Ambuja Cements was set up in 1986. In the last decade the company has grown tenfold.

The total cement

capacity of the company is 18.5 million tonnes.
Its plants are some of the most efficient in the world. With environment protection measures that are on par with the
finest in the developed world.
The company's most distinctive attribute, however, is its approach to the business. Ambuja follows a unique
homegrown philosophy of giving people the authority to set their own targets, and the freedom to achieve their
goals. This simple vision has created an environment where there are no limits to excellence, no limits to efficiency.
And has proved to be a powerful engine of growth for the company.
As a result, Ambuja is the most profitable cement company in India, and one of the lowest cost producer of cement
in the world.

WORKING CAPITAL:

Definition: - working capital is a financial metric which represents operating liquidity

available to a business. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital

Working Capital = Current Assets − Current Liabilities

If current assets are less than current liabilities, an entity has a working capital deficiency,
also called a working capital deficit. A company can be endowed with assets and profitability but
short of liquidity if its assets cannot readily be converted into cash. Positive working capital is
required to ensure that a firm is able to continue its operations and that it has sufficient funds to
satisfy both maturing short-term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable and payable and cash.
Current assets and current liabilities include three accounts which are of special importance.
These accounts represent the areas of the business where managers have the most direct impact

• Account receivables ( current assets)

• Inventory (current asset)
• Account payable ( current liability)

The current portion of debt (payable within 12 months) is critical, because it represents a short-
term claim to current assets and is often secured by long term assets. Common types of short-
term debt are bank loans and lines of credit. An increase in working capital indicates that the
business has either increased current assets (that is received cash, or other current assets) or has
decreased current liabilities, for example has paid off some short-term creditors
WORKING CAPITAL MANAGEMENT:-

Working Capital Management is concerned with the problems that arise in attempting to
manage the Current Assets, the Current Liabilities and the inter-relationship that exists between
them. The term Current Assets refers to those Assets which in the ordinary course of business
can be, or will be, converted into Cash within one year without undergoing a diminution in value
and without disrupting the operations of the firm. The Major Current Assets are Cash,
Marketable Securities, Accounts Receivables and Inventory.

Current Liabilities are those Liabilities, which are intended at their inception, to be paid in the
ordinary course of business, within a year out of the current assets or the earnings of the
concern .The basic Current Liabilities are Accounts Payable, Bills Payable, Bank Overdraft and
outstanding expense.

The goal of Working Capital Management is to manage the firm's Assets and Liabilities in such
a way that a satisfactory level of working capital is maintained. This is so because if the firm
cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may
even be forced into bankruptcy.

The Current Assets should be large enough to cover its current liabilities in order to ensure a
reasonable margin of safety. Each of the current assets must be managed efficiently in order to
maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of
the short term sources of financing must be continuously managed to ensure that they are
obtained and used in the best possible way. The interaction between current assets and current
liabilities is, therefore, the main theme of the theory of management of working capital.

OBJECTIVE OF WORKING CAPITAL MANAGEMENT:

The Basic Objective of Working Capital Management is to provide adequate support for the
smooth functioning of the normal business operations of a company. This Objective can be sub-
divided into 2 parts:-

1. Liquidity 2. Profitability

1) Liquidity: The quantum of Investment in Current Assets has to be made in a manner that it
not only meets the needs of the forecasted sales but also provides a built in cushion in the form
of safety stocks to meet unforeseen contingencies arising out of factors such as delays in arrival
of Raw Material, sudden spurts in demand etc. Consequently, the investment in current assets for
a given level of forecasted sales will be higher if the management follows a conservative attitude
than when it follows an aggressive attitude. Thus, a company following a conservative approach
is subject to a lower degree of risk than the one following an aggressive approach. Further, in the
former situation the high amount of Investment in Current Assets imparts greater liquidity to the
company than under the latter situation wherein the quantum of investment in Current Asset is
less. This aspect exclusively covers the liquidity dimension of Working Capital.

2) Profitability: Once we recognize the fact that the total amount of financial resources at the
disposal of a company is limited and these can be put to alternative uses, the larger the amount of
investment in current assets, the smaller will be the amount available for investment in other
profitable avenues at hand with the company. A conservative approach in respect of Investment
in Current Assets leaves fewer amounts for other Investments than an aggressive approach does.
Further, since the Current Assets will be more for a given level of Sales forecast under the
conservative approach, the turnover of Current Assets (calculated as ratio of Net Sales to Current
Assets) will be less than what they would be under the aggressive approach. Even if we assume
the same level of Sales Revenue, operating Profit before Interest and Tax and Net (Operating)
fixed assets, the company following a conservative policy will have a low percentage of
operating profitability as compared to its counter part following an aggressive approach.

Management of working capital: Guided by the above criteria, management will use a
combination of policies and techniques for the management of working capital. These policies
aim at managing the current assets (generally cash and cash equivalents, inventories and debtors)
and the short term financing, such that cash flows and returns are acceptable

• Cash management. Identify the cash balance which allows for the business to meet
day to day expenses, but reduces cash holding costs.
• Inventory management. Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials - and minimizes
reordering costs - and hence increases cash flow; see Supply chain management; Just
In Time (JIT); Economic order quantity (EOQ); Economic production quantity
• Debtors management. Identify the appropriate credit policy, i.e. credit terms which
will attract customers, such that any impact on cash flows and the cash conversion
cycle will be offset by increased revenue and hence Return on Capital (or vice versa);
see Discounts and allowances
 • Short term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier;
however, it may be necessary to utilize a bank loan (or overdraft), or to "convert
debtors to cash" through "factoring

CASH CONVERTION CYCLE (CCC):

The cash conversion cycle, also known as the asset conversion cycle, is an expression of
time, in days, that it takes to purchase raw materials for production, convert them into goods, sell
them, and collect the accounts receivable for those sales.

It is a very important management efficiency ratio; generally speaking, a shorter CCC is an

indication of high levels of liquidity while a higher CCC may indicate the firms inability to
manage the process of the production or even issues with qualifying borrowers accurately. In
some cases, it is possible for for the CCC to be negative and this could indicate a problem with
the companies ability to repay its creditors and this needs to be taken very seriuosly.

It is important to look at any number on the financial statement in the proper context. Different
industries will have different normal ranges. It is important to look at the trend over time and
equally important to look at each component of the formula on its own.

The cash conversion cycle is very heavily scrutinized by investors for small cap companies who
are typically new start-ups or have been experiencing very explosive growth. These are the
companies which are most prone to having cash flow issues during a time of economic
slowdown.
Cash conversion cycle = stock conversion period + Debtors conversion period – credit period
granted by supplier

Raw materials stock period = ( Avg. value of R.M stock/ Avg. purchase of R.M per day)

Work in progress period= ( Avg. value of W.I.P / Avg. cost of goods sold per day)

Finished goods inventory period =( Avg. value of F.G in stock/ Avg. C.O.G sold per day)

Debtors conversion period = (Avg. value of debtors/ Avg. value of sales per day)

Credit period granted by suppliers = ( Avg. level of creditors/ purchases on credit per day)

R.M = Raw Materials

W.I.P = Work In Progress

F.G = Finished Goods

C.O.G = Cost Of Goods

WORKING CAPITAL MANAGEMENT IN BIG BAZAAR:

BIG BAZAAR is the big hyper market in India. It manages its working capital in different ways
and effectively they are managing.
 Working capital cycle is more popularly known as the operating cycle and it starts with
cash, go through the successive segments of the operation cycle, viz. raw material storage period,
conversion period, finished goods storage period and average collection period before getting
back cash along with profit. The total duration of all the segments mentioned above is known as
gross operating cycle period.

When average payment period of company to its suppliers is reduced from the gross
operating cycle we will get the net operating cycle. The operating cycle approach is quite useful
both in controlling and forecasting the working capital.

NET OPERATING CYCLE= RAWMETERIAL STORAGE PERIOD + CONVERTION

PERIOD + FINISHED GOODS STORAGE PERIOD + AVERAGE COLLECTION PERIOD –
AVERAGE PAYMENT PERIOD.

BIG BAZAAR is having many of this component as shown above but it doest have collection
period because it will sell the goods to customer through cash only not in the credit basis. Even
though they accept the credit cards from the customer that will become cash in 24 hours because
they have agreement with the banks.

Several terms and their preposition in BIG BAZAAR in order to calculate the working capital
cycle. .

Opening stock: - It has different lines of business and it is maintaining the stock by purchasing
the inventory to meet their requirements

Closing stock:- the closing stock also they are maintaining as opening stock for every month

Purchases:- it has many suppliers and they are purchasing the every product from the
manufacturer it self not from any distributers and they purchasing the agricultural from the direct
farmers it self.

Cost of production:- it is purchasing rice, wheat, dal, subji etc from formers and they are
separately packing them according to weights. They are purchasing the cloth from the
manufacturers and they are stitching. For the food section they are purchasing and cooking the
food. Like above many functions the company is doing by its own soothe cost is involved in
conversion so I take it as the cost of production.
Opening work in process:- the operating work in progress is as discussed above every month
they have opening W.I.P.

Closing work in process:- the operating work in progress is as discussed above every month
they have closing W.I.P.

Selling cost:- it incur some selling cost in the every product.

Administrative cost:- it has huge administrative cost because it has different verticals in
addition they have multiplex so the administrative cost is high.

Financial cost:- like every company it has also the financial cost.

Average collection period:- the company is not selling the product in the credit basis and it has
hard liquid cash only. So the average collection period is zero for the BIG BAZAAR.

1. RAW METERIAL STORAGE PERIOD.

Raw material storage period= (avg. stock of raw material / avg. consumption of R.M)
Here raw material is the good that are purchasing from the manufacturer
Monthly usage of raw material
Opening stock = Rs. 7, 62, 65, 145.
Closing stock = Rs. 9, 62, 82, 950.
Purchases = Rs. 18, 32, 92, 138.

Average stock of raw material = (Opening stock + Closing stock) / 2 = Rs. 8, 62, 74, 047.

Annual usage of raw material = Opening stock+ Purchases – Purchases.

= Rs. 18, 32, 74, 333.

Average daily usage of raw material = (Annual usage of raw material / 365)

= Rs. 5, 03,500.

Raw material storage period= (avg. stock of R.M / avg. Daily consumption of R.M)

= (86274047 / 503500) = 171 days RAW

METERIAL STORAGE PERIOD is 171 days
2. AVERAGE CONVESION PERIOD
Average conversion period = (avg. stock of work in process / avg. daily cost of production)
Other manufacturing cost
Labour charges = Rs. 6, 87, 461.
Packing material = Rs. 22, 52, 645.
Power = Rs. 31, 08, 935.
Rent = Rs. 76, 65, 893
Advertisement cost = Rs. 49, 73, 322.
Transportation cost = Rs. 83, 070.
Depreciation = Rs. 95,000.
Opening work in progress = Rs. 26, 75, 541
Closing work in progress = Rs. 39, 24, 755.
Annual Cost of conversion = Opening work in progress + Labour charges + Packing
material + Power + Rent + Advertisement cost + Transportation cost + Depreciation -
Closing work in progress = Rs. 20, 08, 90, 447
Monthly cost of conversion = ( cost of production / 365)
= Rs. 5, 50, 384.
Average stock in work in progress = (Opening work in progress + Closing work in
progress)/2 = Rs. 33, 00, 147.
Average conversion period = (avg. stock of work in process / avg. daily cost of production)
= (3300147 / 550384) = 6 days
AVERAGE CONVESION PERIOD is 6 days
3. FINISHED GOODS STORAGE PERIOD

Finished goods storage period =( avg. inventory of F.G / avg . daily cost of sales)

Opening finished goods = Rs. 7, 35, 89, 604.

Closing finished goods = Rs. 8, 23, 58, 195.

Cost of conversion = Rs. 20, 08, 90, 447.

Selling and admin exp. = Rs. 56, 71, 06, 300.

Finance and other costs = Rs. 4, 36, 83, 460.

 Annual cost of sales = Opening finished goods + Cost of conversion + Selling and admin
exp. + Finance and other costs - Closing finished goods.

= Rs. 80, 29, 11, 616.

Average daily cost of sales = (Annual cost of sales / 365) = Rs. 21, 99, 758.

Average inventory of finished goods = (Opening finished goods + Closing finished

goods) /2 = Rs. 7, 79, 73, 899.

Finished goods storage period = ( avg. inventory of F.G / avg . daily cost of sales)

= (77973899 / 2199758) = 35 days

FINISHED GOODS STORAGE PERIOD is 35 days

4. AVERAGE COLLECTION PERIOD

As I mention earlier the company is not selling the product on the credit basis and it has
hard liquid cash only. So the average collection period is zero for the BIG BAZAAR.

AVERAGE COLLECTION PERIOD is 0 days

5. AVERAGE PAYMENT PERIOD

Average payment period = (Average balance of trade creditors / Average

daily purchases)

Opening accounts payables = Rs. 2, 13, 24, 150.

Closing account payables = Rs. 2, 45, 07, 720

Annual credit purchases = Rs. 5, 90, 69, 220.

Average balance of trade creditors = ( Opening accounts payables+ Closing account

payables) / 2 = Rs. 2, 29, 15, 935.

Average daily purchases = (Annual credit purchases / 365) = Rs. 1, 61, 833.

Average payment period = (Average balance of trade creditors / Average daily

purchases) = ( 22915935 / 161833) = 141 days
 AVERAGE PAYMENT PERIOD is 141 days
Therefore the all the periods are collectively represent as

RAW METERIAL STORAGE PERIOD is 171 days

AVERAGE CONVESION PERIOD is 6 days

FINISHED GOODS STORAGE PERIOD is 35 days

AVERAGE COLLECTION PERIOD is 0 days

AVERAGE PAYMENT PERIOD is 141 days

GROSS OPERATING PERIOD = 171 + 6 + 35 +0 = 212 days

NET OPERAING CYCLE PERIOD = 171 + 6 + 35 + 0 – 141= 71 days

Cash conversion cycle = inventory conversion period+ receivables conversion period – payables
conversion period

Cash conversion cycle is same as net operating cycle period.

Cash conversion cycle = 171 + 6 + 35 +0 -141 = 71 days.

ANALYSIS ON NET OPERATING CYCLE PERIOD:

From the above calculations we found that the cash conversion cycle (CCC) of BIG BAZAAR is
71 days, and it says that the company needs 71 days to convert the procured goods to cash (from
receivables). It may be noted that goods storage period is the maximum compared to other
segments. The greater goods storage period has also increased the operating cycle.

The average conversion period has 6 days it indicates that 6 days worth of cost of conversion on
average is held in the form of work in process inventory reflecting efficiency in the management
of work in process inventories.

The finished goods storage period it contain the goods which are combination of good which
have further process is require and the goods which don’t need of further process. The both type
of goods are consider as the finished goods. The number 35 days represents 35 days worth of
cost of sales has been held in the form of finished goods inventory on the average
The account payment period 141 days indicating that 141 days worth of credit purchases are held
in the form of sundry creditors. The BIG BAZAAR is directly purchasing from manufacturers,
and manufacturers normally give more periods to re pay the amount because there was no
distributor.

Here in this case BIG BAZAAR purchasing in bulky for entire its zone that means that has more
than 15 stores it will purchases in bulky and manufacturers also having one customer with bulky
as equal to distributors so he will give consideration in the credit payment by the BIG BAZAAR.

So this is benefit as well as threat for the business when the company need more cash at some
particular time the time is same as the credit payment the company will face the problem because
it doesn’t have the account receivables.

From the overall operating cycle period, it is quicker and implies that the less amount of working
capital is needed and it improves the profitability. Some of the reasons for the company having
such a operating period are failure to get trade discount and cash discount, inability to purchase
during seasons, e.t.c.

WORKING CAPITAL REQUIREMENT:

The working capital requirement is the minimum amount of resources that a company requires to
effectively cover the usual costs and expenses necessary to operate the business. How BIG
BAZAAR is managing their working capital requirement by using the different sources that are
available to them.

The company funding its working capital as fallows

Working capital requirement is Rs. 11, 44, 73, 501.

Financing from the banks is 73% i.e 0.73 * 114473501

Financing through banks is 8, 35, 65, 656.

Financing through the portion of long term sources is 25% i.e 0.25 * 114473501

Financing through portion of long term sources is Rs. 2, 86, 18, 375.

Financing through the promotion of other companies is 2% i.e 0.002 * 114473501

Financing through the promotion of other companies is Rs. 2, 28, 947

ANALYSIS ON WORKIG CAPITAL REQUIREMENT:

Company working capital requirement is Rs.11,44, 73, 501.

The company’s working capital financing has three options and how much portion of funds they
financing is as listed below

Financing from the banks is 73%

Financing through the portion of long term sources is 25%

Financing through the promotion of other companies is 2%

So BIG BAZAAR is financing more of its working capital from the bank. This says that the
retail major has adopted negotiated finance as the main source of working capital finance. In
order to meet the activities in a year they need Rs. 11, 44, 73, 501.

There are different forms in which bank credit will be given. As per the rules of RBI and
TANDON committee the Maximum Permissible Bank Finance (MPBF) can be given under three
categories. They are having current ratio 1:1;;1.33:1;;1.5:1.

Here in the case of BIG BAZAAR it is following the first category of having a current ratio of
1:1. In this category the bank will give upto 75% of the requirement provided the firm has to
show the remaining(25%) should be provided through long term sources.

The banks are financing Rs. 8, 35, 65, 656 and in that amount the major portion (nearly 25%) is
funded by Andhra bank ( i. e. Rs. 2,08,91,414) and its interest rate is variable rate normally it
charges on an average 11%. In addition to that banks they are funding nearly 23% from the
portion of its long term sources such as share capital, long-term debts and provisions etc. And the
remaining portion of the funds i.e 2% of fund they are financing through sales promotions done
by the other companies for the allocation of space and parking facility.

CONCLUSION:

According to the project I done in BIG BAZAAR I found out the net working capital cycle (or)
cash conversion cycle and working capital requirements. Compared other retailers they have
high cash conversion cycle so it is doing its business effectively but overall the cash conversion
cycle is less so the company has the locking up of funds in the current assets is for a relatively
short duration and company can obtain greater mileage from each rupee invested in current
assets. And it is financing its working capital requirement by Marjory on bank and its portion of
its long term sources