Acknowledgeme nt

is to be measured not so much by the position one has reached in life but by the obstacles that he has overcome while trying to succeed

Success

We express our sincere thanks to

our respected lecturer as well as our term paper guide MISS NEHA TIKOOfor Her guidance and tremendous encouragement bestowed throughout our Endeavour.

Priyanka

Contents
The indian small scale sector- AN OVERVEIW GOVERNMENT'S DEVELOPMENT STRATEGY working capital Need of working capital Review of literatures Working capital management (a study of Goetze ltd., Bahadurgarh) Management of working capital-- Some challenges

Evaluation Of Working Capital management Through Accounting Ratios

Working capital trend and liquidity analysis of the state industrial enterprises in haryana.

Working capital management through fund flow statement Working capital management of profit making undertaking

Financing and utilization of working capital Working capital liquidityprofitabilitytriangle. Management of liquidity and profitability

Performance of the SSI % of SSI in total exports

REFRANCES

The Indian Small Scale Sector - An Overview

In India, an SSI Unit is defined as

SSI Unit
one where investment in plant and machinery where held on ownership terms or on lease or by hire purchase does not exceed Rs. 10 million (1USD=Rs.49) ". There also exists a definition for micro-enterprises, which are popularly known as "Tiny Units".

Tiny Unit
A tiny unit is one where investment in plant & machinery does not exceed Rs. 2.5 million". From about 80,000 units in the late 1940s to over 3.3 million units today, the sector has been proving its mettle time and again. The last decade of 20th century has been this sector maintaining its steady growth. The SSI sector in India can alone contributes 7% to India's GDP. The performance of the Indian Small Scale Sector in terms of critical economic parameters such as number of units, production, employment.

SMEs have certain common characteristics, some of which are highlighted below:

Born out of individual initiatives & skills

SME startups tend to evolve along a single entrepreneur or a small group of entrepreneurs; in many cases; leveraging on a skill set. There are other SMEs being set up purely as a means of earning livelihood. These includes many trading and retail establishments while most countries continue SMEs to manufacturing services, others adopt a broader definition and include retailing as well.

Greater operational flexibility

The direct involvement of owner(s), coupled with flat hierarchical structures and less number of people ensure that there is greater operational flexibility. Decision making such as changes in price mix or product mix in response to market conditions is faster.

Low cost of production

SMEs have lower overheads. This translates to lower cost of production, at least upto limited volumes.

High propensity to adopt technology

Traditionally SMEs have shown a propensity of being able to adopt and internalise the technology being used by them.

High capacity to innovate export

SMEs skill in innovation, improvisation and reverse engineering are legendary. By being able to meet niche requirements, they are also able to capture export markets where volumes are not huge.

High employment orientation

SMEs are usually the prime drives of jobs, in some cases creating upto 80%. Jobs SMEs tend to be labour intensive per se and are able to generate more jobs for every unit of investment, compared to their bigger counterparts.

Utilisation of locally available human & material resources

SMEs provide jobs locally and hence utilise manpower available locally. Since it is available for them to transport materials over long distances, they often improvise with materials which are available locally. Reduction of regional imbalances Unlike large industries where divisibility of operations is more difficult, SMEs enjoy the flexibility of location. Thus, any country, SMEs can be found spread virtually right across, even through some specific location s emerge as 'clusters' for units of a similar kind. Nevertheless, the spread of SMEs is a fact which enhances their attraction from a national or regional policy.

GOVERNMENT'S DEVELOPMENT STRATEGY

Government's development strategy for Small Business Enterprises in India has evolved around the following:

Protective discrimination e.g. Reservation, minority sector lending, etc. Integration between Large and Small e.g. subcontracity ancillarisation and vendor development.

Institutional support through a network of testing centers, tool rooms, entrepreneurship development institutes etc

while the first two decades after Independence focused on institutional support, the third decade saw the use of reservation of products for exclusive manufacturers in small sector as the

preferred policy intervention. In the fourth decade, the endeavor was to promote linkages of SMEs with large units, specially the public sector units (PSUS).

working capital
Working capital is amount of funds invested in the current assets of a business . It is required to purchase raw material, payment of wages, electricity and gas bills, stocking of goods, paying short term loans, taxes and advertising bills. It is as important as circulation of blood for the business, working capital is essential to maintain smooth running, prosperity and stability of the business. It is very important for the daily operations of the business. There are many factors which can affect the working capital directly or indirectly.

Kinds of working capital

On the basis concept

On the basis of time

Permanent Gross working capital Net working capital working capital capital

Temporary working capital

Seasonal Regular Reserve

Special

Need of working capital

Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sale. There is a operating cycle involved in the sales and realization of cash. There are a time gap between purchase of raw material and production; production and sales; and sales and realization of cash. Thus, working capital is needed for following purposes: For the purchase of raw material, components, and spares.

To pay wages and salaries . To incur day-to-day expenses and overhead costs such as fuel, power and office expenses.

To provide credit facility to the customer. To maintain the inventory of raw material, work in progress, stores and spares and finished stock.

For study the need of working capital in a business, one has to study the business under varying Circumstances such as anew concern, as a growing concern and as one which has attain maturity. A new concern requires a lot of liquid fund to meet initial expenses like promotion, formation etc. These expenses are called preliminary expenses and are capsized. The amount needed as working capital in a new concern depends primarily upon its size and the ambitions of its promotions. The greater the size of the business unit, gernerally larger will be the requiremwnt of working capital. The amount of working capital needed goes on increasing with the growth and expansion of business till it attain maturity. At maturity the amount of working capital needed is called normal working capital.

Review of literatures

1.

Working capital management

(a study of Goetze ltd., Bahadurgarh)

Sharma. A.K analyze the working capital management practices in geotze limited. In this study the author evaluate the cash management performance, inventory management performance, and also analysis the working capital performance. The author stated that if the cash current ratio of the co. is low, then the profitability is high. Low the cash turn-over ratio means ideal cash balance. The author analyze the inventory management performance through various ratios. Like inventory turnover ratio & conversion period, raw material turn-over ratio & conversion period, WIP turn-over ratio & conversion period, finished goods turn-over ratio and conversion period. The author stated that increase the inventory turnover and reduce the cost of inventories. The author evaluate the working capital performance of the company through the use of various ratios. The author use the current ratio, quick ratio, current asset to sale ratio, loan and advantages to gross profit ratio.

2.

Management of working capital------Some challenges

Singh. k stated that the problems of managing working capital. The working capital has got a
separate entity, as against different decision making issues current assets individually. The skill for the working capital management are somewhat unique, through the goals are the same as in managing current asset individually Viz., to make an efficient use of fund for minimizing the risk of loss to attain profit objective. Working capital involve the decision upon the amount and composition of current asset and how to finance these assets these decision involves tradeoffs between risk and profitability. The working capital management is concern with the problems that arise in attempting to manage the current asset, the current liability and the interrelationship that exist between them. The goal of working capital management is to manage the firms current asset and current liability in such a waty that a satisfactory level of working capital is maintain. This is also ,if the firm cannot maintain a satisfactory level of working capital, its likely to become insolvent and even be forced into bankruptcy. Each of the current asset managed efficiently in order to maintain the liquidity of the firm. There are the need of larger amount of working capital in the manfacturing process, making heavy machinery and equipment minimise their investment.their is difficult the relationship between the growth in the volume of business of company and increase in the working capital. The dividend policy may also effect the working capital. The deprication policy exert influence on the quantum of the working capital. Deprication charger do not invove any cash, so that the effect of deprication on working capital is indirect. Price level changes also effect the requirement of the working capital.

3.

Evaluation Of Working Capital management Through Accounting Ratios

Hossain. S zabid evaluate the working capital through accounting ratios. Firstly he describe the meaning of and importance of the working capital. The working capital is very important, because they use for the day to day operation. The working capital is necessary for utilizing the productive capacity of fixed capital. For the shortage of the working capital, the enterprise would suffer reduction in earning. In this study the author use the various ratios for the evaluation of working capital management. The ratio analysis is most commonly used technique which deal particularly with each and every aspect of the working capital. To measure the ability of the firm to pay its maturing obligation in time the author use the; current ratio, liquid ratio and. For the better liudity position the ratio is 2:1 and 1:1 respectively. To evaluate the structure of the working capital, the each component of current asset divided by total current assets.to find out the gross/ net working capital the net sales is divided by net/gross working capital.to find out the productyvity of cash, receivable and inventory there are the turnover of cash, turnover of receivable and inventory turnover. Is the best way. The author analise that higher the these turnover ratio is the better utilization or productivity of inventory. The lower the ratio, is greater the chances of over stocking and poor the utilization or productivity of inventory.

4.

Working capital trend and liquidity analysis of the state industrial enterprises in haryana.

Garg.p.kumar analyze and assess the working capital trend and liquidity position of all the state owned industrial enterprises in haryana which are engaged mainly in manufacturing, extracting, processing and production enterprise the author cover the period of ten year in their study . the period has been considered sufficient to reveal the short term and long term fluctuations. During the survey it was found that no enterprise under study has any formal practice of forecasting the working capital. However on the basis of the discussion with the executive of the concern enterprise it is said that rough estimate of sales, inventory and receivables are taken in to consideration while making the arrangements of cash credit limit with commercial bank or other financial institution. On the account of high investment in the current assets most of the units had experienced shortage of funds for buying necessary raw material, paying wages and meeting other miscellaneous expenses. Obviously, all these factors have adversely affected the operating efficiency of the concern units. The author stated that the requirement of working capital should be properly assessed by all the units. For this purpose the various aspects such as production schedule, labor cost net sales, etc. should be taken into account. Further, there is anteed of better management of inventory, receivables and cash.

5. Working capital management of profit making undertaking

Bansal.s.p stated that the corporation is adopting a conservation policy of financing. The short term credit position regarding there claim is threatened due to lack of fund in the form of current asset to meet their claims. A wide fluctuation in the average collection period reveals that the corporation is not following a uniform policy regarding the collection of debtors. It also find an inefficiency on the part of management which cause over investment in the inventory , dull business, poor quality of products, stock accumulation, accumulations of absolute and slow moving goods and low profit as compare to total investment. The corporation failed to utilize its full production capacity for want of sufficient working capital. Thus , the shortage of working capital particularly due to insufficient cash present a very serious situation. The corporation should, therefore, plan its cash need properly and try to maintain necessary balance in cash account. Failure to do so, lead to bankruptcy and early liquidation of the firm

6. Working capital management through fund flow statement

Rao.D.Govinda analyze the working capital through fund flow statement. the
objective is to study the causes of changes in the working capital analyze the fund flow statement and to analyze the working capital through fund flow statement. the study covers only the companies who manufactures cement and allied product. The author studied the five company which represent sufficiently the whole cement industry. About the 60% of the total industry coverage is made taking in to the capital investment, production sale employment of work force, etc.the terminology which are use in the study is size of working capital, fund and adequacy of the working capital. Size of working capital represent the investment in cash and other current assets. And the fund has been define with the no. of ways; fund refer to all type of financial recourses those are posed by the undertaking, it includes all type of assets including current and noncurrent assets .there are many causes of changes in the working capital. Change in working capital are mainly due to; sources of fund and application of fund the probably causes in increasing in the fund flow are; increasing in the share capital, increasing reserve and surplus, raising of secured/ unsecured loan, writing off the intangible assets. On the other hand the application of funds; purchase of fixed asset, redemption of loan, redemption of debentured. Thus with the aid of changes in the working capital and fund flow statement, changes in working capital is very well analyzed and assented.

7. Financing and utilization of working capital

Garg.P.Kumar stated that the way which the working capital is financed and utilized. In this study the author primary and secondary data has been used. This study discuss the practices pursued by the state industrial enterprises in managing their working capital. For this purpose of in-depth study the state owned industrial enterprises in Haryana have been selected. All the unit finance their working capital from borrowing funds and this trend has continuously increase during the period under the chore committee . the reconditions of the tandon committee and the chore committee have been flouted by these enterprises. However HML has made good progress in financing its working capital from internal sources. Most of the units have a weak financial passion and limited access to financial institution to support their scarce recourses and their risk bearing capacity have been very low. Obviously all these factors adversely effected the operating efficiency and operating income of the concerned units which have been duly verified by current asset turnover ratio and regression equation of sale on current asset.

8.Working capital liquidityprofitabilitytriangle.

Singaravel.p analyze the liquidity and profitability of the working capital. Liquidity is the ability to match the liquid asset with current liability other than bank overdraft liquid ratio is 1:1 according to the rule of them . if any deviation in the liquid ratio on either side is not preferable, as it will affect the financial position . the profitability is the rate of return on the capital employed capital employed for the purpose of this paper is the amount invested in the fixed asset plus working capital. Working capital is the excess of stock in trade over bank overdraft and excess of liquid assets over current liabilities other than bank overdraft. Working capital requirements are met from the long-term funds. Flexibility and adjustment in the requirement of working capital depends on the availability an d the cost of the capital of the long term funds.

9.Management of liquidity and profitability

Hyderarbad.R.L analyze the risk and return of the different combination. The consideration of the working capital investing and financing are very crucial and be given due significance by the management in farming overall working capital policy. Combination 1 and 2 are two extreme approaches with regard of working capital management. The combination1 combines conservative investment policy with conservative financing. And combination 2 combines aggressive investing policy with aggressive financing. An enlightened management should trend a balancing approach depending upon the situations the combination 3 combine conservative investment policy with aggressive combination 4. The combination 4 combine aggressive investing policy and consrvative financing policy. The combination 3 and 4 are the more riskier than combination 1. financing policy while company use the

Performance of the SSI

years

units ( lack nos.)

production employ at current -ment

export

price (crore) lack nos.

in crore in million

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

101.1 105.2 109.5 114.0 118.6 123.4 P 128.4

261297 282270 314850 364547 429796 497842 587196

240.9 252.3 263.7 275.3 287.6 299.9 312.5

69797 71244 86013 97644 124417 150242 .

15278 14938 17773 21249 27690 33935 .

Analysis:The performance of the small scale units better. There is in their developing stage. The no. of ssi units increase year by year and this also increasing. With the increasing no. of small scale units the production, employment and the export are also increasing year by year. In 2000-01 the small scale units are 101.1 lack and the employment level is 240.9 lack.

Its increased in 2001-2002 its 105.2 lack units and employments is 252.3 lack. In 2006 -07 it is a tremendous. Increment in the small scale units. In 2006-07 the units is 128.4 lack and the employment is 312.5 lack. The export of the small scale unit is also increasing yearly. In 2000-01 its 69797crore, in 200102 its 71244, in 2002-03 its 86013crore and 2005-06 its reached to the 150242crore.

% of SSI in total exports

Product Sports goods Readymade garments Woolen garments, knitwear Processed foods Marine products Leather products Plastic products Cosmetic, basic chemicals &pharmaceutical products Engineering goods 100 90 35 65 29 80 45 55 30 % of SSI in total exports

ANALYSIS
This show the participation of small scale industries in the exports. All the goods of the sports are exported by the small scale industries i.e 100%. The SSI also has a greater participation in the readymade garments. There 90% of the total export of readymade is sent by small scale units. The SSi also hase agreater part in the leather products. The 80% part of leather products through the SSI. In processed foods and cosmatics, basic chemicals & pharmaceutical products, the participation of SSI is above 50% the SSI units also participate in Woolen garments, Marine products, knitwear, Plastic products, Engineering goods, in these goods the SSI units has less than 50% participation

REFRANCES
Accounting and financial management by B.S. Bhatia G.S.Batra working capital mnagement by P. Mohana Rao Alok k. Pramanik

www.ssiworld.com/about/about1-en.htm www.ssiauto.com exim.indiamart.com/ssi-corner/performance www.lubindia.org/ssi/ssi-sectors.php www.financialexpress.com/.../working-capital...ssi.../40558/ Bangladesh