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Summer Internship Project Report On Working Capital Management AT Glaxo Smith Kline

Submitted towards the Partial Fulfillment of Degree in

Master of Business Administration (MBA) (2011-2013)

L M Thapar School of Management, Patiala

Submitted To: Dr. K.K. De Prof. A.K. Dhingra

Submitted By: Abhinav Batta MBA-4th Tri Sem., Uni. Roll NO.-501104008

Writing a report is always the most challenging part of a students life. It was definitely the most important academic contribution by me. This however would not have been possible without the encouragement and support of a few people. I consider it pleasant privilege to express my heartiest gratitude and indebtedness to those who have assisted me towards the completion of my project report.

First and foremost, I would like to thank I am very much thankful to Mr. Somit Pandit Senior Manager, Finance and IT GlaxoSmithKline, for making me capable of conducting such a study. I express my heartiest and sincere thanks to my company guide Mr. Aman Bansal and Mr. Shiv Kaushal, Mr. Vikas Bansal, Mr. Sunil Sharma, Mr. Puneet and Mr. Sumit Bansal of Finance department, GSK who have been a constant source of inspiration and encouragement to me in carrying out this study. I would like to thank my parents for their blessings and good wishes and to my friends who helped me to complete the project. Last but not the least; I would like to thank God for all.

Thank You.

Abhinav Batta

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The problem of unemployment is one of our major problems. This problem has been troubling us ever since we gained independence. One reason for growing unemployment in the country is our faulty education system. Students are given bookish knowledge without any training for specific jobs. To mitigate such problems of our education system to some extent, training programs are being introduced. These programs help the students to widen their horizon. Training can be done in industries, business-houses, sales and income tax department of various central, state, local, government societies etc. A training program in industry is to get an overall view and exposure of the industry and its working environment. It enhances the confidence and boosts the morale of the students preparing themselves to work in industry in future. These programs continuously find place in curriculum of management studies for development of the personality of students and to provide them with a firsthand experience about working in industry.

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Table of Contents
EXECUTIVE SUMMARY .......................................................................................................................... 5 Company Profile ........................................................................................................................................... 7 Introduction to GSK...................................................................................................................................... 9 HISTORICAL BACKGROUND ................................................................................................................ 11 Glaxo ................................................................................................................................................... 12 GlaxoSmithKline .................................................................................................................................. 12 PLANT LOCATIONS IN INDIA............................................................................................................... 15 PRODUCT PROFILE ................................................................................................................................. 17 New Horlicks .................................................................................................................................. 17

MANUFACTURING PROCESS ............................................................................................................... 21 SUPPLY CHAIN PROCESS ...................................................................................................................... 22 About the NABHA Plant ............................................................................................................................ 23 5S AT NABHA ........................................................................................................................................... 24 DEPARTMENTAL OVERVIEW .............................................................................................................. 26 FINANCE DEPARTMENT ....................................................................................................................... 28 SCOPE OF STUDY.................................................................................................................................... 30 MEANING OF WORKING CAPITAL ..................................................................................................... 32 Concept of Working Capital ....................................................................................................................... 34 NET WORKING CAPITAL....................................................................................................................... 35 DETERMINANTS OF WORKING CAPITAL ......................................................................................... 36 WORKING CAPITAL CYCLE ................................................................................................................. 38 OPERATING CYCLE ................................................................................................................................ 42 OPERATING CYCLE OF GSK ................................................................................................................. 44 Particular ..................................................................................................................................................... 44 CASH MANAGEMENT ............................................................................................................................ 47 CASH AND PAYMENT PROCEDURE IN GSK ..................................................................................... 50 RECEIVABLE MANAGEMENT .............................................................................................................. 57 INVENTORY MANAGEMENT ............................................................................................................... 61 INVENTORY CYCLE ............................................................................................................................... 62 Page | 3 Summer Internship Report

Working Capital Management VARIOUS INVENTORY MANAGEMENT TECHNIQUES ................................................................... 63 Analysis of Various Components of Working Capital ............................................................................... 67 FINANCIAL RATIO ANALYSIS ............................................................................................................. 71 FUNDS FORECASTING AND BUDGETING AT GSK, NABHA .......................................................... 80 RECOMMENDATONS ............................................................................................................................. 85 SUGGESTIONS ......................................................................................................................................... 86 CONCLUSION ........................................................................................................................................... 88 LIMITATIONS ........................................................................................................................................... 89 REFERENCES ........................................................................................................................................... 90

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Working capital nowadays has been identified as a major thrust area by almost all the firms throughout world in order to manage the current assets and consequentially current liabilities. Working capital refers to the capital which is used to carry out the day to day operation of a business. Every business needs funds for two purposes, for its establishment and to carry on its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as Plant, machinery, and building, furniture etc. Funds are also needed for short-term purposes i.e. for the purchase of raw material, payment of wages and carry on day-to-day operations of business etc. These funds are known as working capital. The above idea of Working capital suggests that lifeline of a business is cash. Cash flows in a cycle into, around and out of a business. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-inprogress) and Receivables (debtors owing you money). The main sources of cash are Payables (creditors) and Equity and Loans. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. For similar reasons optimization of working capital came into existence as an exhaustive project at GlaxoSmithKline, Nabha. The project conducted for optimization of working capital is a live project at GSK, Nabha under the name Working Capital. The project basically deals with analysis of credit terms of suppliers, supplying different items at all the seven sites of GlaxoSmithKline involved in production as well as packaging of different products of the company. Apart from analyzing the credit terms of suppliers for the company standard norms for holding the inventory of raw
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materials, packaging materials was also analyzed to determine the opportunities for reducing the working capital. A few more aspects of working capital have also been studied to fulfill the objectives of the study.

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Company Profile
CHAIRMAN Simon J. Scarff, O.B.E MANAGING DIRECTOR Zubair Ahmed DIRECTORS Mukesh H. Butani Kunal Kashyap P. Dwarakanath Praveen K Gupta Ramakrishnan Subramania Subodh Bhargava Naresh Dayal COMPANY SECRETARY Surinder Kumar BANKERS Deutsche Bank Citibank N.A. Bank of America The Hongkong & Shanghai Banking Corporation Limited State Bank Of Patiala AUDITORS Price Waterhouse REGISTERED OFFICE Patiala Road Nabha 147201 (Punjab) EMAIL FOR INVESTORS: - COMPANY WEBSITE ADDRESS: -

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STATUS Multinational Company with promoters from U.K QUALITY STATUS OHSAS-18001 ISO 9000:2000 ISO 14001:2004

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Introduction to GSK
GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) is an Indian associate of GlaxoSmithKline plc, U.K. GSKCH is one of the largest players in the Health Food Drinks industry in India. The Company, with its manufacturing plants located in Nabha, Rajahmundry and Sonepat, has a total workforce of over 2700 people, each driven by a spirit of enterprise. Its flagship product, Horlicks, is a highly respected brand, which is over 100 years old in India. The Company also manufactures and markets Boost, Viva, Malt ova, Biscuits and in addition promotes and distributes a number of products in diverse categories, including prominent brands such as Eno, Crocin and Iodex. GSKCH has a strong marketing and distribution network in India comprising over 1800 wholesalers and direct coverage of over 4,00,000 retail outlets.

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Our global quest is to improve the human life by enabling the people TO DO MORE, FEEL BETTER, AND LIVE LONGER.

People at Glaxo SmithKline consumer healthcare limited are dedicated us to delivering medicines and products that help million of people around the world LIVE LONGER, HEALTHIER AND HAPPIER LIVES.

GSK Vision
We want to become the indisputable leader in our industry-not simply in terms of size, but in how we use that size to achieve our mission and to improve the quality of human life. Becoming the indisputable leader in our industry means conquering the challenges that face us as an industry, and as global society.

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GlaxoSmithKline Consumer Healthcare Ltd. is a pharmaceutical and healthcare company born out of the merger of two leading international organizations SmithKline Beecham and Glaxo Welcome. Its global mission is To improve the quality of human life by enabling people to do more, feel better and live Longer ". YEAR 1955: DESCRIPTION Horlicks a milk product manufactured by Horlicks Ltd. Slough, England was being imported, bottled and sold in India. Due to changes in import policy import stopped. 195657: A team from the organization visited to explore the possibilities of setting up a plant with the support of Maharaja of Nabha, His highness PRATAP SINGH, and a plant was set up at Nabha. 1958: On May 31, 1958 His highness Pratap Singh laid the foundation stone of the Company at Nabha. 1960: 1969: On 24th March 1960, the factory went into production. Horlicks Group disposed off their holding in India and U.K. to BEECHAM GROUP OF INDUSTRIES" which was a multinational and owned more than 500 companies in more than 200 countries engaged in manufacturing of Brylcream, Hair cream, Eno Fruit Salt, Macleans, Toothpaste, Pure Silvikrin etc. Immediately after taking over the management, Beecham Group shifted its head office from Nabha to Delhi. 1979: Beecham India (Pvt.) Ltd. Mumbai merged with Hindustan Milk food Manufacturers Ltd. and the name was changed to H.M.M. Ltd. Beecham Group Plc.
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SmithKline U.S.A. merged on September 16, 1991 to form Smith Kline Beecham Consumer Brands, Plc. with its registered office in the U.K. H.M.M. became a part of Smithkline Beecham Consumer Brands, one of the three sectors of Smithkline Beecham and its name was changed to SmithKline Consumer Brands Ltd.


The name was changed to Smithkline Consumer Healthcare Ltd. to reassert the company's promise of providing Healthcare to consumers. The company decided to do away with its toiletry products and sold its brands like Brylcream and Silvikrin to Sara Lee.


The Company acquired MALTOVA and VIVA brands of nutritional from Jagatjit Industries Ltd. A merger took place between Smithkline Beecham and Glaxo Welcome and the new company Glaxo Smithkline (GSK) was formed on 27-12-00




Smith Kline Beecham

2002: 2003: 2004:

Change of name took place from 23-04-02 Company installed another manufacturing unit in Haryana - Sonepat The Bank of Punjab has tied up with the company for facilitating finance
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on attractive terms to its milk suppliers. 2005: Deutsche bank has tied up with GSK for facilitating their fund management as well as treasury management on a centralized basis 2006: Companys packing unit at Excise Free Zone Baddi (Himachal Pradesh) came into existence. 2007: Companys packing unit at Excise Free Zone Gauhati(Assam) came into existence. 2008: 2009: Company launched Actibase and Actigrow products - Energy drinks GSK becomes a leader in skincare with the acquisition of Stiefel. Worlds largest malaria vaccine trial gets underway in seven African countries. GSK signs agreement with the World Health Organization to donate 50 million doses of pandemic H1N1 vaccine for distribution to developing countries. 2010: GSK announces open innovation strategy to help deliver new and better medicines for people living in the worlds poorest countries. GSK increases support for WHO strategy to improve childrens health with new 5 year commitment to expand donations of albendazole medicine. 2011: GSK announces move to new environmentally friendly building in Philadelphia USA. Launch of Sensodyne Repair & Protect, the worlds first everyday fluoride toothpaste with NovaMin technology that can repair sensitive teeth.

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Head Office

Baddi Nabha

Factories RSOs Packing Stations

Guwahati Sonepat

Kolkatta Mumbai Pune (GSK PHARMA) Chennai Rajahmundry Kompally

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The company started packing Horlicks in Kg and 1kg pouches. Packing machines were imported and installed. As the main market for sale of Horlicks was in the South and East India, need was felt for the sale of Horlicks in small units of the country. Therefore was opened at different places. At present Horlicks is dispatched from Nabha in bulk quantity to the following packing stations:
Mangaldoi (Assam) Kompally Baddi (Himachal Pradesh) Hamira (Punjab) Parson

The marketing of the company's products is done through various Regional Sales Offices (RSO) situated at: North (New Delhi office) West (Mumbai office) East (Kolkata office)

South (Chennai office)

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The company has its head office in Gurgaon. Bulk-malted food manufactured in Nabha is dispatched to different packing stations in drums for packing in units container or gusseted pouches (GPs). GlaxoSmithKline Consumer Healthcare Limited is one of the three sectors of GlaxoSmithKline. The other two sectors are:

GLAXOSMITHKLINE PHARMACEUTICALS: It is a one of the major players of pharmaceutical companies and has activities in all the major markets of the world and spends a major part of its income in R&D.

GLAXOSMITHKLINE CLINICAL LABORATORIES: It is the leading network of clinical testing laboratories in North America and its major laboratories and patient centers provide the broadcast range of testing to help physicians, hospitals and other private organization to detect disease and monitor health.

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In line with the increased buoyancy across the FMCG segment, GSK continues to perform well with sales growth of 15.3% over 2006.
The main products of the company are: New Horlicks Horlicks Pistachio Horlicks Export Boost Intermediate Horlicks intermediate for Pistachio and Butterscotch variants Horlicks Premix Horlicks Vanilla Premix Junior Horlicks Chocolate with DHA Actibase Vanilla Horlicks with FAT Junior Horlicks Intermediate New Junior Horlicks DMI New Mother Horlicks DMI Horlicks Butterscotch delite New Improved Boost Horlicks Lite Regular Malt Junior Horlicks With DHA New Elaichi Horlicks Mothers Horlicks With DHA Boost Premix Acitbase Regular Actigrow Chocolate Actigrow Vanilla Foodles
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GlaxoSmithKline Consumer Healthcare Ltd. is having three production units, which are at Nabha, Rajahmundry and Sonepat. The unit at Nabha is the mother unit and its production capacity is 99500 MT per annum and the products manufactured by this company fall under two categories of consumer healthcare:

Nutritional Health Drinks

Horlicks and its variants


ENO Fruit Salts

1. HORLICKS: - THE GREAT FAMILY NORISHER The flagship brand of the company, this product name is associated with that of the company. Horlicks, which was restaged the previous year, following intense market research and product development activities, with an improved formulation, which is clinically tested to make children Taller, Sharper & Stronger, continues to grow strong. India forms almost half the world's market for Horlicks. Horlicks sales crossing the 1000 crores in 2007. 2. JUNIOR HORLICKS Chocolate Horlicks and Junior Horlicks were restaged during the tear keeping in mind the consumer expectations from the two brands. Junior Horlicks was launched in 1991 in Karnataka in an attempt to cater to the specialized needs of certain age groups. This special nourisher, an Indian brand was targeted at 1-3 years old as a delicious tasting Milk food drink based on the international standards of nutrition.

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3. BOOST Boost was launched in 1976 as an energy drink in the Brown Powder segment. Boost along with Boost Chocoblast, which was launched in the previous year, continue to deliver as per expectations. An Indian Brand, this is manufactured at the Nabha Plant. It is also exported to, countries in West Asia. Very popular in the South, Boost has grown an average growth rate of 9% per annum. Sportsmen like Virender Sehwag and Sachin Tendulkar back it, making it the secret of OUR ENERGY!!

4. MOTHER HORLICKS Mothers Horlicks (launched in November96), is a special nourisher scientifically designed to help meet the nutritional needs of pregnant and lactating women, as part of a healthy diet. It is made

with the natural goodness of Horlicks by a unique spray dried process, which helps make it easy to digest. It is enriched with natural honey, and a combination of vitamins and minerals that not only gives excellent flavor but also help in keeping good health during pregnancy and optimal birth weight of the baby It is also essential for physical and mental development of the growing foetus. 5. ENO Eno is a 100 years old global brand. It is a part of Gastrointestinal category Eno is the only powder antacid and has shown favorable growth over the years. This has been strengthened of the lemon variant and the sachet pack.

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6. BISCUITS The biscuit division has spread its wings and set flight with a 54% increase in the turnover. Horlicks biscuits are now a truly national brand. The division has a number of plans for the future growth with the lot of exciting new variety up its sleeves.

7. GOPIKA GHEE (BY PRODUCT) The main by-product of this company is Gopika Ghee. Gopika Ghee is packed in the factory itself, rest of the product are bulk packed in containers, which contain 184 kg of Horlicks and 110 kg. of Boost. These are sent to the 4 packing near the major markets.

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The Manufacturing process for Horlicks is as Follows: 1. The First step in the production process involves the mixing of wheat flour with malted barley. 2. In the second step water is added to the above mixture and the material is mashed thoroughly, as a result of which the outer cover of malted barley is removed and remains after is called Husk. 3. After mashing, the material becomes thick slurry in which the solid content is above 55%. 4. The fourth step involves adding up of milk to the mixture. 5. The next stage is the stage of evaporation in which the material is evaporated and the result is thick slurry in which the solid content is around 82%. 6. After evaporation, comes the step of spreading out of material in plates and keeping them in the oven for about half an hour. 7. Once the material is completely dried, the plates are taken out from the oven and the food item is scrapped out, which comes out in the form of thin layers. Then the vitamins and other essential nutrients are added to the food items which is then ground and the result is our final product HORLICKS.

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The Supply Chain Process at GSK, Nabha is as follows:
Consumer Drums (at factories)


Bottles & GPs (at packing stations)


Sale Depots

Horlicks is manufactured at the Nabha plant, after that it is put in drums with a capacity of 186 kg. The finished good thus packed in drums is either bottled or packed in pouches and then sent to sales depots situated across the country.

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About the NABHA Plant

GSKs Nabha plant is a huge manufacturing unit. Glaxo SmithKline Consumer Healthcare Ltd. is having three factories, which are at Nabha, Rajahmundry and Sonepat. The factory at Nabha is the mother unit and products manufactured by this company fall under two categories of consumer healthcare:

Nutritional Health Drinks

Horlicks and its variants


ENO Fruit Salts

The food powder (HORLICKS & BOOST) is manufactured in Nabha. The requirement of workforce changes with change in production policy. The plant at present employs a work force varying from 1500 to 2000 out of which approximately 1100 are permanent. There is a staff and management of about 145 persons. There is a wage agreement for 3 years. The workers also getting weekly off according to Labors Act... The plant runs 365 days a years in 3 shifts daily which work from 5.15 a.m. to 1.15 p.m., 1.15 p.m. to 9.15 p.m. & 9.15 p.m. to 5.15 a.m... The office opens 6 days a week.

About 12 Milk collection centers were opened at a radius of about 40km around Nabha, to meet the requirement of 20 tones of Milk per day. The main purpose of opening collection centers at village level was to get good quality of Milk directly from the producer and pay them good price, thus, raising their standard of living. Nabha and Sonepat production facility has already been certified for HACCP (Hazard Analysis Critical Control Point for Food Safety).During the year the Nabha site received The Best Environment Protection Initiative 2006 award from the Punjab Pollution Control Board.

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5S is a tool that aims to create and maintain an organized, clean & high performance workplace. This tool has been efficiently utilized by Nabha Unit and it has lead to reduce the records retrieval time drastically. Sort Store Shine Standardize Sustain Why do it? How often do you go to use a piece of equipment and its not where you left it? Wouldnt it be less time consuming if everybody knew where they were supposed to store it? Where do I start? Get everyone involved Get commitment and authorization for area wide improvement Have leaders set expectations Throw out rubbish Find suitable storage area for everything Clean all surface areas Communicate the 5S procedure for your area Participate in site-wise monthly assessment & display results

Sort - Get rid of what is not needed. Throw out rubbish Define personal space first (and stay out). Start at one corner touch everything. Ask questions about each thing: How often do you use it? Where does it go? Place stuff based on frequency of use. Place red tags on unnecessary stuff. 1. Red tagging visually identifies what is not needed in the workplace. 2. Establish rules for what is needed and where it belongs. 3. Remove and store Red Tagged items in a temporary holding area.
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4. Sort through and dispose of those items that are truly unnecessary. Prepare all other items for relocation. Ensure that all interested parties agree. 5. Continue to Red Tag regularly. Store - Organize whats Left! Arrange and Identify for ease of use A place for everything, everything in its place, Know what you have and where its kept to get rid of waste of searching. 1. Designate locations in a variety of ways 2. Lines on the floor 3. Signs hung from the ceiling 4. Tool boards 5. Fix Storage Methods and Places Shine - Clean up whats left! Clean Daily Paint, refurbish, etc.Get the remaining items into the same condition as when they were new! Standardize - Standardize cleanup methods 1. Make Sort, Storage, and Shine a daily habit 2. Assign responsibilities to apply these procedures 3. Integrate Sort, Storage, and Shine into regular work activities 4. Check on the maintenance of Sort, Storage, and Shine 5. Do you have standards, procedures & assigned responsibilities for Sort, Storage & Shine?

Sustain - Set discipline, plan and schedule 1. Follow the rules that you set! 2. Involve everybody in the production of standard documents and checks sheets. Develop habits you wont forget! Assessment is a key activity and should be carried out on a regular basis depending on the overall status of the 5S activity. The radar chart is used to
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map progress using the data from the assessment checklist within the area. It should be displayed in a prominent location and updated on completion of the assessment.

The various departments in GSKCH, Nabha are: Manufacturing Department Engineering Department Quality Assurance Department. Warehouse & Supply Chain Management Procurement Department (Milk Sourcing Procurement and Purchase Department) Finance & IT Department Human Resources and Administration Department. Environment, Health and Safety Department (EHS) Operational Excellence

Procure ment Departm ent

Manufac turing DE.


HR Administr ation De.


Warehous e & Supply Chain Mgt.

Environme nt, Health and Safety De.

Operatio nal Excellenc e

Engineeri ng Departm ent

Quality Assurance Departmen t.

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Finance Department Overview

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Main Functions of Finance Department are as Follows: Vendor Payment: - When an article arrives at the gate, an entry permit is made and they are sent to the GOODS INWARD DISPATCH section (GID). A goods inward from (GID) is filled up and sent to the finance department for payment. The vendors submit the bill to purchase department. The finance department also receives a hard copy of the corresponding purchase order (PO). There is online passing and payment system. This contains a database of all purchase order issued. These are checked against the bills for the GID, PO references, after which the bill is posted for production of the payment slips. Disbursement of Salaries: - The HR Department sends a compile list of all employees on the payroll together with their monthly working records .The salaries are paid mainly through the bank, except for a few temporary workers. Payment to Government Bodies: -Excise is paid to all suppliers for goods purchased .The company obtains reimbursement for the excise from the govt. According to the CENVAT. Excise is however paid for the finished goods. Octroi on petro products only is paid to Local Authorities for petro products arriving from outside Nabha. Property tax, VAT, Insurance claims also paid in case of accidents & breakdowns, for which claims are called for assessment. VAT is paid to Excise & Taxation Department of Punjab. Milk Accounting: - Every milk supplier has a code, the first two digits indicating whether the milk is from cow, buffalo and the next three digits indicating the supplier. Payments are made within 10 days by cheque/DD.

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Cash/Banking: - There are separate accounts for raw material excluding milk, stores, services, capital and packing material every department submits its monthly cash requirement and sends it to finance where it is consolidated. Payment of services: - The finance department pays for various services like rent, truck hire etc. Capital budgeting: - Every department submits an annual budget, which is allocated quarter wise. The concern department also sends a capital investment proposal, which has to be approved in different forums depending on the investment required.

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The above project was conducted keeping in mind the components of Working capital mentioned above i.e. inventory, receivables, and payables and further, credit terms with suppliers; project Working Capital took its shape. The project Working Capital was started at Nabha plant of GSKCH Ltd. with an idea of standardization of credit period across sites, scrutinizing the inventory holding period of raw materials, packaging materials and finished goods and estimating the working capital thus released through these initiatives. The study was conducted with following broad and specific objectives:

Main objective of the project is to analysis the whole data of GSK of various sites and find various opportunities to improve the working capital of the company

To standardize the credit period provided by the suppliers of raw materials, packaging materials, finished goods and store items. To determine the difference between the standard norms and actual number of days for which the inventory of raw materials, packaging materials, finished goods and store items is kept.

To determine the difference between the standard norms and actual number of days for which the inventory of raw materials, packaging materials, finished goods and store items is kept for purpose of quality clearance.

General PO terms are required to be reduced. Rationalization of bank balances. To understand the cash forecasting and budgeting at GSKCH, Nabha.

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Data pertaining to supplier credit terms for raw materials, packaging materials, finished goods and store items; inventory holding period as per standard norms and actual number of days and inventory holding period for the purpose of quality clearance as per standard norms and actual number of days for items mentioned above was collected to accomplish the objectives of the study. For better consolidation of results data templates were provided to all the concerned sites. These data templates were framed in a way that desirable information is obtained easily and is readily accessible for quick interpretations.


The data thus obtained was ready for analysis, interpretations and drawing conclusions out of it. Thus the data used for conducting the project was secondary in nature. For purpose of analysis, data was further captured in spread sheet for better comparisons both within a site as well as between different sites simultaneously. The results obtained after comparing it within a site and across different sites was presented in form of power point presentation.

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In simple words working capital means that which is issued to carry out the day to day operation of business. Capital required for a business can be classified under two main categories. Fixed capital Working capital

Every business needs funds for two purposes, for its establishment and to carry on its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as Plant, machinery, and building, furniture etc. Investment in these assets represent that part of firms capital, which is blocked on a permanent or fixed basis, is called fixed capital. Funds are also needed for short-term purposes i.e. for the purchase of raw material, payment of wages and carry on day-to-day operations of business etc. These funds are known as working capital.

The management of fixed and current assets however, differs in three important ways: -


In managing fixed assets, time is a very important factor consequently discounting and compounding techniques play a significant role in capital budgeting and a minor one in the management of current assets. Large holding of current assets, especially cash, strengthens firms liquidity position but it also reduces the overall profitability.



Levels of fixed as well as current assets depend upon expected sales, but it is not only current assets which can be adjusted with sales fluctuating in short run.

In simple words working capital refers to that part of firms capital, which is required, be financing short term and current assets such as cash, marketable securities, debtors and inventories.
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The management of working capital is concerned with two problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that assets between them.

The basic goal of working capital management is to manage current assets and current liabilities of a firm in such a way that a satisfactory of optimum level of working capital is maintained i.e. it is neither inadequate nor excessive.

CURRENT ASSETS Cash in hand and bank balance Bills receivables Sundry debtors Short term loans and advances Investment of stock as: Raw material Work in progress Finished goods Store and spares Temporary investment Prepaid expenses

CURRENT LIABILITIES Bills payable Sundry creditors Accrued loans Short term loans Advances and deposits Dividend payable Bank overdraft Provision for taxation

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Concept of Working Capital

GROSS WORKING CAPITAL: Simply called working capital it is total of current assets, it refers to the firms investment in current assets. Current assets refer to those assets, which in the ordinary course of business can be continued into cash within an accounting year.
Debtors (Receivables)


Finished Goods

Raw Materials



CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance Loans & Advances Other current assets Total

RS. LACS 36995.58 9919.07 107965.44 7213.58 4915.64 167009.31

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Net working capital is the difference between current assets and current liabilities. Current liabilities include items payable or expected to be turned within one year from the date of the balance sheet and the term is used to designate obligation whose liquidation is reasonably expected require the use of existing resources assets or creation of other current liabilities. Net working capital may be positive or negative. A positive working capital arises when current assets exceed current liabilities a negative net working capital occurs when current liabilities are more than current assets.

Net Working Capital= Current assets - Current Liabilities

CURRENT ASSETS RS. LACS CURRENT LIABILITIES & PROVISIONS Inventories Sundry Debtors Loans & Advances Other current assets 36995.58 9919.07 7213.58 4915.64 Sundry Creditors Other Liabilities Advances Trade Security Deposits Unclaimed Dividend Provisions Total 59043.87 Total 50102.48 11225.51 740.51 4385.75 177.51 10017.55 76649.31 RS. LACS

Net working capital = Current Assets Current Liabilities Therefore, Net Working Capital of GSK= Rs. 59043.87-76649.31= - Rs 17605.44Lacs.

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There are no set of rules to determine working capital requirements of the firms. A large number of factors influence working capital needs of firms. All factors are of different importance. The following is the description of factors, which generally influence the working capital requirements of firms.

1. NATURE AND SIZE OF BUSINESS: Working capital requirement of a firm are basically influenced by nature of its business. Trading and financial firms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. In contrast, public utilities have a very limited need of working capital because they provide services on cash basis. Hence no funds will be tied up in debtors and stocks. Working capital needs of most manufacturing concerns fall between two extremes. In GSK Nabha final product is Horlicks, which is made by milk, which is perishable in nature. And it is not possible to store it for long period, because of that milk is purchased daily, for which they need to keep large amount of working capital with them.

2. MANUFACTURING CYCLE: The manufactures cycle start with the purchase and use of raw materials and completes with the production of finished goods. Longer the manufacturing cycle, larger will be the firms working capital requirements. In GSK the manufacturing Cycle is moderates i.e. neither too long nor too short. So their working capital requirements are moderate. This is successfully maintained by them.

3. BUSINESS FLUCTUATION: Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. These business variations affect the working capital requirements specially the temporary working capital requirements of the firm. When there is an upward swing in the

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economy, sales will increase correspondingly, the firms investment in inventories and book debts will also increase. In GSK the main raw materials they require for production are Milk, Wheat Flour, Malted Barley etc. They purchase raw materials other than milk on contract basis for a year, so there is no fear of fluctuation of prices for them. And for milk, there is fluctuation in prices but these fluctuations are so small to effect the working capital requirements of the company. And from sales point of view there is no fluctuation at all.



We just noted that a strategy of constant production might be maintained in order to resolve the working capital problems arising due to seasonal changes in the demand for the firms product. A steady production policy will cause inventories to accumulate during the off-season period and the firm will be exposed to greater inventory costs & risks. Thus, production policies will differ from firm to firm, depending upon circumstances of individual firm. In GSK, sales for next three years are forecasted on the basis of their production policy. Accordingly they maintain their working capital requirements. Seasonal changes do not effect their working capital requirements.



The working capital requirements of a firm are also affected by credit terms granted by its creditors. A firm will need less working capital if liberal credit terms are available to it. Similarly, the availability of credit from banks also influences the working capital needs of the firm. A firm, which can get bank credit easily on favorable conditions, will operate with less working capital than a firm without such a facility. In GSK, as it is the Multinational Company it finds no difficulty in getting credits on their required terms. So they need not maintain high amount of working capital with them.



The working capital needs of the firm increase as it grows in term of sales or fixed assets. A growing firm may need to invest funds in fixed assets in order to sustain its growing production

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and sales. This will, in turn, increase investment in current assets to support enlarged scale of operation. It should be realized that a growing firm needs funds continuously. In GSK capital budget is prepared every year, which is helpful in determining the requirements of working capital in the coming year. So if there is any expansion plan of company then it keeps into consideration while preparing capital budget. Last expansion of GSK, it established a Plant in Sonepat 5 years back. It was for spray-drying technology.



The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing to its working capital if it is efficient in controlling operating costs. The use of working capital is improved and pace of cash cycle is accelerated with operating efficiency. Better utilization of resources improves profitability and, thus helps in releasing the pressure on working capital. GSK installed a plant that re-utilizes the waste of company in generating fuel for further production. This plant helps in optimum utilization of recourses which in turn reduces cost also.


Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits.

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There are two elements in the business cycle that absorb cash - Inventory (stocks and work-inprogress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans. 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 one can get money to move faster around the cycle (e.g. collect money due 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 flowing downs a plughole, they remove liquidity from the business. More businesses fail for lack of cash than for want of profit. It is this importance of cash that, cash management is one of the key areas of working capital management. Apart from the fact that it is the most liquid asset, cash is the common denominator to which all the current assets can be reduced because the other major liquid assets, that is, receivables and inventory eventually get converted into cash. This underlines the significance of cash management. The term cash with reference to cash management is used in two senses. In a narrow sense it is used to cover currency and generally accepted equivalents of cash, such as cheques, drafts and demand deposits in banks. The broad view of cash also includes, near cash assets such as marketable securities and time deposits in banks.

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A firm is well advised to hold adequate cash balances but should avoid excessive balances. The firm has, therefore, to assess its need for cash properly. Cash budget is a device that helps affirm to plan and control the use of cash. It is statement showing the estimated cash inflows and outflows over the planning horizon. In other words, the net cash position (surplus and deficiency) of a firm as it moves from one budgeting sub period to other is highlighted by cash budget. The various purposes of cash budgets are: To coordinate the timings of cash needs It pinpoints the periods when there is excess of cash It helps to arrange the funds on most favorable terms and prevents excess accumulation of cash. It enables a firm which has sufficient cash to take advantage of cash discounts on its accounts payables, to pay obligations when due, to formulate dividend policy, to help unify the production schedule during the year so that the firm can easily smooth out the heavy fluctuation seasons.

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1. 2. 3. For the purchase of raw material components and stores For the payment of wages and salaries. To incur day-to-day expenses and overhead costs such as fuel, power and office expenses. 4. 5. 6. To meet the selling cost as packing, advertising etc. To provide credit facility to the customers. To maintain the inventories of raw material, work-in-progress, stores and spares and finished stock. 7. 8. To meet the requirement of anticipated needs of future. To face business crisis in emergencies such as depression, because during such periods, generally, there is much pressure on working capital.

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There is a difference between current assets and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investment in fixed assets such as Plant & Machinery. On the contrary, investment in current assets is turned over many times in a year. Operating cycle is the time duration required to convert sales (after conversion of resources into inventories and inventories into finished goods) into cash.

The operating cycle of a manufacturing Company involves three phases: -

1. 2.

Acquisition of resources such as raw material labor, power and fuel etc. Manufacture of the product which includes conversion of raw material into work-inprogress into finished goods.


Sale of the product either for cash or on credit. Credit sales create book debts for collection.

The length of the operating cycle of a manufacturing firm is the sum of: Inventory conversion period (ICP) and Book debts conversion period (BDCP).

The inventory conversion period is the total time needed for producing and selling the product. It includes: -

1. 2. 3.

Raw material conversion period (RMCP) Work in progress conversion period (WIPCD) Finished goods conversion period.

The book debts conversion period is the time required collecting outstanding amount from customer. The total of inventory conversion period and book debts conversion period is the maximum time required to collect outstanding amount from customers and sometimes it referred to as gross operating cycle. Generally, a firm acquires resources on credit and temporarily postpones payment of certain expenses. The payable deferral period (PDP) is the length of the
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time the firm is able to defer payments on various resource purchases. The difference between operating cycle and payables deferral period is net operating cycle. The length of operating cycle can be determined as: -


Where, GOC=Gross Operating Cycle; NOC=Net Operating Cycle; ICP=Inventory Conversion Period; BDCP= Book Debts Conversion Period; PDP= Payable Deferral Period; RMCP= Raw Material Conversion Period; FGCP= Finished Good Conversion Period.


In order to understand the length of time taken to convert sales (after conversion of resources into inventories and inventories into finished goods) into cash, operating cycle analysis has been done. The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivables. There are four aspects of operating cycle, which involves commitment of resources, a material stage, accounts finished stage and account payable stage. The operating cycle is calculated as the sum of first three stages minus accounts payable stage.

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1. Raw Material Conversion Period (RMCP)
Average raw material inventory x 365 Raw material consumed during the year


2011( Rs. Lacs)

Opening stock of R.M. Closing stock of R.M. Average stock Raw material consumed Raw material conversion period

4524.72 7368.95 5946.83 47727.81 46 days

2. Finished Goods Conversion Period (FGCP)

Average finished goods inventory x 365 Cost of goods Particular Opening stock Closing stock. Average stock 2011 ( Rs. Lacs) 9193.47 11993.15 10593.31

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Cost of goods Sold Finished Goods Conversion Period

170147.22 23 days

3. Work in process conversion period (WIPCP)

Average stock in process inventory x 365 Cost of production


2011 (Rs. Lacs)

Opening stock of Work in Process Closing stock of Work in process Average stock of Work in process Cost of production Conversion period




89927.01 2.96

4. Debtors Conversion Period or Book Debts Conversion Period

Average debtors x 365 Credit sale

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Particulars Average debtors Credit sales Debtors Conversion Period Note: Total Sales are taken as Credit Sales.

2011 ( Rs. Lacs) (4325.02+2736.19)/2 *365 170147.22 8 days

5. Creditors Conversion Period or Payable Deferral Period

Average creditors x 365 Credit purchases Particular Opening creditors Closing creditors Average creditors Credit purchase Creditors Conversion Period RMCP = 46 days WIPCP = 3 days FGCP = 23 days DCP = 8 days CCP = 17 days Gross operating cycle = 46 + 3 + 23 + 8 = 80 days Net Operating cycle = 80 17 = 63 days 2011 (Rs. Lacs) 14393.14 17252.17 15822.65 178381.90 17 days

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Cash management refers to practices and techniques designed to accelerate and control collections, ensure prompt deposits of receipts, improve control over disbursement methods, and eliminate idle cash balances. In general, cash management involves the effective and efficient use of cash to maximize cash flow at minimum cost. While system institutions generally dont maintain high cash balances, the cash management process is an integral part of organizations financial activities and encompasses a wide variety of financial decisions. Such areas can include information systems management, investment management, fund management, and liquidity management. In todays financial environment, electronic delivery systems are becoming increasingly important because of increased competitions and demand for more efficient and convenient capabilities. A significant number of transactions and amounts of funds can be moved electronically from one place to another almost instantaneously, consequently, the opportunities presented can pose significant risks to a financial organization. Such threats include internal and external fraud, theft and unauthorized manipulation of financial data.

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Motive for holding cash

1. The transactions motive 2. The precautionary motive 3. The speculative motive

The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages, operating expenses, taxes, dividends etc. the need to hold cash would not arise, if there were perfect synchronization between cash receipts and cash i.e enough cash was received to make the payments .but cash receipts and payments dont coincide most of the times. Some time cash receipts are more and securities. However ,the transaction motive mainly refers to holding of cash to meet the payment .for those period when the payments are more, the firm should maintain some cash balances to pay the required amount, for this firm may invest in marketable anticipated payments whose timing is not perfectly match with the receipts. The precautionary motive is the need to hold the cash to meet any contingencies in future. It provides a cushion or buffer to withstand some unexpected emergency. The precautionary amount of cash depends upon the predictability of cash flows. The more the accuracy in predicting the cash flows the lesser will be the amount required to be kept for this purpose. The amount of precautionary cash is also influenced by the firms ability to borrow at short notice when the need arise. Better the firms position in raising funds at short notice the less the need for precautionary balances. This balance may be kept in cash and marketable securities .the marketable securities should be selected keeping in view the risk, safety and liquidity and profit factors. The speculative motive relates to holding of the cash for investing in profit making opportunities as and when the arise in other words it is concerned with the pocketing of differences by taking advantage of the price fluctuations. The firm will hold cash, when it is expected that interest rate will rise and security price will fall. Securities can be purchased when the interest rate is expected to fall. The will benefit by the
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subsequent fall in interest rates and increase in security prices. The firm may also speculate on materials prices. If it is expected that material price will fall, the firm can postpone materials purchasing and vice-versa. The firm must decide the quantum of transaction and precautionary balances to be held. This depends upon the following factors; 1. The expected cash inflows and outflows based on the cash budget and forecasts. 2. The degree of deviation between the expected and actual net cash flows. 3. The maturity structure of the firms liabilities. 4. The firms ability to borrow at short notice, in the event of any emergency. 5. The efficient planning and control of cash.

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The Format of cash forecast plays a very significant role in management of funds in enterprises as it is on the basis of this forecast only the company can make its decisions regarding the use and application of funds. Thus the forecast should be simple and contain all the required information. In GSK nabha, the present method of preparing the forecasts for whole of the organization start with the submission of forecasts for the individual departments to the finance department by the 25th of every month. The final cash forecast is prepared on monthly basis which starts with an opening balance and consists of proper record of day-wise- receipts and payments and also gives information about closing balances. The cash requirements shown in the cash forecast are then clubbed and a consolidated demand draft for the required amount is called for from the head office of the company which is situated at Gurgaon. This demand draft is made from state bank of Patiala, nabha and collection charges to the tune are paid per DD.s. This format shows the movement of cash during the month. For e.g. on day one if the total receipts are six lacs and the total payment are of 10 lac, we are left with a closing balance deficit of Rs. 4 lacs. These 4 lacs will come in funds required column of day 1. The amount then calls in for a dd. The amount that we get after our calculation in the dd required for plus closing balance column will be the opening balance of day 2. In this way, we will continue our cash calculations for the rest of the days.

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Location PARTICULARS Jun-12 Jul-12 Aug-12 Sep-12 Oct-12

( lacs) Nov-12

RECEIPTS GHEE SCRAP SALES OTHER RECEIPT TOTAL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PAYMENTS SMP / PSMP(FROM HO PURCHASE) RAW BARLEY (FROM HO PURCHASE) OTHER (RM/PM) SALARY & WAGES EXCISE DUTY SALES TAX / TDS STORES & SERVICES COAL CONVERSION CHARGES FREIGHT CAPITAL EXPENDITURE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

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OTHERS 0 0 0 0 0 0


0 0

0 0

0 0

0 0

0 0

0 0

Payment Details

(MonSat) Week 1 Week 2 Week 3 Week 4 Week 5 TOTAL

Deutsche Bank 0.0 0.0 0.0 0.0 0.0 0

Total Monthly Spend ( A+B) Check

0 0

Utilization of fund
The excess cash or fund in the enterprises can be utilized by investing it somewhere .keeping in view the safety, maturity & marketability aspect of the securities purchased. Safety Usually a firm would be interested in receiving a high rate of return on its investment in marketable securities as is possible. But the higher return yielding securities are relatively more risky. The form should thus invest in very safe security as the transaction & precautionary balance invested in them are needed in near future. The default risk, which means the possibility
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of default in payment of interests or principal on time and in the amount promised, should be minimum. Maturity Maturity refers to the time period over which interest & principal are to be made. The price of the long-term security fluctuates more widely with the change in the interest than the price of short-term security. Overtime interest rate has a frequency to change. Because of these two reasons the long-term securities are more risky & the firm should go in for short-term securities, preferable for investing surplus cash.

Payment procedure for regular supplier of raw material

Supplier of raw material doesnt receive direct cash payment from GSK. All the payments are made by the head office through deutsche bank. Head office is in gurgaon. To make the payments to suppliers the 1st step is booking of payment voucher/bills. The cashier at head office generates the payments on daily basis except Saturday & Sunday because these are holidays at head office. Head office upload the payment to deutsche bank on its web site with an instruction regularly dispatched of payment. On the due dates of the bills payment is made to the suppliers. In the case of direct payment to suppliers, deutsche bank dispatched the payment to suppliers. Deutsche bank transfers the money to the concerned banks from which payment is made to suppliers. These banks make the drafts & send to nabha factory then these drafts are dispatched to suppliers.

Payment procedure for some other important items Milk

Milk is the important raw material for manufacturing of horlicks & its payment procedure is as follow. Payment for milk is made on 10 days credit basis. On receiving the milk the persons who envisages the milk prepares the automatic milk card reader in which the following information is given; Code no. Name of supplier Can wise weight Total Fat% Weight Where clr. = corrective lactometer reading
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To make the payments to the milk suppliers firstly payment bill are booked & deutsche bank makes payment. Beside it, by the automatic milk card reader, the above written information is printed and saved in the excel sheet. After that, they keep the hard copy if information in their record files.

Salaries are of two types; 1.) Salaries for staff/executive 2.) Salaries for workers Salaries to the staff &the executive are paid on 24-25th of every month. Salaries to workers are paid on 1st of every month. Besides the two dates mentioned above, there are some other dates also mentioned in cash forecast on which payments have been made under the salaries & establishment head &these are; To permanent workers-payments made on the 2nd of every month. To temporary workers-payments made on the 5th of every month.

Under other employ include:

Payment made on the 21st regarding ESI (employee state insurance) Payment made on the 15th regarding EPS (employee pension scheme)

Payment of loan:
Payment of loan applied for is made on 25th of every month.

Payment of PF loan:
Which can be availed only by the staff & permanent workers & that too after one year from the date of joining is made on the 20th of every month. For disbursement of such loans head office advice is to be received. For such loan everything has to be clear, like the amount of loan being given whether it is recoverable or not i.e. whether the amount will be repaid through installments or the entire amount will be deducted directly from the provident fund etc.

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Purchase tax& sale tax

The payment of purchase &sale tax is made on quarterly basis but a monthly provision for the same is made in the books of the organization. This tax as it is to be paid quartly its monthly amount is not shown in the cash forecast which is prepared on monthly basis.

Freight payments
When the material comes in the organization then freight charges are dispatched with it and it is given to the transporters. The freight charges are given either 7th or 22th of every month.

In GSK the only cash sale is made for ghee &scrap.

For ghee sales the credit period allowed is of 30 days & the payment is done on book billing basis. The dealer for ghee sale at nabha is ruldu ram& sons who pick up the material from the factory according to their requirement &makes payment through cheques or bank draft.

Scrap value
The credit period allowed is of 7 days &the scrap sale incude the sale of; Gunny bags High density plastic &low plastic bags Husk(which is the outer cover of malted barley) Coal cinder (this is the residue of coal obtained on burning of coal in the boilers)

The scrap sale is made on contact basis. An advertisement is given in a daily news paper& tenders are invited for the sale of scrap. This contract is for a fixed period of time after which it is renewed or given to some other party. The contractor is required to pick up the scrap regulatory after due intervals from the company. The procedure for this is as follow:

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When any vehicle enters the factory for picking up the scrap, firstly the empty vehicle is weighted & the weight of the vehicle & vehicle no. is feed into the computer installed near the weight machine. Then this vehicle goes to the scrap yard accompanied by a person from the store department. After picking up the material when the vehicles leaves the factory it is again weighted & the record of the material taken, the date of taking material, the type of material taken is kept.

Gunny bags
For the number of bags that are to be given out as scrap to a person from the store department prepares a delivery note for all the material going out. This note is prepared in triplate,1 copy of the note is kept by the store department,1 copy is given to the gate keeper who again checks the material going out &1 copy is given to the person taking the material.

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To increase the sales firm has to resort to sell the goods on credit basis. It has the element of risk as the cash payment is yet to be received. Receivables constitute a big part of current assets in many firms. Business firms generally sell goods on credit that is granted to facilitate sales. Receivable management is the process of making decisions relating to investment in trade debtors. Certain investment in receivables is necessary to increase the sales and profits of the firm. But at the same time, investment in this asset involves cost considerations also. There is always a risk of bad debts too. Thus, the objective of receivable management is to take a sound decision as regards investment in debtors. The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit.


Receivable management involves the careful consideration of the following aspects: Forming the credit policy Executing the credit policy Collection efforts

1. FORMING CREDIT POLICY For efficient management of receivables, a concern must adopt a credit policy. A credit policy is related to decisions such as credit standards, length of credit period, cash discount etc.

(a) Credit standards: Credit standards are the criteria, which a firm follows in selecting customers for the purpose of credit extension. The volume of sales will be influenced by the credit policy of a concern. By liberalizing credit policy, the volume of sales can be increased resulting into increased profits. (b) Length of credit period: Length of credit period means the period allowed to the customers for making the payment. The customers paying well in time may also be allowed certain cash
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discount. There is no binding on fixing the length of credit period. A concern fixes its own terms of credit depending upon its customers and the volume of sales. (c) Cash discount: Cash discount is allowed to expedite the collection of receivables. The funds tied up in receivables are released. The concern will be able to use the additional funds received from expedited collections due to cash discount.



After formulating the credit policy, its proper execution is very important. The evaluation of credit applications and finding out the credit worthiness of customers should be undertaken.

(a) Collecting credit information: The first step in implementing credit policy will be to gather credit information about customers. This information should be adequate enough so that proper analysis about the financial position of the customers is possible. The information may be available from financial statements, credit rating agencies; report from banks, firms records etc. (b) Credit analysis: After gathering the required information, one should analyze it to find out the credit worthiness of potential customers and also to see whether they satisfy the standards of the concern or not. Keeping three basic c factors does this: character, capacity and collateral. The credit analysis will determine the degree of risk associated with the amount, the capacity of the customer to borrow and his ability and willingness to pay. To estimate the probability of default, the financial or credit manager should consider three

1. 2. 3.

Character Capacity Condition


Character refers to willingness of customers to honor his obligation. The moral

factor is of considerable importance in credit evolution in practice. Capacity: - Capacity refers to the customers ability to pay. Ability to pay can be judged by a crossing the customers capital and assets offered as security.
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Conditions: - Conditions refer to the prevailing economic and other conditions, which also affect the customers ability to pay.

The GSK unit is selling its products through branches and on the consignment basis. Before granting sales to any party, these branches have the policy of getting information about the party. They also take into consideration the market position of the party, their reputation, makes the study of financial data relation of that customer with other supplies.

(c) Credit decision: After analyzing the credit worthiness of the customer, the finance manager has to take a decision whether the credit is to be extended and if yes, then up to what level. He will match the credit worthiness of the customer with the credit standards of the company. If customers credit worthiness is above the credit standards then credit is granted otherwise not.

The strip valuations under which the firm sells on credit to customer are called credit term. These stipulations include

Credit period Cash discount

3. COLLECTION EFFORTS Every firm should follow a well laid down collection policy that may be lenient or strict, and procedure to collect dues from its customers. When the normal credit period granted to a customer is over, and he has not made the payment, the firm should send a polite letter to him reminding that the account is overdue. If the customer does not respond, the firm may send progressively strong-worded letters. If receivables still remain uncollected, telephone, telegram and personal visit of the firms representative may follow letters. If the payment is still not made, the firm may initiate a legal action against the customer.

In this unit, there is no receivable management, as all the sales are controlled by the head office situated at Gurgaon receives payments. To boost up the sales, the company pays an
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attractive cash discount to its customers for early payments so that the credit collection period is decreased. The credit worthiness of the customer is compared with the credit standards of the company. It takes into account the promptness of the customer to pay. For giving credit to new customer, the financial position of the customer is investigated. The frequency of payment and cash discount availed helps in forming an opinion about the customer.

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Every business needs inventory for smooth working of its activities. It serves as a link between production and distribution activities. Inventory the most significant part of current assets. Large size of inventory is maintained by firms, a considerable amount of fund is required to be committed in them. Therefore, one of the most significant decision areas concerning finance manager is inventory management. Inventories consisting raw material, WIP, finished goods, maintenance spare parts a significant preparation of total assets. Inventory management means preparing the stock of goods at such I level that neither the stock should be excessive or inadequate. It is a system, which ensures that right quality of material, is available in the right quantity at right time and right place with the right amount of investment. Large size of inventory ensures efficient and smooth production and sales operations, while minimum investment in inventories maximizes profitability. Both the extreme points are dangerous. An efficient manager always determines the optimum points in between of the two extremes. Excess installments in the inventory pees danger like unnecessary the up of firms funds and loss of profit excess carrying cost, risk of liquidity and risk of physical deterioration of inventories. On the other hand inadequate investment in inventories seeks to production hold ups failure to meet delivery commitments. Thus, the aim of inventory management is to balance between the two and maintain sufficient inventories. According to Curry and Frank:
Because materials constitute such a significant part of product cost and since this cost is controllable, proper planning, purchasing, handling and accounting are of great importance.

The dictionary meaning of Inventory is a list of goods. In a wider sense, inventory can be defined as an idle resource, which has an economical value. It is however, commonly used to indicate various items of stores kept in stock in order to meet future demands. In any organization, there may be following four types of inventory:

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a) Raw materials & parts- These may include all raw materials, components and assemblies used in the manufacture of a product.

b) Consumables & Spares- These may include materials required for maintenance and day-to-day operations.

c) Work-in-progress- These are items under various stages of production not yet converted as finished goods.

d) Finished goods- These are the goods that are not yet sold or put into use.

In inventory cycle first of all raw material is purchased and then it is sent for manufacturing where work in progress is then converted into finished stock which is readily available for sale. Same process is followed in GSK but at Nabha plant only manufacturing of products is to be done whereas a sale finished product is done through the Head office. In GSK at Nabha raw materials are malted barley, Milk, Wheat Flour, Vitamins, etc. And in GSK work in progress is not considered for accounting because it is not calculated, it is only that part of production which is in pipelines. And in last finished product is produced which is filled in Drums and send to Head office (Gurgaon) for sale.

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Selective Management: - In this technique, various items of stores are classified in various classifications depending upon their consumption value, unit price, criticality for the organization, source of supply, purchasing problems, rate of withdrawals from the stores, seasonality and stores balances on a particular date. Different approaches of control are being followed for different types of items.

Two such classifications ABC & FSN are followed in GSK

Management by Exception: - In this technique, items with certain exceptions are tackled on different points of time. For example, overstock items; surplus items and inactive items may require more attention.

In GSK management by exception is followed for such goods that are stock outs for some period.
Rationalization: - Techniques of standardization and variety reduction are used to minimize lead-time of the material, and reduce unnecessary inventory carrying costs. Value Analysis: - Functions performed by the materials are analyzed and alternative designs/raw materials are suggested to achieve the same function at minimum cost.

Computerization: - Computer outputs can be used for scientific forecast of demand to solve many inventory models, providing optimum safety and for controlling funds.


General store is a major part of the inventory in all the concerns. It provides the information regarding how much material we can purchase, and how much material we can keep in store such as it is helpful to provide the information regarding all levels. The major part of working capital of all the concern spent in General store inventory.
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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 are: raw materials, work in progress, finished goods & stores and spares. Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw material inventories are those units, which have been purchased and stored for future productions. In GSK Malted Barley, Wheat flour, Skim Milk Product (SMP), Fine Crystalline Sugar (FCS), Roasted Malted Barley, Calcium, Potassium, Sodium, Vitamin Flavors etc., are main raw materials. Work-in-process. The work-in-process is that stage which is in between raw material and finished goods. The raw material enters the process of manufacture but they are yet to attain a final shape of finished goods. The quantum of work-in-process depends upon the time taken in the manufacturing process. The greater the time taken in manufacturing, the more will be the amount of work in process. In GSK at Nabha there is no work in progress. Consumables. These are the materials, which is needed for smooth process of production. These materials do not directly enter in the production but they act as catalysts, etc. consumables may be classified according to their consumption and criticality. Generally, consumables stores do not create any supply problems and form a small part of production cost. There can be instance where these materials may account for much value than the raw materials The fuel oil may form a substantial part of cost. In GSK Nabha Polythene, Drum Seal, Tape roll, Label, Cleansing Agent, Hand gloves, Oil, Chemical, Coal, etc. are examples of some consumables. Finished goods. These are the goods, which are ready for the customers. The s tock of finished goods provides a buffer between production and market. The purpose of maintaining inventory
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is to ensure proper supply of goods to customers. In some concerns the production is undertaken on the order basis, in general without waiting for specific orders. In GSK main finished goods are Horlicks, Boost, Vanilla Horlicks, Elachi Horlicks, Boost intermediate, Horlicks high fat, Junior Horlicks DHA, mother Horlicks DHA etc. are products, which are produced for consumption in India. Mother Horlicks DMI and Junior Horlicks DMI are products manufactured for export package and send to Bangladesh. Spares. Spares also form a part of inventory. The consumption pattern of raw material, consumables, finished goods are different from that of spares. The stocking policies of spares are different from industry to industry. Some industry like transport will require more spares than other concern. Costly spare parts like engines, maintenance spares etc. are not discarded after use, rather they are kept in ready position for further use. All decision about spares is based on the financial cost of inventory on such spares and the costs that may arise due to their nonavailability In GSK examples of Spares are Barring, V-Bolt etc


General store is that which the part of the production becomes indirectly. Without such inventory no production will be there. This store inventory includes: Polythene bags Consumables like diesel etc. Cleaning material like nitric acid, caustic soda etc. Floor cleaning towels Spare parts of the machines Inventory required under GMP (Good Manufacturing Practices) like uniform, hand

gloves, mouth covers, safety shoes etc.

Under the general store inventory total no. of items are 2517, which have the ABC classification. Their total consumption value is Rs. 51714106.83. It includes 45 items, some
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of which dont have any classification because these items are used as and when required during the year as such do not fall under any category and some are capital related spares.


Just in time purchasing is the purchase of material or goods in such a way that delivery of purchase item is assured before their use or demand. Just in time purchase recognizes too much carrying cost associated with holding high inventory levels. Therefore, it advocates developing good relation with supplier and making timely purchases from proven suppliers who can make ready delivery of goods available as and when need arises EOQ (Economic order quantity) model assumes a constant order quantity where as JIT purchasing policy advocates a different quantity for each order if demand fluctuates. EOQ lays emphasis on ordering and carrying cost but inventory management extends beyond carrying and ordering cost to include purchase cost, quantity cost and stakeout cost .JIT purchasing takes into consideration all these cost and move outside the assumptions of the EOQ model. There are 150 JIT items in GSK, Nabha. ADVANTAGES Investment in inventory is reduced because more frequent purchase order of small quantities are made Carrying cost is reduced as a result of investment in inventory. A reduction in the number of suppliers. Only proven suppliers who can give quick delivery of quality goods are given purchase order Quality costs such as inspection cost of incoming material or goods, scraps and rework costs are reduced because JIT purchasing assures quick and frequent deliveries of small size orders which h results in low level of inventories causing minimum possible wastage.

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Analysis of Various Components of Working Capital Inventory analysis

Inventory is the total amount of goods and materials. Inventory means stock of three: 1. Raw material 2. Semi finished goods 3. Finished goods Position of inventory in GSK Particulars Raw material WIP Finished goods Total 2007 13921225 4735793 8283102 26940120 2008 12230900 4901850 4509348 21642098 2009 29407402 6270176 5499646 41177224 2010 37297025 9756023 20800165 67853213 2011 28833211 5912280 9022153 43767644

Sundry debtors analysis

Debtors or an account receivable is an important component of working capital and fall under current assets. Debtors will arise only when credit sales made. Position of sundry debtors in GSK Particulars Debtors over a period of 6 months Other debtors Total debtors 2007 67.7 2008 127.5 2009 69.43 2010 106.44 2011 137.9

2,668.50 2,736.20

4,197.52 4,325.02

3,066.21 3,135.64

4,930.20 5,030.20

9,781.17 9,919.07

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Total debtors
12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 0.00 2007 2008 2009 2010 2011 2,736.20 4,325.02 3,135.64 5,030.20 Total debtors 9,919.07

In the table, we see that there are continuous variations in the debtors of GSK in the last five successive years. A simple logic is that debtors increase only when the sales increase and if sales increase it is a good sign for growth. We can see that in the year 2007 the debtors are at minimum level. But in the year 2011, debtors are higher due to increase in the sales. We can say that it is a good sign as well as negative sign. Company policy of debtors is very good but a risk of bad debts is always present in high debtors. When sales are increasing with a great speed the profit also increases. If the company decreases the debtors, they can use the money in many investment plans.

Cash and bank balance analysis

Cash called the liquid asset and vital current assets; it is an important component of working capital. In narrow sense, cash includes notes, bank draft, cheque etc.

Particulars Cash

2007 9,366.6

2008 47,997.69

2009 81,979.89

2010 97,609.83

2011 1,07,965.44

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120000 100000




80000 60000 40000 20000 0 2007 2008 2009 2010 2011 9366.6



If we analyze the above table we find that it follows an increasing trend. Cash is continuously increasing from the year 2007. Through analysis, we got that company is utilizing the fixed cash for exploding the projects that is good for growth.

Current liabilities analysis

Current liabilities are any liabilities that are incurred by the firm on the short term basis or liabilities that have to be paid within a year. Particulars Current liabilities 2007 2,48,67 2008 3,12,46 2009 5,11,09 2010 8,00,40 2011 9,37,67

If we analyze the above table, we can see that the current liabilities are continuously increasing. When a company has a minimum liability, it creates a better goodwill in the market. Higher current liabilities indicate that company is using credit facilities by creditors.

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Current asset analysis

Particulars Current assets 2007 3,71,13 2008 8,53,37 2009 11,72,91 2010 14,23,13 2011 16,70,09

If we analyze the above table, we can see that the current assets are continuously increasing. Current assets are continuously increasing may be due to the increase in the cash, cash is increasing may be due to the increase in sale, but if the current assets are increasing due to increase in the inventory, then this is not the good sign, because inventory is increasing due to decrease in sale and there are chances that inventory becomes obsolete and moreover company has to incur storage cost and other expenses for handling the inventory.

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Financial ratio analysis is a study of ratios between various items or group of items in financial statement and the turnover ratios. Ratio analysis is the powerful tool of financial analysis. In financial analysis, ratio analysis is used as an index or yardstick to measure the performance of the firm. Working capital is that part of total capital which is important in current assets. To get better insights about the working capital position of the firm ratio analysis has been utilized. To determine the Working Capital position of the firm following ratios have been analyzed: Current ratio Absolute liquid ratio Quick ratio Current asset turnover ratio Working capital turnover ratio Inventory turnover ratio Debtors turnover ratio Creditors turnover ratio Inventory to working capital rate

Current ratio, Quick ratio and absolute liquidity ratio are regarded ad liquidity ratios. The liquidity aspect is essential for both the creditors as well as management of a business enterprise. These ratios are used to judge firms ability to meet short term obligations. These ratios give an insight about present cash solvency of the firm and its ability to remain solvent in the event of adversities.

The current ratio is very popular financial ratio which is used to measure the ability of a firm to meet its current liabilities. Current assets are converted into cash for the payment of
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current liabilities. Apparently higher is the current ratio, greater is the short term solvency. Current ratio is given by the formula: Current Assets Current Liabilities

Year 2011 2010 2009 2008 2007

Current Assets 16,70,09 14,23,13 11,72,91 8,53,37 3,71,13

Current Liabilities 9,37,67 8,00,40 5,11,09 312,46 2,48,67

CURRENT RATIO 1.78 1.78 2.29 2.73 1.49

Current Ratio
3 2 1 0 2007 2008 2009 2010 2011 Current Ratio

A current ratio of 2:1 is generally considered to be acceptable. The current ratio of GSK is 1.78 in 2011 and 2010 and it is decreasing from the year 2008 due to increase in current assets and increase in current liabilities. The overall position of current ratio for GSK is satisfactory.


Quick ratio is much more exacting measure than the current ratio. By excluding inventories, it concentrates on really liquid assets, with value fairly certain. Quick Assets consist of only cash and near cash assets. Inventories are deducted from current assets on the belief that these are not near cash assets. Quick ratio is given by the formula: Liquid assets __________________ Current liabilities
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Particulars Quick Assets (In Lacs) Current Liabilities (In Lacs) QUICK RATIO (Times)

35165 24867 1.41

5,76,19 3,12,46 1.84

9,06,87 5,11,09 1.77

11,11,12 8,00,40 1.38

13,00,14 9,37,67 1.38

2 1.5 1 0.5 0 2007 2008 2009 2010 2011 1.41 1.84 1.77 1.38 1.38


A quick ratio of 1:1 is considered as acceptable. A higher ratio of 1.38:1 ensures the ability of the firms quick assets to meet its current liabilities. For GSK, the quick ratio presents an uneven change over the past 5 years. It was 1.41 in 2007 and then increased to 1.84 in 2008 and then decreased t0 1.38 in 2011. CURRENT ASSETS TURNOVER RATIO: The idea of the current assets turnover is to ascertain the contribution of the current assets to sales. The relationship indicates efficiency or otherwise utilization of current assets to attain the maximum turnover sales. Sales __________________ Current assets

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Net Sales Current Assets Ratio

13,955.05 3,71,13 0.37

1,70,044.8 85,336.62 1.99

2,02,512.04 1,17,290.83 1.73

2,43,077.18 1,42,312.92 1.71

2,83,209.55 1,67,009.31 1.69

Current asset turnover ratio

2.5 2 1.5 1 0.5 0 2007 2008 2009 2010 2011 Current asset turnover ratio

Current asset turnover ratio is continuously decreasing from year 2008 due to the increase in the current assets. Although sales are also increasing but increase the % increase in the current assets is more as compared to % increase in the sales.


Net working capital turnover ratio

indicated the velocity of the utilization of working capital. A higher ratio indicates the effective utilization of working capital and a low ratio indicate otherwise.

COGS or Sales Net Working Capital

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Net Working Capital Sales Ratio





1,70,044.8 3.14

2,02,512.04 3.06

2,43,077.18 3.90

2,83,209.55 3.86

5 4 3 2 1 0 3.9 3.14 3.06 WCTR 3.86





This ratio indicates the number of times the working capital is turned over in the course of a year. A high working capital ratio indicates the effective utilization of working capital and less working capital ratio indicates less utilization. For GSK, the ratio is quite same for the past four years. It was 3.14 in 2008 which decreased to 3.06 in 2009 and then rise to 3.9 in 2010 and then there is negligible change in 2011 when compared to 2010. This ratio has improved over the last four years. Hence we can see that the component of working capital is consistently reducing which is considered as a positive sign from the point view of the finance. Working capital is segregated into Inventory turnover, Debtors turnover and creditors turnover

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INVENTORY TURNOVER RATIO: This ratio is also known as stock turnover ratio and establishes the relationship between the cost of goods sold during the year and average inventory held during the year. It is calculated as follows: Sales Average Inventory






Opening Inventory Closing Inventory Average Inventory Sales

19,482.4 27,717.03 23,599.69 1,70,044.8

27,717.03 26,603.20 27,160.12 2,02,512.0 4 7.45

26,603.20 31,200.06 28,901.63 2,43,077.1 8 8.41

31,200.06 3,69,95.58 3,40,97.82 2,83,209.55




9 8.5 8 7.5 7 6.5 2008 2009 2010 2011 7.2 7.45 8.41 8.3


It was observed that Inventory turnover ratio indicates maximum sales achieved with the minimum investment in the inventory. Therefore, high inventory turnover is desirable but high inventory turnover ratio may not necessary indicates the profitable situation. An organization, in
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order to achieve a large sales volume may sometime sacrifice on profit, inventory ratio may not result into high amount of profit.

DEBTORS TURNOVER RATIO: In case firm sells goods on credit, the realization of sales is delayed and the receivables are created. The cash is realized from these receivables later on. The speed with which these receivables are collected affects the liquidity position of the firm. The debtors turnover ratio throws light on the collection and credit policies of the firm. The debtors turnover ratio is calculated as follows: Sales Average Accounts Receivable






Opening Debtors Closing Debtors Average debtors Sales DTR

2,736.2 4,325.02 3,530.61 1,70,044.8 48.16

4,325.02 3,135.64 3,730.33 2,02,512.04 54.28

3,135.64 5,036.64 4,086.14 2,43,077.18 59.48

5,036.64 9,919.07 7,477.85 2,83,209.55 37.87

80 60 40 20 0 2008 2009 2010 2011 48.16 54.28 59.48 37.87 DTR

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Debtors turnover indicates the number of times the debtors are turned over during a year. Generally, the higher the value of debtors turnover the more efficient is the management of debtors/sales and less liquid debtors. CREDITORS TURNOVER RATIO: This ratio is calculated on same lines as receivable turnover ratio is calculated. This shows the velocity of debt payment by the firm. A low creditors turnover ratio reflects liberal terms granted by the suppliers. While a high ratio shows the accounts are settled rapidly. It is calculated as follows: Credit Purchases Average Accounts Payable Particulars 2008 2009 2010 2011

Opening Creditors Closing Creditors Average Annual Purchase CTR

14,393.14 17,245.92 15,819.53 44,297.50 2.80

17,245.92 28,499.78 23,154.89 49,763.51 2.15

28,499.78 35,692.46 32,096.12 59,350.20 1.85

35,692.46 50,102.48 42,897.47 65,326.10 1.52

3 2 1 0 2008 2009 2010 2011 2.8 2.15 1.85 1.52 CTR

Actually, this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally, a low creditor turnover ratio implies the favorable since the firm
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enjoys lengthy credit period. Now if we analyze the four years data we find that in the year 2008 the ratio was 2.8 which mean that its position of creditors that year was not very good, but when we turn ahead the other years creditors turnover ratio is in pretty good position. In all the four years it has followed, a decreasing trend, which is very good sign for the company. Therefore, we can say that it enjoys the good credit period from suppliers.

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The principal aim of budgeting as a tool is to predict the cash flows over a given period of time is to ascertain whether at any point of time there will be excess or shortage of cash. So is the purpose of cash budgeting done at GSK, Nabha. The first element of cash budgeting at Nabha is selection of period of time to be covered by the budget. It is referred to as planning horizon. The planning horizon means the time span and the sub periods within the time span over which the cash flows are to be projected. At GSK, Nabha the sub period taken for the purpose of budgeting is a time span of one month which is further used to consolidate it for quarterly and then annual budgeting. The second element of cash budgeting is to determine the factors that have a bearing on cash flows. The items included in cash budget are only cash items; non cash items such as depreciation and amortization are excluded. The factors that generate cash flows are generally divided into two broad categories: Operating and Financial. Cash flows generated by the operations of the firm are known as operating cash flows while the others are termed as financial cash flows. At GSK, Nabha as per the limits of the project only operating cash flows have been considered. The operating cash flow items which are require to be considered are mentioned as below:

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Inflows/Cash receipts Cash Sales Collection of accounts receivable Disposal of fixed assets

Outflows/Disbursements Accounts payable Purchase of raw materials Wages and Salary Factory expenses Administrative and selling expenses Maintenance expenses Purchase of fixed assets


As is mentioned in the table above the operating cash flow items which are used at GSK for the purpose of budgeting are mentioned in the template attached. This template is used for obtaining the inputs for the cash flow items from the various departmental heads on monthly basis. The major heads in the template are receipts, payments for purchase of raw materials, packaging materials, freight, employee salaries, electricity expenses and provision for taxation. After the time span of the cash budget is decided, the final step is the construction of the budget. Post receiving inputs from various departments the budget is constructed.

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The goal of working capital management is to manage the firms current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety WORKING CAPITAL BUDGETING-2011-2014

GlaxoSmithKline Consumer Healthcare Limited

Working Capital Budget - 2011-2014 Location ( All Figures in Rs. ' 000 ) NABHA



2014 Dec

Dec Mar June 2011 Act Act Sep Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

INVENTORY Raw & Packing Material Raw Materials Packing Materials SUB - TOTAL Finished Goods Bulk/Packed Stock SUB - TOTAL 2000

1000 3000

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OTHERS General Stores Coal Stock SUB - TOTAL





TRADE CREDITORS (Negative) Raw Materials Packing Materials Stores/Services Milk Marketing Freight Other Expenses TOTAL TRADE CREDITORS 1000

OTHER DEBTORS Advances Loans to Employees Other DebtorsExcise Modvat


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Advances Other Debtors Interest Receivable TOTAL OTHER DEBTORS


OTHER CREDITORS Payroll Excise Payble Other Creditors Interest Pavble Capex Gratuity Etc TOTAL OTHER CREDITORS



INTERPRETATIONIn the month of july, we have done the month wise forecasting of working capital required for the next year.

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The result of the live project done at GSK is presented in the form of following recommendations: Working capital can be improved by:

1. Reducing the inventory holding period of items.

3. Increasing the credit period of Creditors.

3. Decreasing the credit period of Debtors.

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Credit period of raw material suppliers to be checked for standardization Credit period of same supplier to be checked for standardization across all locations General PO terms to be checked for revision for Simplification Inventory holding to be validated for checking against the norms FG quality clearance time to be reviewed for reduction Upward revision of credit limit of suppliers post discussions Credit period of same raw material supplied by different supplier to be standardized at same site in case they differ If more than one supplier supply raw material at same site then their credit period should be same If same supplier supply raw material at different site within the same company then their credit period should be same If the same supplier supplies the raw material to different companies then their credit period should be same. The surplus fund of the unit should be invested in some short marketable securities. It will thus improve the profitability position of the concern. The company should borrow some funds from markets. As Loan today is the cheaper source of Finance Company has to give due consideration on current liabilities which are increasing though these are increasing slightly but it must be taken into consideration. The Company to strengthen its cash resources and also to reduce the dependence on Head Office funds. The company should accelerate its cash sales of Ghee. As is evident from the Cash Forecast the Ghee sales projected are just Rs. 89 lakhs. This could be done by extensive marketing activities, covering new markets, exports of the product etc.

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The company should aware of the competitors strategy. The company should spend more on the advertisements like distributing free testing of products to the people at public place. Further improvements could be done through modernization of the methods of transferring funds i.e. instead if transmitting of funds through a demand draft or cheque if Electronic Data Interchange (EDI) or Society For Worldwide Instant Funds Transfer (SWIFT) were brought into practice the amount needed could be brought in easily and that too in less time and at lesser cost.

The company could make use of the funds if needed, before disbursement of different payments by maintaining good relations with banks i.e. if the company is in need of funds and on the same date the payments are also to be made the company could delay the payments by negotiating with the concerning Bank and utilize the funds without causing any harm to the goodwill of the company. Another such way out is by making a cheque in hand which would in the company's record show the payment on the desired date but actual payment is paid after one or two days. This method is based on the faith of the party in the enterprise. For example in our cash forecast, the funds from the Head Office are brought in on 11th for Rs.145 lakhs and the payments due on 11th and 12th are ofRs.25 lakhs and Rs. 120 lakhs respectively. So if the amount of 145 lakhs is delayed by one day through negotiation with the Banks or though cheque in hand the company could earn an interest of Rs. 4369.86.

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Working Capital Management

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses. The goal of working capital management is to manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained. The majority of Indian companies maintain relatively lower cash/bank balances. Marketable securities are yet to emerge as a popular means of cash management. The excess cash is deployed to retire short term debt/ in short term bank deposits. Though there is a notable decline over the years but yet inventory constitutes an important part of total current assets. Debtors/ receivables also constitute an important part of current assets. The collections are required to be as quick as possible and thus corporates offer cash discounts for the purpose. Accounts payables and short term loan/ advances are major components of current liabilities.

The project Working Capital cardinally focuses on inventory and credit terms for the creditors and debtors.

The approach followed in the project is to reduce the inventory so as to adhere to the standard norms of the inventory holding thereby releasing the working capital out of it.

Secondly to revise the credit terms in such a way so as to make them uniform across all the sites. Thus releasing the working capital at the sites where the credit terms were proposed to be revised.

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Working as a trainee for a period of two months the company was reluctant to reveal its complete information The time was not enough for giving an in-depth review of the working capital management

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