Content

CHAPTER 1
Introduction
Executive Summary
Industry Profile
History of Coca-Cola
CHAPTER 2
Overview of Company profile
History of Coca-Cola India
About the Orani!ation
CHAPTER 3
"or#in Capital $anaement
"or#in Capital Cycle
Sources of "or#in Capital
"or#in Capital $anaement at %AI&
"or#in Capital at %AI&
CHAPTER 4
'esearch Ob(ective
'esearch $ethodoloy
Analysis and Interpretation
&imitations) Conclusions and 'ecommendations
%iblioraphy
1
CHAPTER 1
Introduction
Executive Summary
Industry Profile
History of Coca-Cola
2
INTRODUCTION
Soft drin# includes all types of non alcoholic carbonate flavored or otherwise
sweetened beveraes* Soft drin#s are mostly pac#aed in +,, ml) -,, ml) .,, ml and
+ &tr comes in a variety of flavors* It also comes in lass as well as in plastic bottles*
Since so many chanes and transformations are underoin ever chanin consumer
demands* /ovt* Policies and innovative pac#ain* 0hen industries are much
emphasi!in advertisin to increase its sales*
"ith the introduction of fruit pulp based soft drin#s pac#aed in cardboard cartoons
#nown as 10E0'A PAC23 has been introduced in the mar#et* 0he bottled soft drin#
mar#et has underone a marinal decreases in demand after 4556 the eminent re-
entry of Coca-Cola in Indian soft drin# Industry it is headin for two iants war to
capture the mar#et* It has introduced various sharp and efficient tools say tour
pac#aes) pri!es ift other avenues to enhance social status and satisfyin eos also*
$ar#etin plays a vital role in today7s business scenario) where the all the 8$C/
concerns are plannin to have an ede over their competitors*
$ar#etin is a viewpoint) which loo#s at entire business process as a hihly
interated effort to discover) create and satisfy consumer needs*
0he pro(ect wor# consists of findin new channels of promotion for Co#e* Survey
was carried out to find out the test mar#et and the stratey to be used to enter and
sustain the channel*
3
EXECUTIVE SUMMARY
%'I9:A;A9 Aro Industries &td* is the most reputed company) in the cold drin#
manufacturin sector in India* It was this orani!ation which had set up the first Coca
< Cola plant in India) on the comebac# of Coca < Cola Company after 4. years of its
absence in India* 0his plant is set up at Hathras near Ara =0he City of 0a(>) under the
franchise areement with the former* It has its branch in many cities* 0his Pro(ect
focuses on the overall "or#in Capital 'e?uirement of %'I9:A;A9 Aro
Industries &td* =%AI&>) Ara for aerated water manufacture*
"or#in Capital is essential for a company to meet its continuous operational need*
Effective wor#in capital manaement is especially important in today7s business
environment* Its ade?uacy influences the firm7s ability to meet its trade and short <
term debt obliations* In order to have cash available) a company needs to manae its
wor#in capital*
0he broad areas which have been analy!ed are@
0he beveraes =soft drin#s> sector in the lobal prospects and in the Indian
context* It ives an outloo# on the soft drin# industry*
Information on %'I9:A;A9 Aro Industries &td*) its activities* 8uture plans
of the company*
Ob(ective of the research* 0ells us about the expectations of the research*
0he research methodoloy used by the researcher is discussed it tells us about
the nature of the research and the tools used in the research process*
4
0he theoretical concepts of the wor#in capital is also covered) it tells us
about the wor#in capital re?uirement) its sources of finance) the various #ind
of wor#in capital policy used in a company* 0hen it tells about the wor#in
capital manaement at %'I9:A;A9 Aro Industries &td*
8ocusin on the ob(ective and techni?ue of inventory manaement* 0hen it
ives information about practices of inventory manaement at %AI&* How
company manaes its inventory and what are the different observations about
the inventory*
Cash manaement deals with reasons of handlin cash) methods of cash
inflows and outflows) determinin optimum cash balance* It also tells the
importance of cash budet for a company* 0hen it explains the practices of
cash manaement followed by %AI&*
'eceivables manaement deals about various costs of maintainin receivables
and different standards to form a policy for manain the receivables* It
includes credit standard) credit terms) collection procedure for the receivables*
And then the manaement of receivables A advances at %AI&*
Estimation of wor#in capital in %AI& is shown and data is analy!ed with the
help of raphs and tables* 0his part shows the various ratios to analy!e the
structural health of wor#in capital of %AI&* It also shows the various
findins and interpretations are discussed* At last) the limitations of the
pro(ect) and then iven is the conclusion and recommendations for the
company towards better wor#in capital manaement*
5
INDUSTRIAL PROFILE OF SOFT DRINKS
0he history of soft drin#s bean with the end of the last century* Its date bac# to the
civil war in BSA in 4C., at that time peoples were sufferin from many diseases*
Problem at that time was how to cure all these diseases since no remedy was present
at that time* It was a bi ?uestion for American people* So in 4CCD $r* Eohn
Pemberton) who lived in Atlanta) made a drin# and ot it reistered with the name
Trench Wine Cola in the beinnin this drin# was made with mixture of alcohol but
later on it was converted and chaned into a soft drin#*
0he drin#in of either natural or artificial mineral water was considered a healthy
practice* American pharmacists) who were sellin most of the mineral waters) started
to add medicine and other flavored herbs to this drin#* 0he early dru stores with
their sod fountains became popular part of American culture*
:rin# bottle tops* 0he bottles were under a lot of pressure from the as* Inventors
were tryin to find the best way to prevent the carbon dioxide from escapin* In 4C5+
the crown bottle seal was presented by "illiam Painter) a %altimore machine shop
operator* It was the first very successful method of #eepin the bubbles in the bottles*
In 4C55 the first patent was issued for a lass blowin machine for the automatic
production of lass bottles* Earlier lass bottles had all been hand blown* 8our years
later) the new bottle blowin machine was in operation* It was first operated by the
inventor) $ichale E* Owens) an employee of &ibby /lass Company*
6
HISTORY OF COCACOLA
FOUNDER
Dr !o"n St#t" Pe$%erton &or t"e &#r't t#$e (ro)*+e) t"e ',r*( &or Co+-.Co/- on
M-, 01 1002
Coca cola traces its oriin to 4CC. when the reat pharmacist Eohn stith Pemberton in
Atlanta who developed patent medicines) created a drin# from carbonated water) cane
suar syrup) caffeine and extracts of cola nuts and coca leaves* Pemberton found the
drin# both medicinal and refreshin) and he souht to mar#et it* His boo# #eeper)
8ran# m* 'obinson) suested the name Coca Cola after the two extracts in the
inredients and also wrote the product7s name in distinctive script* Coca cola has used
that same loo ever since* Pemberton and 'obinson also coined the drin#7s first
sloan) 1delicious and refreshin3*
7
Pemberton) however) was ill and he would not live to see his product7s success* In
their first year sellin co#e) and its partners made only FD, by sellin it* Pemberton
sold two third of his business in 4CC to cover his losses an deep the business afloat*
He died later that year and Candler) an Atlanta wholesale druist) purchased total
interest in Coca Cola for F +-,, in 4C54* 0he next year Candler and his brother) Eohn
8ran# 'obinson and two associates formed Coca Cola Company*
In 4C5- Candler reistered Coca Cola as a Patented trademar#* He also responded to
rowin concerns over the daners of cocaine by reducin the amount of coca in the
drin# to a trace* However) he #ept some coca extracts in Coca Cola so the name
would accurately describe the drin#* Candler only had a patent on the name) and not
on the drin# syrup that was the drin#7s base) containin all the inredients minus the
carbonated water* He fiured that #eepin the coca in his formula would leally allow
the company to distinuish its drin# form limitations* Other companies also produced
soda drin# made with cola nut extracts* In particular) the Pepsi Cola Company and its
cola of the same name would become Coca Cola7s ma(or competitor over the next
few decades*
Candler also spent more than F 44),,, on his first massive advertisin campain in
4C5+* 0he Coca Cola loo appeared across the country) painted as mural on walls
displayed on posters and soda fountains where the drin# was served and imprinted on
widely mar#eted) common household items) such as calendars and drin#in lasses*
In addition to this) Candler was the first person ever to use coupons to ain costumers
8
for a product* He distributed flyers offerin free soda fountain lasses of Coca Cola to
people visitin his drustore*
In 4C56) 0he Coca Cola Company opened its first co#e syrup production plant outside
of Atlanta) in Dallas, Texas* 0hat same year a candy storeowner in ;ic#sbur)
$ississippi) installed bottlin machines and produced the first bottled co#e* It had
previously been sold only at soda fountains* %y 4C5D the drin# was sold in all BS
states and territories*
In 4C55 &awyers %en(amin 0homas and Eoseph "hitehead of Chattanooa)
0ennessee) bouht the exclusive rihts to distribute co#e syrup to bottlers throuhout
most of the country for only one dollar* At that time Candler saw a little profit in
bottlin) and was more t willin to ive up that part of the business* 0heir contract
maintained that Candler could withdraw bottlin rihts) however) if the ?uality of
bottled co#e was not consistently hih* %ecause of differences in availability of time
and money) 0homas and whitehead split their partnership soon after it started* In
4C5, 0homas too# bottlin rihts for the northeast and the west coast* "hitehead
received financial bac#in from Eohn &upton) and the two formed the :ixie Coca
Cola bottlin franchise system that still exists*
In 454D the root lass company created a contour lass bottle for co#e) its desin
based on the curvature of coca bean* 0his bottle desin became a Co#e trademar#
worldwide* 0he same year) Candler retired from the company) passin it on his
children and movin in to politics* He was elected mayor of Atlanta in 454.*
9
CHAPTER 2
Overview of Company profile
History of Coca-Cola India
0echnoloy used by Coca < Cola
$anufacturin Process of Coca < Cola
About the Orani!ation
Co+- Co/- Co$(-n, Pro&#/e
10
Coca - Cola) the corporate nourishin the lobal community with the world7s larest
sellin soft drin# concentrates since 4CC.) returned to India in 455- after a ap of 4.
years ivin a new thumbs up to the In)#-n So&t Dr#n3 M-r3et* In the same year)
the Company too# over ownership of the nation7s top soft-drin# brands and bottlin
networ# 0humbs Bp* 9o wonder) the brands have assumed an iconic status in the
minds of the consumers*
Ever since) Coca-Cola India has made sinificant investments to build and
continually consolidate its business in the country) includin new production
facilities) waste water treatment plants) distribution systems and mar#etin channels*
Coca-Cola India is amon the country7s top international investors) havin invested
more than BSF 4 billion in India within a decade of its presence and further pleded
another BSF 4,, million in +,,- for its operations*
COCA COLA1 INDIA
11
At*/ S#n4"
Pre'#)ent 5 CEO 1 Co+-.Co/- In)#-
Atul Sinh too# over as the President A CEO) Coca-Cola India from 4st September
+,,D*
Prior to this assinment) Atul Sinh was the President of East) Central A South =ECS>
China :ivision in Eanuary +,,D*
Prior to (oinin Coca-Cola) Atul wor#ed for the Colate Palmolive Company for 4,
years and held several roles includin Country /eneral $anaer) 9ieria =455D-
455C>) C8O then /eneral $anaer) 'omania =455+-455D> and 8inance $anaer)
BSA %ody Care =455,-455+>) Prior to Colate) Atul wor#ed as an Auditor with Price
"aterhouse in 9ew Gor#* Atul) holds a $%A deree from 0exas Christian
Bniversity*
"ith HShare my dreamH said Coca-Cola to Indian Consumer in 455- after 4I years
with a deal of F 6, million with Parley Product* /et the .,J $ar#et Share of Coca-
Cola is second taret investor in country after Enron*
In startin Coca-Cola set the bottlin plants in these cities*
4- %ombay
12
+- Calcutta
-- 2anpur
6- :elhi
At that time no any competitor of Coca-Cola* So Coca-Cola accept by Indian very
easily* In 45II Coca-Cola had 6DJ $20 share in India* 0hen Coca-Cola left India
because 8E'A 'eulation Company was re?uired to India or close operation by D
th
$ay IC* Get stronly enouh the companyKs operation came to an end in Euly II*
In Oct 455- Coca-Cola returned to India after a 4. years of absence with sloan HOld
waves have come to India aainH launched in Hathras near Ara*
At this time Parley was the leader in soft drin# mar#et and had more than .,J of the
total share in the soft drin#s* Coca-Cola (oined hand with parley and a strateic
alliance with parley exports have the company instant ownership of the nation top
soft drin# $20 brands* 0humsup) &imca) Citra) /old Spot and $a!!a access to
ParleyKs extensive .+ plant bottlin networ# and a base for rapid introduction of the
companyKs International %rand by stri#in F 6, deal with parley*
Coca-Cola India focused on the four Passions of Indian Consumers Identified by the
company namely cric#et) movies) music and food apart from eat) sleep and :rin#
series* 8our new companies were made) one revolvin around the cric#et) two were
13
theme company involvin teenae cospiraton and the forth aimed to propel volume of
the 4 &itre si!e* 0he mar#et stratey of CCI revolves around acceptability and
affordability*
At the leadin ae of %everae Industry for over a century* 0he CCI system in India
introduced a series of innovations in the area of mar#etin*
A He-/t", 6ro7t" to t"e In)#-n E+ono$,
Ever since) Coca-Cola India has made sinificant investments to build and
continually consolidate its business in the country) includin new production
facilities) waste water treatment plants) distribution systems) and mar#etin channels*
Coca-Cola India is amon the country7s top international investors) havin invested
more than BSF 4 billion in India in the first decade) and further pleded another
BSF4,, million in +,,- for its operations*
A P*re Co$$#t$ent to t"e In)#-n E+ono$,
0he Company has sha#en up the Indian carbonated drin#s mar#et reatly) ivin
consumers the pleasure of world-class drin#s to fill up their hydration) refreshment)
and nutrition needs* It has also been instrumental in ivin an exponential rowth to
the country7s (ob listins*
Te+"no/o4, *'e) %, Co+- Co/-
Coca Cola uses best available technoloy for the followin process
Syrup Preparation
14
Cleanin of empty bottles
8illin of bottles
Cappin
&abelin
Luality chec#s
Pac#ain or Casin
:istribution
0hese all process is interated with each other with help of automatic machines which
are automatically maintained by computer tools or software li#e CA$ =Computer
Aided $achine>* Cleanin of bottles are done in various critical steps li#e PS8
8iltration) AC8 8iltration) D $icron 0reatment) Chemical dosin) Chlorination and
'O "ater 0reatment* &atest technoloy cappin machine is used to maintain the air
pressure in a bottle* "ell maintained labs in each bottlin plant to chec# the ?uality
standards by ta#in reular sample from each batch which on process* %efore fillin)
strenth of bottle is chec#ed with the help of pressure and Carbon :ioxide* %est
possible transport are use to maintain the '0$*
M-n*&-+t*r#n4 Pro+e'' o& Co+- Co/-
Coca-Cola beverae products bein as raw material and o throuh many staes) until
the final step when the finished products reach the consumer*
15
0he first step in creatin HCoca-ColaH is ?uite simple@ $a#e syrup of suar and water*
0he water is carefully purified because for HCoca-ColaH absolutely top ?uality
inredients are re?uired*
0o be certain that the water used for bottlin and cannin is clean and pure) local
drin#in water is filtered and purified* Luality control technicians test the water
fre?uently as it is used to ma#e the finished product*
0he chec#in and testin continues* Sophisticated e?uipment helps technicians chec#
everythin from the condition of each pac#ae to details of the carbonation level)
taste and syrup content* Here the syrup mix is chec#ed*
HCoca-ColaH concentrate is added to the syrup* 0his flavor base for HCoca-Cola
Company manufacturin plants and still remains one of the worldKs reat trade
secrets* 0echnicians carefully sample) chec# and record the blend of each batch of
syrup* After blendin) it is ready to have the KbubblesK or carbonation) added* Strict
?uality control is the reason HCoca-ColaH is famous for a perfect level of KbubblinessK*
An army of lass and PE0 =Polyethylene terephthalate> bottles) as well as cans) is
now ready to be filled with the finished product* 0he bottles o throuh a throuhout
test@ first theyKre washed) rinsed and inspected electronically and visually Only then
are they ready to be filled with the worldKs most popular soft drin#*
A8OUT THE OR6ANI9ATION
16
0he orani!ation name is 18RINDAVAN A6RO INDUSTRY PVT LTD3 is a
part of &adhani roup of Companies) which accounts to be worth of more than .,,
Crore 'upees* It has ot other sister concerns company namely@-
Amrit %ottles Pvt* &td* 8ai!abad*
%rindavan %evraes %areilly*
%rindavan %ottles %araban#i*
Avadh Crown Industry %araban#i*
&axmi Cold Alloys 8ai!abad*
Ara Sales A $ar#etin Services Ptd* &td*
'*P* $il# $aid) 8oundry 9aar Ara
0he Chairman of Ladhani Group Companies is Mr. S.N. Ladhani* 0he
Chairman A $*:* of Brindavan Agro Industry Pvt. Ltd. is Mr. Gula Chand
Ladhani and it has three :irectors-
$r* Paritosh &adhani
$rs* 2aushalya :evi
$rs* Al#a &adhani
0he /*$* =8inance> is $r* Sablo#
0he /*$* =sale> is $r* 9aresh /ovil
Ara franchise is reputed to be the first franchise of Coca Cola Company* It was
established in 455-) when $r* :onald "* Short ) Chairman of Coca Cola came in
17
India and offered the franchise to the &adhani roups but at this time chairman of
Coca Cola was Mr. Ale! "on Bher) since from the beinnin the company has been
rowin in hilly way havin a turnover of 's* +D Crores in 455C*
0he bottlin plant of the company is situated in near Hathras about .D 2m* from
Ara* Its premises are situated on a plot of -D),,, s?uare feet* It has a storae
capacity of 4)D,),,, case* 0he company has moderni!ed it7s plant havin the latest
technoloy of Co#e* Its machinery includes a hih tech par mix which is made
exclusively for Coca Cola incorporates* 0he production capacity of company is 5,,
bottles per minute* In addition to this company has a approximately 4+D owned and
D, hired vehicles to facilitate distribution*
0he company has a sales and mar#etin of the products of the company* It is named
as Agra Sales # Mar$eting Servi%es Pvt. Ltd.
BAIL is continuously rowin with increasinly diversified pro(ects* 0oday a
%rindavan aro Industry &td* is the top manufacturin unit in India* 0he roup has
entered into a wind mill pro(ect Pvt &td* in 2arnata#a where the power eneration is
bein done from d natural sources and recently %AI& is oin in the hotel business
tyin up with the country inns A suites this is the upcomin pro(ect of the Brindavan
agro industries Pvt. Ltd.
18
BAIL
BAIL

19
Manufacturing
business
Power business Infrastructure
business
Cold drin ! "uices
#anufacturing
Cold drin ! "uices
#anufacturing
$ind #ill %ro"ect
set u% in &arnataa
and 'a"ast(an
$ind #ill %ro"ect
set u% in &arnataa
and 'a"ast(an
)otel in *gra wit(
t(e tie u% wit(
countr+ inn (otel,
)otel in *gra wit(
t(e tie u% wit(
countr+ inn (otel,
CHAPTER 3
"or#in Capital $anaement
Introduction
"or#in Capital Cycle
Sources of "or#in Capital
"or#in Capital $anaement at %AI&
"or#in Capital at %AI&
:or3#n4 C-(#t-/ M-n-4e$ent
Intro)*+t#on
20
In a perfect world) there would be no necessity for current assets and liabilities
because there would be no uncertainty) no transaction costs) information search costs)
schedulin costs) or production and technoloy constraints* 0he unit cost of
production would not vary with the ?uantity produced* %orrowin and lendin rates
shall be same* Capital) &abour) and product mar#et shall be perfectly competitive and
would reflect all available information) thus in such an environment) there would be
no advantae for investin in short term assets*
However the world we live is not perfect* It is characteri!ed by considerable amount
of uncertainty reardin the demand) mar#et price) ?uality and availability of own
products and those of suppliers* Information is costly to obtain and is not e?ually
distributed) there are spreads between the borrowins and lendin rates for
investments and financins if e?ual ris#s* 0hese real world circumstances introduce
problems which re?uire the necessity of maintainin wor#in capital* 8or example) an
orani!ation may be faced with an uncertainty reardin the availability of sufficient
?uantity of crucial imputes in future at reasonable price* 0his may necessitate the
holdin of inventory) current assets*
Similarly an orani!ation may be faced with an uncertainty reardin the level of its
future cash flows and insufficient amount of cash may incur substantial costs* 0his
may necessitate the holdin of reserve for short term mar#etable security) aain a
short term capital asset*
:or3#n4 C-(#t-/ M-r4#n
21
0his 'epresents the provision re?uired to be built into the cost of a pro(ect for
meetin the wor#in capital marin re?uirements at the pea# level =i*e* when the level
if ross current assets is at pea#> durin the first year of operations after
commencement of commercial production) additional marin money re?uired durin
the subse?uent years bein met out of internal cash eneration* "hile examinin the
wor#in capital marin built into the cost of a pro(ect) it should be ensured that the
provision is ade?uate to ta#e care of the re?uirements of appropriate method of
lendin =in terms of T-n)on Co$$#ttee;' recommendations>* 0his will be
applicable to the pro(ect for the wor#in capital finance* In this connection) three
methods of lendin is suested by the 0andon Committee) only 4 A + method have
been prescribed by '%I for wor#in out maximum level of ban# borrowinsM the third
method has not been accepted by 'eserve %an# of India for implementation*
T"e T"eor,<
"or#in Capital $anaement is concerned with the problems which arise in
attemptin to manae the current assets) current liabilities and the inter < relations
between them* Its Operational /oal is to manae the current assets and current
liabilities in such a way that a satisfactory level of wor#in capital is maintained* 0he
term "or#in Capital refers to the 9et "or#in Capital =9"C>) i*e* Current Assets
minus Current &iabilities*
9"C N C*A < C*&*
22
"ith the reference to the manaement of "or#in Capital) net wor#in capital
represents the part of current assets which are financed by the lon < term funds*
Con+e(t' o& :or3#n4 C-(#t-/<
0here are two concepts of wor#in capital@
/ross "or#in Capital*
9et "or#in Capital*
0he term 1/ross "or#in Capital3) also referred as wor#in capital) means total
current assets*
0he term 19et "or#in Capital3 can be defined in two ways@
4* 0he difference between current assets and current liabilities
+* 0hat portion of firm7s current assets which are financed with lon term funds*
T"e #$(/#+-t#on<
0he 0heoretical (ustification for the use of 9"C) to measure the firms li?uidity is
based on the premise that the reater the marin by which the current assets cover the
short term obliations) the more able will it be to pay obliations when it becomes
due for the payment*9"C is necessary because the cash outflows and cash inflows
do not coincide* In other words it is Non Synchronous nature of cash flows that
ma#es 9"C necessary* 0he more predictable the cash inflows are the less 9"C will
be re?uired*
Deter$#n#n4 t"e F#n-n+#n4 M#=<
Another important theory of wor#in capital manaement is determinin the
financin mix *One of the important decisions) in other words) involved in the
23
manaement of wor#in capital is how current assets will be financed* %roadly
spea#in there are two sources of current assets financin@-
4* Short <term sources= current liabilities>
+* &on < term sources =share capital) lon term borrowin) and retained
earnins>*
0here are three basic approaches to determine the appropriate financin mix@
T"e He)4#n4 A((ro-+"<
It refers to the process of matchin maturities of debt with maturities of financial
needs* 0his approach of financin decision is also called as matching approach.
Accordin to this approach) the maturity of sources of funds should match the nature
of the assets to be financed*
T"e Con'er>-t#>e A((ro-+"
0his approach suests that the estimated re?uirement of 0otal 8unds should be met
from lon run sourcesM the use of short term funds should be restricted to only
emerency situations or when there is an unexpected outflow of funds*
T"e Tr-)e O&& %et7een He)4#n4 -n) Con'er>-t#>e A((ro-+"
0he hedin approach is associated with hih profits as well as hih ris#) while
conservative approach provides low profits with low ris#s* Obviously neither
approach will serve the purpose of efficient wor#in capital manaement* A trade <
off between these two extremes will ive an acceptable financin stratey* 0he third
approach - - trade off between the two approaches - - stri#es a balance and provides a
financin plan that lies between these two extremes*
24
P/-nn#n4 o& :or3#n4 C-(#t-/
0he need of wor#in capital =ross> or current assets cannot be overemphasi!ed* 0he
ob(ective of financial decisions ma#in is to maximi!e the shareholders wealth* 0o
achieve this it is important to enerate sufficient profits* 0he extent to which profits
can be earned will naturally depend on the manitude of sales amon the other thins*
A successful sales proramme is) in other words) is necessary for earnin profits by
any business enterprise* However) sales do not convert into cash instantlyM there is
invariably a time < la between the sale of oods and receipt of cash* 0here is)
therefore) a need for wor#in capital in the form of current assets to deal with the
problem arisin out of lac# of immediate reali!ation of cash aainst oods sold* 10he
continuin flow from cash to suppliers) to inventory) to accounts receivable and bac#
into cash is what is called the operating %y%le3* In other words cash cycle refers to the
lenth of time necessary to complete the followin cycle of events@
4* Conversion of cash into inventory*
+* Conversion of inventory into receivables
-* Conversion of receivables into cash*
0he followin fiure represent the operatin cycleOO
0he operatin cycle consists of three phases@
25
P"-'e 11 cash ets converted into inventory* 0his would involve purchase of raw
materials) conversion of raw materials into wor# in proress) finished oods and
terminate in transfer of oods to stoc# at the end of manufacturin process* In case of
tradin orani!ations this phase would be shorter as there would be no manufacturin
activity and cash would be converted into inventory directly*
In P"-'e 21 the inventory is converted into receivables as credit sales are made to
customers* 8irms which do not sell on credit will certainly not have phase + of the
operatin cycle*
P"-'e 31 represents the stae when receivables are collected* 0his phase completes
the operatin cycle*
E&&e+t' o& M#'$-n-4e$ent o& :or3#n4 C-(#t-/
0he daners of excessive wor#in capital are as follows@
4* It results in unnecessary accumulation of inventories* 0hus the chance of
inventory mishandlin) theft waste and losses increases*
+* It is an indication of defective credit policy and sled collection period*
Conse?uently hiher incidents of bad debts result) which adversely affects the
profits*
-* Excessive wor#in capital ma#es manaement complacent) which deenerate
into manaerial inefficiency*
0hus) too lare an investment in current assets means tyin up funds that can be
productively used elsewhere*
0he duration of wor#in capital can be described symbolically as
26
9OC N 'C$PP"PCPP8/CPP'CP < PCP
"here)
9OC N 9et Operatin Cycle
'$CP N 'aw $aterial Conversion Period
"PCP N "or# in Proress Conversion Period
8/CP N 8inished /oods Conversion Period
'CP N 'eceivable Conversion Period
PCP N Payable Conversion Period
0he relevant period for each of the component of the operatin cycle can be
calculated as@
'$CPN =Averae 'aw $aterial Stoc#Q0otal 'aw $aterial Consumption>R-.D
"PCPN =Averae "or# in ProressQ0otal Cost of Production>R-.D
8/CPN =Averae 8inished /oodsQ0otal Cost of /oods Sold>R-.D
'CPN =Averae 'eceivablesQ0otal Credit Sales>R-.D
In>entor, M-n-4e$ent
An O>er>#e7
Inventories are consumed or unsold oods purchased or manufactured* Accordin to
the International Accountin Standard + =IAS +>) inventories are tanible property-
Held for sale in the ordinary course of business*
In the process of production for such sale) ot
0o be consumed in the production of oods or services for sale
27
0hus there are three types of inventoriesM
'aw materials are materials and components that are inputs in ma#in the final
product*
Stoc# < in < process also called "or# < in < proress) refers to the oods in the
intermediate staes of production*
8inished /oods consist of final products that are ready for sale*
9eed 8or Inventory $anaement
Inventory $anaement is an interal part of eneral manaement* 0hree
important functional aspects of business are closely related to inventory
manaement*
0hese are@
Production $anaement
$ar#etin $anaement
8inancial $anaement
Here the production manaement and mar#etin manaement are related to the
physical aspect of inventory manaement and financial manaement is concerned
with the financial aspect of inventory manaement*
In P'O:BC0IO9 $A9A/E$E90) production manaer will always strive to have
a lare inventory of raw materials and of such a ood ?uality as to ensure stable
production operations*
28
In $A'2E0I9/ $A9A/E$E90) mar#etin manaer aims at satisfyin ever
increasin demands for improved customers7 service by havin lare inventory of
inside oods*
In 8I9A9CIA& $A9A/E$E90) finance manaer will effort towards to #eep
investments in different types of inventory at minimum possible level so that the
business concern may earn maximum return*
In>entor, M-n-4e$ent -t 8AIL
C-'" M-n-4e$ent An O>er>#e7
Cash $anaement will be successful only if cash collections are accelerated and cash
disbursements) as far as possible) are delayed* Cash $anaement is a broad term that
refers to the collection) concentration) and disbursement of cash* It encompasses a
company7s level of li?uidity) its manaement of cash balance) and its short term
29
investment strateies* In some ways) manain cash flow is the most important (ob of
business manaers* If at any time a company fails to pay an obliation when it is due
because of the lac# of cash) the company is insolvent* Insolvency is the primary
reason firms o ban#rupt* Obviously) the prospect of such dire conse?uence should
compel companies to manae their cash with care* $oreover) efficient cash
manaement means than (ust preventin ban#ruptcy* It improves the profitability and
reduces the ris# to which the firm is exposed*
'easons for Holdin Cash
Speculative $otive
0he need to hold cash is to ta#e advantae of additional investment
opportunities) such as barain and purchase*
Precautionary $otive
0he need to hold cash as safety marin is to act as financial reserve*
C-'" M-n-4e$ent -t 8AIL
0he company head ?uarter at Ara controls the activities and decision ma#in for the
entire company as whole* A department of finance loo#in after the purchase and
accountin related activities is situated at all the plants* Also at reional offices
competent and exercised personnel are appointed*
30
0he finance department is headed by $r* 'a(esh Sablo#) a Chartered Accountant*
"ith his wide and varied experience he is uidin the activities of the department*
0he company determines its cash level by minimum and optimum cash balances* It is
determined on the bases of cash outflow and salary dates* Cash budetin is done in
the company on the cash flow statement is prepared for capital and revenue operation
throuh cash from operation) flow of cash and wor#in capital chanes* 0he finance
department is responsible for overall cash manaement operations* 0heir
responsibilities includes ensurin cash sufficiency) avoidin overdrafts) assurin cash
operations in accordance with approved budet and ma#in cash flow analysis* 0he
cash manaement has helped the company in elimination of delays in receipt of
funds) considerable reduction in inter < office transfer of funds) elimination of
difficulties in accountin and idle poc#et* 0o control cash flows of the company and
periodically review and see# reports about cash availability and its re?uirement)
mobili!in collection and staerin payments) by disposin off each cash
payment on merit by comparin the actual expenditure with budeted fiures and
ta#in corrective action) and by maintainin minimum cash balances*
P-,$ent to S*((/#er'<
Suppliers of stores and spares after deliverin the materials to the factory send their
bills to company for payment* 0he bills sent to the purchase department are
forwarded to the finance department who actually processes the payment* %efore
releasin the payments finance department ensures that@
4* 0here is a valid purchase order for the material*
31
+* "hether a copy of delivery memoQchallan is attached to the bill*
-* 0he delivery of memo contains sin of 1received3 by the stores department for
the said material*
6* 0he material is of iven standard ?uality and ?uantity*
If the above mentioned points are ensured then the finance department will release the
payment to supplier on due date*
P-,$ent &or e=(en'e'<
Expenses of miscellaneous nature are always incurred by the company) on account of
say) purchase of stationery) petrol expenses) telephone expenses) postal expenses) etc*
the payment of these are made by the finance department* 0hus) the dual chec#in by
two departments is established which is one of the important re?uisites of internal
control*
0he other internal controls as reard payment for expenses are as follows@
Purchase of stationery@
%efore ma#in payment to the suppliers the finance department ensures that@
4* "hether some authori!ed person from the purchase department has received
the oods supplied*
+* "hether the order before to the issue to the supplier has been approved by the
head of department*
-* "hether the rates chared are as per the rates approved*
Control of branch expenses@
32
%ranches have to maintain proper boo#s of accounts as reards to expenditure
incurred by them to meet the various administrative expenses* At the beinnin of
every financial year) a budet for the year7s total expense under various heads of
expenditure is prepared by the reional manaer and put to the finance department) in
chare) for approval* 0he finance chief after due deliberations) approves the budet
and a copy of the sanctioned budet is sent to the respective branches*
0he branches have to prepare a detailed expenditure #nown as petty cash abstract
statement on fortnihtly basis* Copy of this statement has to be sent to finance
department at head office Ara* 0he finance department at the head office thorouhly
chec#s the expense statement with supportin vouchers* "hether there are deviations)
from laid down standard of limits for expenses) then such vouchers are put up to
eneral manaer) finance for special approval*
Re+e#>-%/e' M-n-4e$ent
An O>er>#e7<
It is defined as the Sdebt owed to the firm by the customer arisin from the sale of
oods or service in the ordinary course of the business7* Accounts receivable
represents the amount due from its customers to whom the company has extended the
credit* In modern world the extension of credit is inevitable and most of the
33
companies have to offer the credit to maintain the existin level of sales* Also to
improve the performance) the company may be re?uired to chane the terms of its
credit* 8or most of the investments in account receivables constitutes a ma(or
component* Accounts receivables play a ma(or role in the conduct of the business for
most firms* 0he reat ma(ority of companies do not demand immediate cash payment
when they sell oods to their reular) creditworthy customers* 0his is true for the
firms enain in retail trade and firms that sell primarily to other business* $ost
sales re?uire the firm to carry a receivable for a customer for 4, to ., days* Po/#+,
&or M-n-4#n4 Re+e#>-%/e'
0he credit policy of any firm should be in such a way that it benefit to accrue from it
should out weiht the costs *i*e* maximi!ation of profits* 0he credit policy may be
defined as a set of parameters and principles that overn the extension of the credit to
customers* 0his re?uires determination of@
4* Credit Standard +*Credit 0erms -*Collection Policy*
M-n-4e$ent o& Re+e#>-%/e' -n) A)>-n+e' -t 8AIL
0he company follows a restricted credit policy* 0he ob(ectives of credit policy are
rowth in sales) to face competition and increases profits* 0he credit plan is prepared
on lon term basis* 0he si!e of credit rantin is prepared on the bases of sales to
total assets* 'is# analysis of dealer is done before rantin credit by studyin past
performance) balance sheet and overall views* 0he limits of credit are determined
accordin to the credit payment ability of the customers* 0he /*$) 8inance in
34
coordination with the $anain :irector determines the credit rantin terms and
collection operation policy* 'esponsibilities in this reard to lay down credit policies
and monitorin the levels of receivable) follow up and timely action in relation to
debt outstandin) avoid possible loss due to bad debts and control receivables within
norms) collection of at least undisputed bills) ascertainin from mar#etin department
the reason for outstandin) enforce budetary control on receivable review budet and
introduce effective reportin system thereon) and financial scrutiny of proposed credit
terms*
Company7s loan and advances include advances recoverable) 0*:*S*) certain deposits
and other receivables*
0he policy of the company reardin rantin of advance depends on the need for
rantin and accordin to the terms of areement after neotiation*
0he policy of advances reardin financin is from the short term sources) financin
from operatin funds and throuh loan funds*
0he company does not have any separate department of credit control) but the limits
of credit are determined accordin to the payment ability of the customers by the
finance department* Control on advances is exercised throuh budetary control)
preparation of outstandin statements) demandin clearance before rantin fresh
ones) rants based on need and collection of the same immediately after the purpose
of rantin is over) rantin advantae only after fulfillin the re?uired conditions
and operate special accounts monthly) ?uarterly and annual periodicity basis*
35
0he recovery and ad(ustment schedules are prepared in respect of advance by
preparation of monthly recovery schedules for advances to employees) statement of
outstandin with ae wise analysis on the case of advance to suppliers and party <
wise accounts in subsidiary reisters and monitorin the monthly
recoveriesQad(ustments*
36
/raphs Showin :ebtors =above> A Creditors =below> of %AI&*
Per$-nent -n) Te$(or-r, :or3#n4 C-(#t-/
0he need does not come to an end after the cycle is completed* It will continue to
exist* 0o explain this continuin need of wor#in capital the distinction is to be made
between the permanent and temporary wor#in capital*
8or a company the process is continuous) and hence) the need for a reular supply of
wor#in capital* However) the manitude of wor#in capital re?uired will not be
constant but will fluctuate* 0o carry on the business in a certain minimum level of
37
wor#in capital is necessary on a continuous and uninterrupted basis* 8or all the
practical purposes) this re?uirement will have to be met permanently as with other
fixed assets* 0his re?uirement is referred to as permanent or fixed working capital
Any amount over and above the level of permanent wor#in capital is temporary,
fluctuating or aria!le working capital. 0his portion of the re?uired wor#in capital
is needed to meet fluctuations in demand conse?uent upon the chanes in production
and sales as a result of seasonal chanes* %oth #inds of sales are necessary to
facilitate the sales process throuh the operatin cycle* 0emporary wor#in capital is
created to meet li?uidity re?uirements that are purely transient in nature* 0he
permanent component reflects the need for a certain irreducible level of current assets
on a continuous and uninterrupted basisM the temporary portion of wor#in capital
re?uirement is needed to meet the seasonal and other temporary re?uirements*
:or3#n4 C-(#t-/ Nee)' o& 8*'#ne'' -re #n&/*en+e) %, t"e &o//o7#n4 &-+tor'
0he importance of wor#in capital re?uirements is determined in the precedin
sections* 0he firm should plan its operations in such a way that it should neither have
too much not too little of wor#in capital* 0he total wor#in capital is determined by
a wide variety of factors* It should be noted that these factors affect different
enterprise differently* 0hey also vary from time to time* In eneral) the followin
factors are involved in a proper assessment of the ?uantum of wor#in capital
re?uired* 0he wor#in capital determined by numerous factors is discussed below@
38
4* N-t*re o& t"e Enter(r#'e< 0he nature and wor#in capital of business is
interlin#ed* "hile a manufacturin industry has a lon cycle of operations of
the wor#in capital) the same would be short in an enterprise providin
services* 0he amount re?uired also varies as per natureM an enterprise involved
in production will re?uire more wor#in capital than a service sector
enterprise* Enterprise falls under some broad cateories dependin upon the
nature of their business* 8or instance Public Btilities have certain features
which have a bearin on their wor#in capital needs* 0he two relevant
features are@
C-'" N-t*re o& 8*'#ne''1 i*e* cash sale*
S-/e Ser>#+e' rather than commodities*
In view of these features they do not maintain bi inventories and have)
therefore) probably the least re?uirement of wor#in capital* At the other
extreme are the tradin and financial enterprises* 0he nature of their business
is such that they have to maintain sufficient amounts of cash) inventories and
boo# debts*
0hey have necessarily to invest proportionately lare amounts in wor#in
capital* 0he manufacturin enterprises in a sense fall between these two
extremes* 0he industrial concerns re?uire fairly lare amounts of wor#in
capital thouh it varies from industry to industry dependin on their assets
structure* 0he proportion of current assets to total assets measures the relative
re?uirements of wor#in capital of various industries* Available data in
39
respect of companies in India confirm the wide variations in the use in the
wor#in capital by the different enterprises* 0he percentae of current assets
to the total assets was found to be lowest in the hotels) restaurants and eatin
houses =4,J to +,J rane>) while in electricity eneration and supply it was
found to be in the rane of =+, to -,J>* 0he enterprise in the tobacco)
construction and tradin roups had) as is to be expected) the hihest
component of wor#in capital =C,J to 5,J>* 0he other industrial roups fall
between these limits thouh there are very wide inter < industry variations*
+* Pro)*+t#on Po/#+,< Each enterprise in the manufacturin sector has its own
production policy) some follow the policy of uniform production) and others
may follow the principle li#e of Sdemand <based production7*
Accordinly) the wor#in capital re?uirements vary for both of them* In this case)
of certain lines of business) the demand for the products is seasonal) i*e* they will
be purchase durin the certain months of the year* "hat #ind of production policy
should be followed in such caseT
-* T"ere -re t7o o(t#on' o(en to '*+" enter(r#'e@ either they confine their
periods when the oods are purchased or they follow a steady production
policy throuhout the year and produce the oods at a level to meet the pea#
demand* In the former case there will be serious production problems* :urin
the slac# season the firm will have to maintain its wor#in force and physical
facilities without ade?uate production and sale* "hen pea# period arrives) the
firms will have to operate at full capacity to meet the demand* 0his #ind of
40
areement will not only be expensive but also inconvenient* 0hus serious
problems will be encountered when tryin to match production to the ebb and
flow of the seasonal demand pattern* A better alternative will be a steady
production policy independent of the shifts in demand for the finished oods*
0his will mean a lare accumulation of inventories durin the off-season and
their abrupt sales durin the pea#-season* 0he proressive accumulation of
stoc# will naturally re?uire an increasin amount of wor#in capital which
will remain tied up for some months* 0he wor#in capital plannin will have
to incorporate this pattern of re?uirement of funds when production and
season sales are steady* It should) however) be noted that this stratey =steady
production policy> will not be adopted by everyone* It may be possible) for
instance) some to follow the policy of diversification which will enable them
to enae the wor#in force and physical facilities in some other activities* If
this is possible) there will be no ma(or problem of wor#in capital*
$oreover) the nature of some products may be such that accumulation of
inventories may create special ris# and cost problems* 8or them a production
policy in tune with chanin demands may be preferable* 0herefore)
production policies will have to be formulated on the basis of the individual
settin of each enterprise and the manitude and dimensions of the wor#in
capital problems will accordinly vary*
6* O(er-t#on'< 0he re?uirement of wor#in capital fluctuates for the seasonal
business* 0he wor#in capital needs of such businesses may increase
41
considerably durin the busy season and decrease durin the slac# season* Ice
creams and cold drin#s have a rear demand durin the summers) while in
winters the sales are neliible*
D* M-r3et Con)#t#on'< If there is hih competition in the chosen product
cateory) then one shall need to offer soaps li#e credit) immediate delivery of
oods etc* for which the wor#in capital re?uirement will be hih* Otherwise)
if there is no competition in the mar#et then the wor#in capital re?uirements
will be low*
.* A>-#/-%#/#t, o& R-7 M-ter#-/'< If raw material is readily available then one
need not maintain a lare stoc# of the same) thereby reducin the wor#in
capital investment in raw material stoc#* On the other hand) if raw material is
not readily available then lare inventoryQstoc# is maintained) thereby callin
for substantial investment in the same*
I* 6ro7t" -n) E=(-n'#on< /rowth and Expansion in the volume of business
results in enhancement of the wor#in capital re?uirement* As the business
rows and expands) it needs a larer amount of wor#in capital* 9ormally) the
need for increased wor#in capital funds precedes rowth in business
activities*
C* Pr#+e Le>e/ C"-n4e'< Chanes in the price level also affects the re?uirements
of wor#in capital* /enerally) risin price level re?uires a hiher investment
in the wor#in capital* "ith increasin prices) the same level of current assets
needs enhanced investment* 'isin prices would necessitate the use of more
42
funds for maintain and existin level of activity* 8or the same level of current
assets) hiher cash outlays will be re?uired* 0he affect of risin prices will be
that a hiher amount of wor#in capital will be needed*
5* M-n*&-+t*r#n4 C,+/e< 0he manufacturin cycle starts with the purchase of
raw materials and is completed with the production of finished oods* If the
manufacturin cycle involves a loner period) the need for the wor#in capital
would be more* At timesM business needs to estimate the re?uirement of
wor#in capital in advance for proper control and manaement* 0he factors
discussed above influence the ?uantum of wor#in capital in the business*
Each constituent of wor#in capital retains its forms for a certain period and that
holdin period is determined by the factors discussed above*
:or3#n4 C-(#t-/ C,+/e
In corporate 8inancial $anaement) the term "or#in Capital $anaement
represents the excess of current assets over current liabilities* In simple words
wor#in capital is the excess of current assets over current liabilities* "or#in capital
has ordinarily been defined as the excess of current assets over current liabilities*
"or#in capital is the heart of business* If it is wea# business) it cannot properly
survive* It is therefore said that the fate of a lare scale investment in fixed assets is
often determined by relatively small amount of current assets* As wor#in capital is
important to the company it is important to #eep ade?uate wor#in capital with the
company* Cash is the lifeline of company* If this lifeline deteriorates so does the
43
company7s ability to fund operation) reinvest do meet the capital re?uirements and
payment* Bnderstandin Company7s cash flow health is essential to ma#in
investment decision* A ood way to (ude a company7s cash flow prospects is to loo#
at its wor#in capital as much as needed by the company* It should neither be
excessive or nor inade?uate* Excessive wor#in capital cuisses for idle funds layin
with the firm without earnin any profit) where as inade?uate wor#in capital shows
the company doesn7t have insufficient funds for inade?uate wor#in capital shows the
company doesn7t have sufficient funds for financin its daily needs wor#in capital
manaement involves study of the relationship between firms current assets and
current liabilities* 0he oal of wor#in capital manaement is to ensure that firm is
able to continue its operation* And that it has sufficient ability to satisfy both
maturin short term debt and upcomin operational expenses* 0he better the company
manaes its wor#in capital) the less the company needs to borrow*
Even companies with cash surpluses need to manae wor#in capital to ensure those
surpluses are invested in ways that will enerate suitable returns for investors*

:or3#n4 C-(#t-/ C,+/e
Each component of wor#in capital =namely inventory) receivables and payables> has
two dimensions 0I$E and $O9EG* "hen it comes to manain the wor#in capital
44
0I$E IS $O9EG* If you can et money to move fester around the cycle =collect
monies due from debtors more ?uic#ly> or reduce the amount of money tied up =i*e*
reduce inventory level relative to sales>* 0he business will enerate more cash or it
will need to borrow less money to fund wor#in capital* As a conse?uence) you could
reduce the cost of ban# interest or you will have additional) free money) to support
additional sales rowth or investment* Similarly) if you can neotiate improved terms
with suppliers e** et loner credit or an increased limitM you festively create freed
finance to help fund sales*
So*r+e' o& :or3#n4 C-(#t-/
0he Company can choose to finance its current assets by
&on 0erm Sources
Short 0erm Sources
A Combination of %oth*
Lon4 Ter$ So*r+e' o& (er$-nent 7or3#n4 +-(#t-/< &on 0erm Sources of
permanent wor#in capital include e?uity and preference shares) retained earnins)
debentures and other lon term debts*
0he lon term wor#in capital needs should meet throuh lon term means of
financin* 8inancin throuh lon term means provides stability) reduces ris# or
payment and increases li?uidity of the business concern* ;arious types of lon term
sources of wor#in capital are summari!ed as follows@
45
I''*e o& S"-re'< It is primary and most important sources of reular or permanent
wor#in capital* Issuin e?uity shares as it does not create and burden on the income
of the concern* 9or the concern is oblied to refund capital should preferably raise
permanent wor#in capital*
Ret-#ne) E-rn#n4'< 0his means plouhin bac# of the profits* 'etain earnin
accumulated profits are permanent sources of reular wor#in capital* It is reular
and cheapest* It creates not chane on future profits of the enterprises*
I''*e o& De%ent*re'< It creates fixed chare on the future earnins of a company*
0he company is oblied to pay interest to debenture holders* $anaement should
ma#e wise choice in procurin funds by issue of debentures*
Lon4 Ter$ De%t< Company can raise funds from acceptin public deposits) debts
from financial institution li#e ban#s) corporations etc* the cost is hiher than the other
financial tools* Other sources of sale of idle fixed assets) securities received from
employees and customers are examples of other sources of finance*
S"ort Ter$ So*r+e' o& :or3#n4 C-(#t-/ o& Te$(or-r, :or3#n4 C-(#t-/<
0emporary wor#in capital is re?uired to meet the day to day business expenditures*
0he variable wor#in capital would finance short term sources of funds* And only the
period needed* It has the benefits of low cost and establishes closer relationships with
ban#er*
Some Sources of 0emporary "or#in Capital are iven below@
Co$$er+#-/ 8-n3'< A commercial ban# constitutes a sinificant source of
short term or temporary wor#in capital* 0his will be in the form of short term
46
loans) cash credit) and overdraft and throuh discountin the bills of
exchanes*
P*%/#+ De(o'#t'< $ost of the companies in recent years depends on this short term
wor#in capital re?uirements ranin from six months to three years*
V-r#o*' Cre)#t'< 0rade credit papers and customer credit are other sources of short
term wor#in capital* Credit from suppliers) advances from customers) bills of
exchanes) promissory notes) etc helps to raise temporary wor#in capital*
Re'er>e' -n) ot"er F*n)'< ;arious funds of the company li#e depreciation fund*
Provision for 0ax and other provisions #ept with the company can be used as
temporary wor#in capital*
0he company should meet its wor#in capital needs throuh both lon term and short
term funds* It will be appropriate to meet at least +Q- of the permanent wor#in
capital e?uipments form lon term sources* 0he wor#in capital financin mix should
be desined in such a way that the overall cost of wor#in capital is the lowest) and
the funds are available on time and for the period they are really re?uired*
0erm &oans for "or#in Capital@
Bnder this arranement ban#s advance loans for --I years repayable in yearly or half
yearly installments*
Mo)e o& Se+*r#t,< %an#s provide credit on the basis of the followin modes of
security@
H,(ot"e+-t#on< Bnder this mode of security) the ban#s provide credit to borrowers
aainst the security of movable property) usually inventory of oods* 0he oods
47
hypothecated) however continue to be in the possession of the owner of these oods
=i*e* the borrower>* 0he rihts of the lendin ban# depend upon the terms of the
contract between the borrower and the lender* Althouh the ban# does not have
physical possession of the oods) it has the leal riht to sell the oods to reali!e the
outstandin loan*
P/e)4e< Plede) as mode of security) is different from hypothecation in that in the
former) unli#e in the latter) the oods which are offered as security are transferred to
the physical possession of the lender* An essential prere?uisite of the plede)
therefore) is that the oods are in the custody of the ban#* 0he borrower who offers
the security is called a 1Pawnor3 while the ban# is called the 1Pawnee3* 0he lodin
of the oods the by the Pawnor to the Pawnee is a #ind of a bailment* 0herefore)
plede creates some liabilities for the ban#* It must ta#e reasonable care of the oods
pleded with it* 0he term 1reasona!le care3 means care which a prudent person may
ta#e to protect his property* He would be responsible for any loss or damae if he
uses the pleded oods for his own purposes* In case of any non-payment of the
loans) the ban#s en(oy the riht to sell the oods*
L#en< 0he term 1&ien3 refers to the riht of the party to retain oods belonin to
another party until a debt due to him is paid* &ien can be of two types@
P-rt#+*/-r L#en@ 0he riht pertainin to the oods until a claim pertainin to
these oods is fully paid*
6ener-/ L#en@ "hen all dues of the claimant are paid* %an#s en(oy eneral
lien*
48
Mort4-4e< It is the transfer of interest in specific immovable property for security of
payment of money advanced*
:or3#n4 C-(#t-/ M-n-4e$ent -t 8AIL
0he company is professionally manaed with senior experienced professional7s at all
crucial departments li#e production) mar#etin A finance* 0he company has efficient
control systems in places li#e budetin system) costin system) etc* 0he ob(ectives
of wor#in capital manaement in the company are better cash profit marin)
maintainin comfortable li?uidity and brinin in the promoters proposed
contribution* 0o achieve wor#in capital ob(ectives) the company follows the policy
of efficient A timely completion of contracts) maintainin minimum level of cash
balance in each component of wor#in capital) continuous review of the situation)
manain inflows and outflows without affectin production process and sales)
maintainin a ood balance between creditors and receivables and effective
manaement of inventory*
0he company applies overall budetin and cash forecastin methods and duration of
operatin cycle methods in determinin its wor#in capital re?uirements* 0he budet
49
period is often ?uarterly when the subse?uent budet fiures are reviewed* 0he
wor#in capital budet is prepared in co-ordination with the budets of production
and sales and collection functions*
$r* 'a(esh Sablo#) /eneral $anaer) 8inance) is responsible for the overall wor#in
capital manaement* In plannin the wor#in capital re?uirements the ma(or
responsibilities of the financial executives are) determinin wor#in capital
re?uirement which is done by ta#in into consideration the data and the needs of
various plants* 0he accountin policies with respect to oods and installation of
inventory valuation system are planned at the company head office*
0he responsibilities reardin orani!in in this reard includes preparin
information reports of wor#in capital for manaerial action) reportin to the
manaement the money loc#ed up in wor#in capital by preparin collection reports
and sendin them to financial and monitorin sources and application of funds*
'eardin controllin the duties are utili!ation of funds for maximum profitability
which is centrali!ed) controllin) carryin) holdin and orderin costs) controllin
debtor7s payment and cash operations which are centrali!ed at Ara Head Office*
0he company receives its wor#in capital throuh ratio techni?ues and various
reports* 0he norms are reviewed ?uarterly* 0he operatin cycle is considered while
forecastin wor#in capital*
In the company) the retained earnins are a ma(or lon term =internal> sources)
ordinary shares A preference shares are also ma(or lon term sources of wor#in
50
capital finance* So) the short term =external> source includes oods on credit)
discountin bills and advances*
0he overall policy of the company reardin financin of wor#in capital is same in
portion of variable needs with lon term sources and the portion of the permanent
needs from short term sources by ban# borrowins*
0he borrowins for wor#in capital from ban# are secured by hypothecation of boo#
debts) mortae of land of the plant owned by :irector of the company and also a
chare on various lands) flats owned by :irectors) their relatives and associate
company7s and firm*
0he person who parts with the interest in the property is called 1mortaer3 and the
person in whose favor the transfer ta#es place is the mortaee* $ortae is) thus)
conveyance of interest in the mortaed property*
C"-r4e< "here immovable property of one person is by the act of parties or by the
operation of law made security for the payment of money to another and the
transaction does not amount to mortae) the latter person is said to have a chare in
the property and all the provisions of simple mortae will apply to such a chare*
0hese are@
A chare is not the transfer of interest in the property thouh it is security of
payment* %ut a mortae is a transfer of interest in the property*
A chare may be created by the act of parties or by the operations of law* %ut
a mortae can only be created by the act of parties*
A chare need not be made in writin but a mortae deed must be attested*
51
/enerally) a chare cannot be enforced a transferee for consideration without
notice* In a mortae the transferee of the mortaed property can ac?uire the
remainin interest in the property) if any is left*
:or3#n4 C-(#t-/ -t 8AIL
Particulars Amount - 's* =In &ac#s>
&ast + years actual =as per audited accounts>
-4*,-*+,,.
-4*,-*+,,I
CB''E90
GEA'
AB:I0E:
-4*,-*+,,C
8O&&O"I9/
GEA'
P'OEEC0IO9
-4*,-*+,,5
9EU0 GEA'
P'OEEC0IO9
-4*,-*+,4,
A>* Current Assets
'eceivables .6*.+ D6*4. .,*CC .6*D, .I*C,
Inventory 446D*C4 4,5D*4- 4-D5*4+ 4-64*,5 4--C*5I
Cash 4+*C, +6*,6 ++*5+ +.*D, +C*D,
Investment .ID*6, .44*.- 4,+5*DD 5C,*,, 4,+,*,,
Advances 4,D*.6 45D*I6 4D6*II 4.,*I, 4.I*4,
Others -.*DC -6*5. D6*5, DC*+, D5*C,
=A> 0otal +,6,*CD +,4D*.. +.C+*46 +.-,*55 +.C+*4I
%>* Current liabilities
%an#
borrowins
+6.*I5 -,6*,6 -6I*.6 6,,*,, 6,,*,,
Creditors +C4*-, 4.D*C, -65*-C +IC*D, +I.*D,
52
Advances +4+*-. I5*65 -DC*DD +4,*,, +,D*,,
Statutory
liabilities=due in
4 year>
5,*6, CD*6+ 4,6*I+ 4,D*5, 4,C*D,
Others 5D5*DC ICI*6. I..*DC C+6*C. I.4*,6
=%> 0otal 4I5,*6- 46++*+4 45+.*CI 4C45*+. 4ID4*,6
"or#in Capital
=A- %>
+D,*6+ D5-*6D IDD*+I C44*I- 5-4*4-
:or3#n4 C-(#t-/ In>e't$ent -n) F#n-n+#n4 Po/#+,
Gear +,,C +,,5 +,4, +,44 +,4+
C* Assets +,6,*CD +,4D*.. +.C+*46 +.-,*55 +.C+*4I
C* &iabilities 4I5,*6- 46++*+4 45+.*CI 4C45*+. 4ID4*,6
8ixed Assets I+D5*IC .I,6*D4 I4-C*65 .54D*5D .C-I*.I
E?uity +,+I+ ++DD*II +-CD*64 +IC.*.. -++C*4,
9et Income
After 0ax
--.*,. +5C*5I -6D*5C 6,4*+D 664*66
9et "or#in
Capital
+D,*6+ D5-*6D IDD*+I C44*I- 5-4*4-
Current 'atio 4*46 4*6+ 4*-5 4*6D 4*D-
0he above table shows that the Company follows $oderate or Compromisin policy
for its wor#in capital re?uirements which means the company faces moderate ris#
with moderate amount of profits*
53
CHAPTER 4
Re'e-r+" O%?e+t#>e
Re'e-r+" Met"o)o/o4,
An-/,'#' -n) Inter(ret-t#on
54
Re'e-r+" O%?e+t#>e
0he basic ob(ective of this pro(ect is to provide an analytical overview of @:or3#n4
C-(#t-/ M-n-4e$ent -t 8RINDAVAN A4ro In)*'tr#e' Lt)A by brinin into use
various theoretical tools and s#ills which have been studied* 0his includes studyin
and analy!in various financial data over a period of +,,C-+,,5 to +,44-+,4+) with
an aim of ainin useful insihts into the s#ills needed for controllin the movement
of wor#in capital* It also includes suestion and comments to improve specific
areas of wea#nesses*
An implicit ob(ective of this summer trainin pro(ect is to observe the day < to < day
wor#in of the finance department at close hand and also to observe the theoretical
concepts of manaement and orani!ational behavior at wor#*
0o what extent the manaement of wor#in capital in COCA CO&A) which is
one of the leadin concern in the fastner industry contribute to the overall
ob(ective of the firm i*e* wealth maximi!ationT
"hether the firm has ade?uate li?uidity throuhout the period which lead to ris#
return trade offT
How far has the firm been successful in manain and collection of the
receivables in timeT
0o study manaement policies reardin inventory manaement) whether the
manaement have applied various inventory control techni?ues for proper
utili!ation of resources*
55
How far have the firm been successful in manain and payments of accounts
payables*
CH NO 2< RESEARCH METHODOLO6Y
H,(ot"e'#'<
'esearch methodoloy refers to the systematic study of enunciatin the problem)
formulatin a hypothesis) collectin the facts or formulatin a hypothesis) collectin
the facts ordata) analy!in the facts and reachin certain conclusions either in the
form of solution towards the concerned problem or in certain enerali!ations for some
theoretical formulations*
0he study of wor#in capital manaement at %'I9:A;A9 Aro Industry &td*) was an
analytical type of research) which includes the facts and information available and analy!in
these to ma#e a critical evaluation of the material* ;arious types of ratios are calculated for
the purpose of analy!in the data*
4* Customers have basis of preference in selection of the final Coca Cola
=%'I9:A;A9 Aro Industries &td>*
+* 0he final decision is based on prior experience
Re'e-r+" De'#4n<
D-t- Co//e+t#on< :ata has been collected throuh both primary and secondary
approach*
D-t- So*r+e'
56
0he research involved atherin Secondary data as well as Primary data* 8or the purpose two
types of survey was conducted by me to collect the data -
Customer survey and
Consumer survey
0he tas# of data collection after selection and type of research methodoloy is very
important while decidin about the method of data collection to be used for study) the
researcher #ept in mind two types of data*
Primary :ata
Secondary :ata
Pr#$-r, D-t-
Primary :ata is collect fresh and first time) and thus happens to be oriinal in
character* 0hus secondary data) on the other hand) are all those which have already
been collected by someone else and which have already been passed throuh the
statistical process*
Se+on)-r, D-t-
0he researcher used secondary data collection techni?ue which includes various
reports and publications of %'I9:A;A9 Aro Industries &td* li#e audited balance
sheet and profit and loss accounts) information brochure and other financial reports*
A primary data collection source included an interview with the 8inance $anaer)
$r*&*C*%a(a() %'I9:A;A9 Aro Industries &td*) Ara* However the reliability and
suitability of the data has been assured by the researcher*
S+o(e o& t"e St*),
57
%oth primary and Secondary data has been be used for the study* Primary data was
collected throuh direct interaction with the company7s finance and accounts
department* If needed scheduleQ?uestionnaires would be devised to et the
information on all the relevant areas of the study such as receivable manaement)
inventory manaement) manaement of cash etc* And I collected the data from the
secondary sources comprisin Annual 'eports of the firm) other (ournals and
periodicals*
Apart from the conductin this research wor# on the basis of these information7s)
various techni?ues of financial manaement e**) comparative statement) trend
analysis and ratio analysis etc* were used in the present study* 0o present a broad
view so far the purpose of the analysis and to ma#e it easy to understand the
problemQconcept of a few raphs and tables shall also be presented* In each chapter)
the analysis has been compared with actual manaement practices of the company
under study*
58
An-/,'#' -n) Inter(ret-t#on
R-t#o An-/,'#'<
Gear "or#*
Capital
=in
&ac#s>
Current
ratio
Luic#
ratio
Current
assets to
sales
ratio
Current
assets to
total
assets
ratio
Inventory
turnover
=days at
-.D>
:ebtor
turnover
ratio
=days at
-.D>
Creditors
0urnover
ratio
=days at
-.D>
+,,C +D,*6+ 4*46 ,*6I ,*6, ,*+C .,*DD
=.*,+>
C+*.
=6*64>
5*D.
=-C*4I>
+,,5 D5-*6D 4*6+ ,*DD ,*64 ,*-, 6D*C,
=I*5.>
I4*C5
=D*,I>
5*,,
=6,*DD>
+,4, IDD*+I 4*-5 ,*.D ,*6D ,*-I --*,C
=44*,->
CC*6D
=6*4+>
4,*+6
=-D*.6>
+,44 C44*I- 4*6D ,*.D ,*6C ,*-C +C*+I
=4+*54>
CI*C.
=6*4D>
C*C5
=64*,D>
+,4+ 5-4*4- 4*D- ,*.I ,*6. ,*-5 -,*-D
=4+*,+>
C5*,6
=6*,5>
C*C5
=6,*54>
Av* ..C*6 4*-C. ,*D5 ,*66 ,*-66 -5*.4
=5*5C>
C-*5.
=6*-.>
5*-+
=-5*+.>
Current 'atio@ Current AssetsQCurrent &iabilities*
59
Luic# 'atio@ Luic# AssetsQ Current &iabilities*
Current Assets to Sales@ Current AssetsQ9et Sales*
Current Assets to 0otal Sales@ Current AssetsQ0otal Sales*
Inventory 0urnover@ Cost of /oods SoldQAv* Inventory*
:ebtor 0urnover@ 9et Credit SalesQAv* :ebtors*
Creditor 0urnover@ 9et Credit PurchaseQAv* Creditors*
0he Calculation of Net :or3#n4 C-(#t-/ shows that there is a ood amount in
li?uidity with the company) except in the year 4, < 44 when the increase is a bit low
compared to the precedin A the followin years) but on an averae the 9"C is ?uite
satisfactory*
After calculatin the C*rrent R-t#o we can analy!e that for every current liability of
's*4 there is current assets of 's4*-C =an av*>) available* If we consider the whole
6yrs data we can see that it is showin an increasin trend) but has decreased in +,4,)
still the current ratio has better li?uidity in the year +,44* 0houh this is not an ideal
ratio =+@4>) a sliht decline in the current assets may adversely affect the ability of the
company in meetin its obliation* As the company is reputed one and the mar#et
has a ood demand for the aerated drin# the investment should not be ris#y =from the
view point of creditors>* Also the company has all the possibilities of ainin the
ideal ratio very soon in near future*
0he interpretation of li?uidity position of the firm needs modification in the liht of
the ?uic# ratio* /enerally) a B*#+3 R-t#o of 4@4 is considered satisfactory as a firm
60
can easily meet all current claims* In case of %AI& the averae is ,*D5) which is less
than the standard norm* 0he interpretation that can be placed is that a lare part of the
current assets of the firm is tied up in slow movin and unsaleable inventories and
slow payin debts*
It is suested that it would be useful) for the manaement) if the li?uidity measure
also ta#es into account Sreserve borrowin power7 as the firms real debt payin ability
depends not only on cash resources available with it but also on its capacity to borrow
from the mar#et at short notice*
In In>entor, T*rno>er R-t#o) cost of oods sold is sales minus ross profit* 0his
ratio indicates how fast inventories are movin* A hih ratio is ood from the view
point of li?uidity and vice < versa* A low ratio indicates that the oods does not sell
fast and stays on the shelf or in the warehouse for a lon time* In the case of %AI&)
we see that the ratio was hih in the beinnin and then the ratio has decreased) the
ratio7s entire are not stable they vary in different years* :ue to this the days of
holdin the inventory also varies) as the ratio increases the days of holdin the
inventory decreases and when the ratio decreases the days of holdin the inventory
increases* On av* the days of holdin the inventory is more than a wee#=4,days
approx*>) this is because the sale is very hih in the summer season=April-Euly> and its
then) when the oods move very fast from the inventory but in the seasons after the
summers the oods ta#e time to move out of inventory and so the variation* %AI&
deals in seasonal product so the ratio can be said as satisfactory* %ut comparin the
whole D years data we see that the days of inventory holdin is increasin this is
61
because the competition is increasin and also due to the price varianceM price
variance is caused because of the increase in the rate of raw materials) increase in
waes of employees) increase in advertisement cost) chane in overnment policies)
transportation chares) etc*
De%tor' T*rno>er R-t#o) net credit sales consists of ross credit sales minus returns)
but here the company deals in sales which are on credit* 0he ratio measures how
rapidly the receivables are collected* A hih ratio is indicative of shorter time la
between credit sales and cash collection* A low ratio shows that debts are not bein
collected rapidly* 8or %AI&) the debtor7s turnover is ood the collection is done in
proper time this is also because the company has oodwill amon its customers* It
ta#es an av* of 6 days for collection which is an ideal time of collection* %ut the
company should ta#e precautions in chec#in that the turnover does not decrease* 0he
increase in collection period can impair the li?uidity of the firm* 0o #eep this intact
the firm can adopt restrictive credit and collection policy
C*rrent A''et' R-t#o to Tot-/ A''et' R-t#o indicates the extent of total funds
invested for wor#in capital purpose* 0he table shows that on an averae near about
less than half of the total assets of %AI& =av*> are current assets* It reveals that not
much of total investment made is bloc#ed in wor#in capital investment*
C*rrent A''et' to S-/e' R-t#o is used to see if there is ade?uacy of wor#in capital
and whether or not wor#in capital has been effectively utili!in in ma#in sales* A
lower ratio implies by and lare a more efficient use of funds* 0he table shows a
62
declinin trend in the ratio of %AI& it indicates that the company is puttin in efforts
for efficient employment of wor#in capital funds*
Ratios
0
10
20
30
40
50
*-g, 1,386 0,59 0,44 0,344 9,98 4,36 39,26
C,' .,' C* / 0ale
C* / 1otal
*ssets
I,1,2 3,1,2 C,1,2
0he above raph is an overall depiction of all the basic ratios) necessary for findin
the position of the company* 0hese ratios are the averae of all the D years includin)
which includes the pro(ection year also* Here we see a hue difference in the Creditor
0urnover 'atio* 0he creditor turnover is showin a rise because the payment is done
late to the creditors) but it is seen that the payment is done* 0he Company wants to
maintain a ood rapport with the creditors so it ta#es all measure to prevent the delay
in payin the creditors* 0he increase in the period of payment is because the company
does not do payments when the season is on) that means when the sales at its pea#*
"hen the season for sales is over the company starts payin its suppliers without any
further delay* 0he suppliers also have full faith in the company and that7s why they
rant lon credit payment periods to %AI&*
63
Tren) #n L#C*#)#t, R-t#o
0he above raph shows the li?uidity of %AI&* Current A Luic# 'atios are the most
common ratios which indicate the extent of li?uidity of the Company* 0he company
should ensure that it does not suffer from li?uidity) and also that it does not have
excess li?uidity as of now it does not have an ideal ratio in both current A ?uic#
ratios) which can be a matter of concern* 0he failure of the company to meet its
obliations due to lac# of sufficient li?uidity) will result in poor credit worthiness)
loss of creditor7s confidence) or even in leal tanles* 0he company havin very hih
deree of li?uidity is also badM idle assets earn nothin* 0herefore) it is necessary to
stri#e a proper balance between hih li?uidity and lac# of li?uidity*
RATIO TO ANALY9E THE STRUCTURAL
HEALTH OF :ORKIN6 CAPITAL
In addition to efficiency and li?uidity of wor#in capital) manaement should also
loo# throuh the structural health aspect* 0he structural health of the wor#in capital
64
in business is enerally studied by analy!in the shifts and chanes between its
various elements i*e* Cash) receivables) inventories and other items of current assets*
De+o$(o'#t#on -n-/,'#' can help manaement to detect the occurrences and extent
of such structural shifts and chanes in a concern7s resources allocation over a period
of time* If after scannin the data any unusual phenomenon is detected) manaement
can further investiate that in depth* Bnder decomposition analysis) the value of
individual items can be seen in relation to total assets* &i#ewise) the proportion of
short term liabilities can be aued with respect to total liabilities*
0he followin ratio is enerally used to analy!e the structure of wor#in capital in the
business and have to be ?uite useful-@
Cash to current asset ratio*
'eceivables to current assets ratio*
Inventory to current assets ratio*
Investment to current assets ratio*
0hese entire ratios are very simple to calculate and if analy!ed toether they indicate
areas of strenth and wea#ness in the sphere of wor#in capital*
C-'" to C*rrent A''et' r-t#o<
Cash to current assets ratio =C to CA> is the proportion of cash to current assets* 0his
ratio can be calculated as follows@
CashQCurrent Assets R 4,,*
65
T-%/e =I9 &A2HS>
Ye-r C-'" CA R-t#o DEF
+,,C 4+*C, +,6,*CD ,*.-
+,,5 +6*,6 +,4D*.. 4*45
+,4, ++*5+ +.C+*46 ,*CD
+,44 +.*D, +.-,*46 4*,4
+,4+ +C*D, +.C+*4I 4*,I
C-'" to C*rrent A''et' r-t#o
Re+e#>-%/e to C*rrent A''et' R-t#o<
0his ratio is the proportion of receivable to current assets* It is calculated as follows@
'eceivablesQCurrent Assets R 4,,*
T-%/e 12=I9 &A2HS>
Ye-r Re+e#>-%/e' C*rrent A''et' R-t#o DEF
+,,C .6*.+ +,6,*CD -*4I
+,,5 D6*4. +,4D*.. +*.5
+,4, .,*CC +.C+*46 +*+I
+,44 .6*D, +.-,*55 +*6D
+,4+ .I*C, +.C+*4I +*D-
In>entor, to C*rrent A''et' R-t#o<
0his ratio is the proportion of inventory =I> to Current Assets =CA>* It is calculated as
follows@
InventoryQCurrent Assets R 4,,
66
T-%/e DI9 &A2HS>
Ye-r In>entor, C*rrent A''et' R-t#o DEF
+,,C 446D*C4 +,6,*CD D.*46
+,,5 4,5D*4- +,4D*.. D6*--
+,4, 4-D5*4+ +.C+*46 D,*.I
+,44 4-64*,5 +.-,*55 D,*5I
+,4+ 4--C*5I +.C+*4I 65*5+
In>entor, to C*rrent A''et' R-t#o
In>e't$ent to C*rrent A''et'<
0his ratio is the proportion of investment to current assets is calculated as follows-
InvestmentQCurrent Assets R 4,,*
T-%/e =I9 &A2HS>
Ye-r In>e't$ent' C*rrent A''et' R-t#o DEF
+,,C .ID*6, +,6,*CD --*,5
+,,5 .44*.- +,4D*.. -,*-6
+,4, 4,+5*DD +.C+*46 -C*-C
+,44 5C,*,, +.-,*55 -I*+D
+,4+ 4,+,*,, +.C+*4I -C*,-
67
0he Above 'atio shows the efficiency of %AI& in asset manaement* Activity 'atio
is also called as efficiency ratio* 0his shows how efficiently %AI& utili!es its assets*
As we can see above) there is efficient manaement of the inventory and the control
on debtors* 0his ratio in a sense also shows the relationship between sales and various
assets of %AI&*
E-rn#n4' (er '"-re DEPSF<
EPS measures the profit available to the e?uity Shareholders on a per share basis) that
is) the amount that they can et on every share held* It is calculated by dividin the
profits available to the shareholders by number of outstandin shares* 0he profits
available to the ordinary shareholders are arrived at by net profits after taxes and
preference dividend*
EPS@ 9et profit available to e?uity-holders Q 9umber of ordinary shares oQs
68
INTERPRETATION
Studyin the above ratio ives a fair indication of the structural health of the wor#in
capital* 0he structure of wor#in capital at %'I9:A;A9 aro industries ltd* that
inventory too# the ma(or portion of current assets* 0he Inventory to Current Assets is
as hih as 4IC*44J* Cash forms a very small part of the current assets it is always
less than +J of current assets* Company ma#es investment in short term fixed
deposits which is also as hih as -,+*4.J* 0hus) either Inventory or investments
ta#es the ma(or portion of current assets* 0he Inventory fiure) however) is always
hih because of the startin of the pea# season of - months that April) may) Eune at
the end of the financial year that the manufacturin is to be done in bul# and debtors
are less because of less sale dispatches at the end of the financial year* It is also
advisable to the Company to invest in mar#etable securities so that it can be easily
converted to cash and would be ood for li?uidity position of the company*
69
L#$#t-t#on'1 Con+/*'#on' -n) Re+o$$en)-t#on'
Stren4t"'<
All the fiures are oriinal ta#en from the balance sheet of the %AI& provided by the
finance manaer $r* &*C* %a(a() So fiure is actual*
L#$#t-t#on'<
As it was the pea# season for Sales the authorities were very busy* So I could
not extract much information*
8ew facts and fiures are based on assumptions and numerical interpretations*
Con+/*'#on'<
0he purpose of this pro(ect report was to provide an analytical overview of the
wor#in capital manaement at %'I9:A;A9 Aro Industries &td* to conclude the
pro(ect) it can be said that manaement has been ma#in constant efforts) with a
reasonable success to attain efficiencies in manaement of wor#in capital* 0he
company undoubtedly has a very ood orani!ational set up with a roup of
professionals manain at various levels* %AI& en(oys a ood rapport with its
suppliers as well as with its customers) enablin it to ma#e payments for whenever
they are due*
"hile doin ratio analysis of relevant ratios of wor#in capital manaement) it was
found that the company is doin very well especially ?uic# ratio assures the sound
li?uid position of the company* On the basis of various aspects) I have analy!ed that
70
the division is ?uite successful in maintainin the orani!ation* 0he division is havin
a very ood li?uidity) activity and leverae position*
However low creditors turnover ratio is a matter on which due attention needs to be
paid* In the last year the account creditors showed a considerable improvement*It has
been that %AI& is relyin on the ban#s) depositsQinstallments of term loansQ :P/7s
=due within one year> for finance aspects* In this hihly turbulent competitive
environment relyin on one source is not sufficient* So it is ood that the firm have
different sources for financin wor#in capital* 0he financin policies must #eep on
chanin accordin to the existin situations and re?uirement* Overall the division7s
performance is ?uite satisfactory*
0he operatin cycle of the company is runnin very smoothly because of the better
inventory conversion and debtor7s conversion periods*
%AI& should also increase its profits to achieve the ultimate oal of financin that is
wealth maximi!ation means creatin value for the shareholder*
Re+o$$en)-t#on'<
It is emphasi!ed here that one has to #eep in mindM there will always be scope for
further development in any concern and any department*
71
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72