITERATURE
PAST RESEARCH REPORTS AND FINDINGS
This chapter consists of some of the earlier work on working capital management which
has been done by various researchers. This includes their name, name of University,
Research topic name, his objectives and methodology and his major findings and
suggestions are referred.
WASSER HARNINGS (1998)
Wasser Harning (1998) studied to conduct risk-return analysis of working capital
position. To analyze the financial liquidity position of the company, to determine, the
structure and utilization of working capital and its various components. Since over 99 per
cent of the company is shipped to one single buyer in Germany, the company can
consider the option of making this major client and equity holders in the company so that
the problem of lack of funds can be made light.
GOPALAKRISHNAN (1991)
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Gopalakrishnan (1991) analyzed the performance of the company for at-least 10 years
with regard to the liquidity and profitability and management of working capital. The
study ascertains the reason for light liquidity on low profitability.The study reveals that a
major part of working capital is blocked in inventories in trade. The company has not
been able to maintain the desired stock level due to liquidity problems, which in turn has
affected the capacity utilization of machine and louse quality production.
BHARATHI (1996)
Bharathi (1996) studied the working capital management is concerned with the
management of current assets and current liabilities and the inter relationship that exists
between them. His main objective of the study is to determine the amount of working
capital employed by the company.
Analysis of working capital management by the company for the period 1994-95
analyses the reason for the variation in working capital movements using ratios. Analysis
of the effectiveness of cash management to determine the schedule of changes in
working capital and cash flow statements. Credits rating assessments of the company
for the year 1994-95 taking into the consideration the financial risk, management risk
and industry risk.
DR.P. INDRASANA REDDY AND K. SOMEASWAR RAO (1990)
A study was conducted on “Hindustan Cables Limited by Dr.P. Indrasana Reddy and K.
Somaswar Rao in 1990. This study was based on the data and information obtained
from the annual report of the Hindustan Company Limited 1989-90 to 1993-94. This
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study reveals that the liquidity position of HCL is satisfactory as its current ratio and
quick ratios remained above the standard norms through out the period of study. The
working capital management is not up to expected level. It needs to be improved by
effective utilization and control of current assets.
INDIRANI (1997)
Indirani (1997) determined the amount of working capital employed by hotel. To analyze
the working capital management for the hotel during the period 1992-96 and also the
analysis of financial performance of hotel.
Mr. SURESH ANNAMALAI UNIVERSITY (1989)
Analysis of working capital management at Chettinadu Cement Corporation Limited in
Chennai has done by Mr. Suresh of Annamalai University during the year 1989.
The researcher’s main objectives of his project study is to determine the amount of
working capital employed by the company and analysis the working capital management
by the company for the specified period of 4 years (1985-88) to assess the
implementation of Tandon committee norms in regard to working capital management by
the company.
WASSWA HANNINGTON (1998)
Wasswa Hannington (1998) has studied working capital management at Vantage
Leathers (India) Ltd., Madras. According to sec. 58 of the Companies Act (1956) a
company can accept public deposits amounting to 25 per cent of its net worth which is
the case of Vantage Leather (India) Ltd., amount to Rs. 1 crore. So it is strongly
recommended that the company explorers this type of financing as it does not require
attaching any of the assets of the company as security.
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VISWANATHAN.R (1999)
Viswanathan.R. R (1999) studied the working capital employed in the company. To
analysis the financial performance on the company and also to prepare fund flow
statement. The company can increase its capital base by going for public issue and part
of this fund can be used for financing its current assets.
Working Capital = Current Assets – Current Liabilities
3. ANALYSIS AND INTERPRETATION
FUNDS FLOW STATEMENT
Funds flow statement is method by which we study changes in the financial position of a
business enterprise between beginning and ending financial statement data. Hence, the
funds flow statement is prepared by comparing two balance sheets and with help of such
other information’s derived from the accounts has may be needed broadly speaking, the
preparation of a funds flow statement consists of two parts:
1. statement (or) schedule of changes in working capital
2. Statement of sources and application of funds.
STATEMENT OF SOURCES AND APPLICATIONS OF FUNDS
This statement may be presented in two parts as sources and application of fund.
SOURCES OF FUND
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 Funds from operation
 Sales of fixed assets
 Increase of shares
 Insurance of shares
 Decrease in working capital
APPLICATION OF FUND
 Purchase of fixed assets
 Payment of loan
 Payment of dividend
 Increase in working capital
 Funds from lose
WORKIG CAPITAL STATEMENT (OR) SCHEDULE OF CHANGES IN
WORKING CAPITAL
The statement of changes in working capital is concerned with the current assets and
current liabilities alone, as their shown in the balance sheets of the current year and the
previous year. All non current assets and non current liabilities, profits and losses,
additional information available are completely ignored.
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The following is the “principles” for preparation of working capital statement.
Increase in current asset - Increase working capital
Decrease in current assets - Decrease working capital
Increase in current liability - Decrease working capital
Decrease in current liability - Increase working capital
STATEMENT SHOWING SCHEDULE OF CHANGES IN WORKING CAPITAL
(2004 – 2005)
Particulars 2004 2005 Increase Decrease
Current Asset
Inventories 12481.90 14191.74 1709.84
Sundry debtors 20774.99 18638.08 2136.91

Cash and bank
1732.98 2399.08 666.1
balance
Loan advances 1940.42 21708.33 1967.91
Total Current
54730.29 56937.23
Assets
Less Current Liabilities
Current
11436.92 16138.97 4702.05
Liabilities
Provisions 1207.86 1188.05 19.81
Total current
12644.78 17327.02
liabilities
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Working
capital (CA CL) 42085.51 39610.21

Decrease in
2475.30 2475.30
working capital
Total 6838.96 6838.96
Result: Increase in Working Capital (42085.51-39610.21) = 2475.30
(2005 – 2006)
Current Asset
Inventories 14191.74 16411.91 2220.17
Sundry debtors 18638.08 14816.17 3821.91

Cash and bank
2399.08 2714.69 315.61
balance
Loan advances 21708.33 19457.71 2250.62
Total Current
569372.23 53400.48
Assets
Current
16138.97 14924.68 1214.29
Liabilities
Provisions 1188.05 1573.37 385.32
Total current
17327.02 16498.05
liabilities
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Working
39610.21 36902.43
capital (CA CL)
Decrease in
2707.78 2707.78
working capital
Total 6457.85 6457.85
(2006 – 2007)
Current Asset
Inventories 16411.91 27161.82 10749.91
Sundry debtors 14816.17 7708.96 7107.21

Cash and bank
2714.69 4400.91 168.22
balance
Loan advances 19457.71 17213.55 2244.16
Total Current
Assets
Current
14924.68 24567.39 9642.71
Liabilities
Provisions 1573.37 2092.83 519.46
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Total current
16498.05 26660.22
liabilities
Working
36902.43 29825.02
capital (CA CL)
Decrease in
7077.41 7077.41
working capital
Total 18994.08 18994.08
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(2007 – 2008)
Current Asset
Inventories 27161.82 37439.44 10277.62
Sundry debtors 770.96 9011.93 1302.97

Cash and bank
4416.84 3828.69 588.85
balance
Loan advances 17163.80 14395.99 2767.81
Total Current
56452.12 64676.05
Assets
Current
24517.64 33313.57 8795.93
Liabilities
Provisions 2092.83 2671.98 579.15
Total current
26660.22 20499.69
liabilities
Working
29791.19 20499.69
capital (CA -CL)
Decrease in
9292.21 9292.21
working capital
Total 29791.19 29791.19 12731.74 12731.74
25
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(2007 – 2008)
Current Asset
Inventories 37439.44 67748.23 30308.80
Sundry debtors 9011.93 9205.63 193.70

Cash and bank
3828.69 5072.99 1244.30
balance
Loan advances 14395.99 6554.23 7841.76
Total Current
64676.05 88581.08
Assets
Current
33313.57 53686.01 8795.93
Liabilities
Provisions 2671.98 5540.39 579.15
Total current
35985.55 59226.40
liabilities
Working
28690.50 29354.68
capital (CA CL)
Decrease in
664.43 664.43
working capital
Total 28690.50 30019.11 31746.80 31746.80
Result: Increase in Working Capital (28690-29354) = 664.43
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FUNDS FLOW STATEMENT FOR 2004
(RS.In lakhs)
PARTICULARS Amount Amount
Sources of fund :
Funds from operation 1691.89
Decrease in working capital 2475.30
Unsecured loan 10705.33
TOTAL SOURCES 14873.13
Applications of fund :
Purchase fixed assets
Investment 360.49
Capital work in progress 1246.90
Payment of secured loan 639.33
Payment of deferred tax liabilities 8328.66
Miscellaneous expenditure 3998.67
TOTAL APPLICATIONS 14873.13
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(Rs. In lakhs)
Sources of fund :
Increase Unsecured loan 7710.50
Investment 951
Total Sources (A)

15527.49

1166.94
Payment of unsecured loan
13716
Payment of deferred tax liabilities
644.55
Total Applications (B) 15527.49
(Rs. In lakhs)
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Sources of fund :
Investment 56.30
Total Sources (A) 10718.6

666.25
Capital work in progress
571.51
Payment of secured loan
1055.09
7843.51
582.06
30
(Rs. In lakhs)
Sources of fund :

2034.8
558.2
978.29
4468.53
556.5
31
(Rs. In lakhs)
Sources of fund :
9506.09
4474.95
664.43
Increase working capital
631.29
3788.7
Share capital
CASH FLOW STATEMENT
‘Cash Flow’ includes cash inflows and out flows – cash receipts and cash payment –
during a period. Movements of cash are of vital important to the management. The short
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term liquidity and short term solvency. Positions of a firm are dependent on its cash
flows.
A cash flow statement is a statement which portrays the changes in the cash position
between two accounting periods. The detailed analysis provided in such a statement
provides a clear insight to the management about the different sources of cash flows and
the different uses or applications for which cash is needed.
INCREASE IN CURRENT LIABILITY - INCREASE CASH
DECREASE IN CURRENT LIABILITY - DECREASE CASH
INCREASE IN CURRENT ASSET - DECREASE CASH
DECREASE IN CURRENT ASSET - INCREASE CASH
CASH FLOW STATEMENT 2004
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Sources of cash :
Opening cash 1732..98
Unsecured loan 10705.33
Cash from operation 4534.82
Total sources 16973.13
Purchase fixed assets 360.49
Investment 1246.90
Closing stock 2399.08
Total Applications 16973.13
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Sources of cash :
Opening balance 1732.98
Increase Unsecured loan 7710.50
Investment 951
Total Sources 17866.57
Applications of cash :
Payment of unsecured loan 1166.94

Payment of deferred tax liabilities 13716
closing stock 644.55
2399.08
Total Applications
17866.57
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Sources of cash :
Investment 56.30
Total cash available (A) 15119.51
Purchase fixed assets 666.25
Payment of unsecured loan 7843.51
CASH FLOW STATEMENT FOR 2007
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Sources of cash :
2034.8
558.2
978.29
4468.53
556.5
4400.91
Closing stock
37
Sources of cash :
Cash from operatiom 18699.96
9506.09
4474.95
664.43
Increase working capital
631.29
3788.70
Share capital
DATA ANALYSIS AND INTERPRETATION
The analysis and interpretation of financial statement is used to determine the financial
position and results of operation as well. A number of method or devices are used to
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study the relationship between different statement. An effort is made to those devices
which clearly analysis the position of the enterprise.
Therefore, the only importance is given to working capital management of the company.
The following of the tools used in the study.
RATIO ANALYSIS
INTRODUCTION
Ratio analysis is a powerful tool of analysis. In financial analysis, a ratio is use as a
bench mark for evaluating the financial position and performance of a firm. The absolute
accounting figures reported in the financial statement do not provide a meaningful
understanding 0f a performance and financial position of a firm. An accounting figure
conveys meaning when it is related to some other relevant information.
The relationship between two accounting figures expressed mathematically, is known as
a financial ratio. Ratio helps to summarize large quantities of financial data and to make
qualitative judgment about the firms financial performance.
The following are the important categories
1) Liquidity Ratio
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• Current ratio
• Quick ratio
• Cash ratio
Liquidity Ratios:
If it is decided to study the liquidity position of the concerns, in order to
highlight the relative strength of the concerns in meeting their current obligations
to maintain sound liquidity and to pin point the difficulties if any in it, then liquidity
ratios are calculated. These ratios are used to measure the firm’s ability to meet
short-term obligations. The important liquidity ratios are:
CURRENT RATIO:-
This is the most widely used ratio. It is the ratio of current assets to
current liabilities. It shows a firm’s ability to cover its current liabilities with its
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current assets. This is also known as Working Capital Ratio. It is expressed as
follows:
Current Assets
Current Ratio =
Current Liabilities
CURRENT RATIO FOR THE FIVE YEARS 2004 - 2009
(Rs. In lakhs)
YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO
2004-2005 54730.29 12644.78 4.32

2005-2006 56937.23 54730.29 1.04
2006-2007 53400.48 56485.24 0.94
2007-2008 64676.05 28690.50 2.25
2008-2009 88581.08 59226.40 1.49
CURRENT RATIO FOR THE FIVE YEARS 2004 - 2009
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5
4.32
4.5
4
3.5
3
Ratio
2.5 2.25 Series1

2 1.49
1.5 1.04 0.94
1
0.5
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Year
QUICK RATIO: -
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It shows a firm’s ability to met current Liabilities with its most liquid (quick)
Assets. Liquid Assets are those assets, which are readily converted into cash.
This is also known as Liquid Ratio and Acid Test Ratio. It is calculated as under;
Liquid Assets
LiquidRatio =
CurrentLiabilities
LIQUIDITY RATIO FOR THE FIVE YEARS 2004 - 2009
(Rs. In lakhs)
YEAR LIQUID ASSETS CURRENT LIABILITIES RATIO
2004-2005 42248.39 12644.78 3.34

2005-2006 42745.49 17327.02 2.46
2006-2007 36988.57 16498.05 2.24
2007-2008 29323.42 26660.22 1.09
2008-2009 27236.61 28690.50 0.94
TOTAL 10.07
LIQUIDITY RATIO FOR THE FIVE YEARS 2004 - 2009
43
4
3.34
3.5
3
2.46
2.5 2.24
Ratio
2 Series1
1.5 1.09
0.94
1
0.5
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Year
CASH RATIO: -
44
Cash is most liquid Asset, a financial analyst may examine cash ratio and
it’s equivalent to current liabilities. Trade investment or marketable securities are
equivalent of cash; therefore, they may be included in the computation of cash
ratio. This Ratio also known as Absolute and Super Quick Ratio.
CashandBank Balance + Short − termmarketable

SecuritiesCashRatio =
CurrentLiabilities
CASH RATIO FOR THE FIVE YEARS 2004 - 2009
(Rs. In lakhs)
45
YEAR CASH AND BANK CURRENT LIABILITIES RATIO
BALANCE
2004-2005 1732.98 12644.78 0.13
2005-2006 2399.08 17327.02 0.13
2006-2007 2714.69 16498.05 0.16
2007-2008 4400.91 26660.22 0.16
2008-2009 3828.69 35985.55 0.10
TOTAL 0.68
CASH RATIO FOR THE FIVE YEARS 2004 - 2009
0.18 0.16 0.16

0.16
0.14 0.13 0.13
0.12 0.1
0.1
Ratio
Series1
0.08
0.06
0.04
0.02
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Ye a r
46
FINDINGS
 The Current Ratio of the company which measures the liquidity position was
always above or equal to one. Even though the standard ratio is 2:1, the
concern can not be said to be in financial crisis. The ratio is through not very
sound to the satisfactory.
 An increased in Working capital in-term of Fixed assets ratio accompanied by the
increase in company’s net profit indicates that the business is expanding.
 In the total assets the major portion belongs to current assets. In the current
assets major share is form inventories. So it is better for the company to adopt
good inventory control system.
 Total Liabilities have increased year by year except in 2007-08. The total
Liability is 9292.21
SUGGESTIONS
47
 Keeping in view the size of the company and its turnover there is a need to
improve the working of the company with consequential improvement in internal
generations.
 Company should take steps to dispose of the non-performing assets so that the
return on capital employed is adequate to its short term or long-term borrowings.
 The company’s marketing activities are not sufficient. So the company should
take extra efforts for sales promotional and marketing activities. It will create
rapidness in Turnover.
 The company can adopt cost audit program to know it’s the size of inventory is
adequate / excessive when comparing with production program.
 The company should prepare sales budget periodically, so that the required
quantum of inventories will be properly estimated.
 So far the company maintained adequate amount of Net Working Capital. To
keep the same in future tool, the company can adopt different techniques of
forecasting the working capital
 To conclude, to have batter resources and to avoid liquidity crunch the company
should raise capital by the way of issuing shares or borrowing long term loans
from financial institutions.
48
CONCLUSION
Successful management of the working capital in any concern will ensure the
success of a business. In the analysis of working capital management, the profit for the
company is good.
According to the RR SHIPPING PVT LTD. working capital management is good
condition, the level of profit is increasing in nature. However to show better business
result, the management may concentrate on keeping the working capital is more
scientific method.
49
BIBLIOGRAPHY
T.S Reddy, Y. Hari Prasad Reddy,” Cost and management accounting”, Margam
publications, Chennai, 2004
M. Y. Khan, P.K. Jain,” Management Accounting,” Tata Mc Grew Hill Publishing

Company Ltd. New Delhi, 2000
Prasanna Chandra, “Financial Management Theory and Practice”, Tata Mc Grew

Publishing Company Ltd. New Delhi, 1997
50

PROJECTworking Capital MGT

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promising concern. In other words, efficiency of a business enterprise depends largely

on its ability to manage it’s working capital.

ABOUT THE TOPIC

According to the institute of chartered Accountants of India defines, “Working

capital means the funds available for day-to-day operations of an enterprise”.

Working capital is also known as ‘revolving or circulating capital’ or ‘Fluctuating

capital’ or ‘short-term capital.

According to Ramamurthy “ working capital refers to the funds, which a company

of the firms current assets and current liability.

According to I.M. Pandey, there are two concepts of working capital.

1. GROSS WORKING CAPITAL

receivable or book debts) bills receivable and stock (inventory).

2. NET WORKING CAPITAL

with long – term funds.

1. PERMANENT WORKING CAPITAL

current assets maintained in a firm is usually known as permanent or regular working

Permanent working capital may be of two kinds.

a. Initial working capital

Immediately after a company’s formation, for sometime a company will need

materials, payment of wages, salaries, so this is referred to as initial working capital.

b. Regular or Normal Working Capital

It is represented by excess of current assets over current liabilities and has

always to be maintained by a company. A business will always have to maintain

minimum levels of stocks of different items-raw materials, consumables, semi-

capital is called as regular working capital.

sales activities is refer to as temporary or variable working capital. in other words, an

or variable working capital.

There are two types.

a. Seasonal working capital

It is required to meet the financial needs of seasonal periods. Thus it is used to

b. Special working capital

It is required to meet situation, which cannot be foreseen and therefore no

3. Balance sheet working capital:

in the balance sheet.

for the following.

2. To pay wages and salaries to workers and managerial staff.

3. To pay Expenses on account of running maintenance and servicing of plant and

4. To pay rates and taxes such as import and custom duties.

5. To pay general administration we expenses such as salaries to office staff, rent,

interest, electricity and telephone bills.

6. To pay expenses on sales, such as expenses on packing, advertisements and

publicity, salaries and commission to salesman, descant and commission to

dealers, railway freight, loading charges and so on.

size and ambitions of its promoters.

needed is called normal working capital.

place at later dates.

the basis of ratios are difficult to implement in practice.

factors which generally influence the working capital requirements.

 Nature and Size of Business

 Availability of raw materials

 Price level changes

 Efficiency and performance

 Length of the period manufacture

Production policy means whether, it is continuous or seasonal demand for products.

GROWTH AND EXPANSION

As company grows, it is logical to expect that a larger amount of working capital in

1. Solvency of the business: Adequate working capital helps in maintaining

solvency of the business by providing uninterrupted flow of production.

2. Good will: Sufficient working capital enables a business concern to make

4. Regular supply of raw materials: Sufficient working capital ensures regular

supply of raw materials and continuous production.