Documente Academic
Documente Profesional
Documente Cultură
C-189 & 190, Site No. 1, B.S. Road, Ind. Area, Ghaziabad [U.P.] Phone No.: 01202866320/21,3290635/37/38 Fax No. 0120-2867715
CERTIFICATE
Signature
(Bulbul Sharma)
PGDM ( 2009-10)
Signature
(Mr. Sanjeev Garg)
Sintech Precision Product Limited
ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of gratitude to all those who
have helped me in completing this summer project to the best of my ability. Being a
part of this project has certainly been a unique and a very productive experience on
my part.
I am really thankful to Mr. Sanjeev Garg, Finance Manager for making all kinds of
arrangements to carry the project successfully and for guiding and helping me to
solve all kinds of quarries regarding the project work. His systematic way of working
and incomparable guidance has inspired the pace of the project to a great extent.
I would also like to thank my mentor and project coordinator, Mr. Parminder
Singh, Asstt. Manager, (Finance & Accounts) for assigning me a project of such a
great learning experience and acquainting me with real life project financing and
appraisal.
I am very grateful to CA Neeta Sahu (Training & Placement Officer) AJAY KUMAR
GARG INSTITUTE OF MANAGEMENT, Ghaziabad. Who has given me the
opportunity to do this project in the Sintech Precision Product Ltd. and very
thankful to all lecturers of AKGIM, Ghaziabad for their useful guidance and advise.
This project would not have been successful without the help of Mr.N.C. Dhingra
(Chairman) Mr. Sahil Dhingra (Managing Director) of Sintech.
Last but not least I would like to thank all the employees of Sintech Precision
Product Ltd. who have directly or indirectly helped me with their moral support for
the completion of my project.
(Bulbul Sharma)
TABLE OF CONTENTS
Acknowledgement
Abstract
1. Introduction
The problems
Purpose of study
Research methodology
Limitations
Industry Profile
Indian Economy
Pump industry
Product Range
Sectoral Overview
4. Conceptual Framework
Introduction to Working Capital Management
Liquidity vs
Cash management
Receivables management
Major Findings
Conclusion
Bibliography
Appendices
ABSTRACT
This project tries to evaluate how the management of working capital is done in
Sintech through inventory ratios, working capital ratios, trends, computation of
cash, inventory and working capital, and short term financing.
INTRODUCTION
The problems
Purpose of study
Research methodology
Scope of the study
Data sources
Limitations
INTRODUCTION:
It describes about how the company manages its working capital and the various
steps that are required in the management of working capital.
to
look at
its
working
capital
management(WCM).
Working capital refers to the cash a business requires for day-to-day operations
or, more specifically, for financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the most important items
of working capital are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's efficiency and
financial strength.
This project describes how the management of working capital takes place at
SINTECH.
The Problems
In the management of working capital, the firm is faced with two key problems:
First, given the level of sales and the relevant cost considerations, what are the
optimal amounts of cash, accounts receivable and inventories that a firm
should choose to maintain?
Second, given these optimal amounts, what is the most economical way to finance
these working capital investments? To produce the best possible results, firms
should keep no unproductive assets and should finance with the cheapest
available sources of funds. Why? In general, it is quite advantageous for the firm
to invest in short term assets and to finance short-term liabilities.
PURPOSE OF STUDY
The objectives of this project were mainly to study the inventory, cash and
receivable at SINTECH PRECISION PRODUCT LTD., but there are some
more and they are -
To suggest ways for better management and control of working capital at the
concern.
RESEARCH METHODOLOGY
This project requires a detailed understanding of the concept
Then comes the financing of working capital requirement, i.e. how the
working capital is financed, what are the various sources through
which it is done.
Through this project I would study the various methods of the working
capital management.
The project would also be an effective tool for credit policies of the
companies.
This will show different methods of holding inventory and dealing with cash
and receivables.
This will show the liquidity position of the company and also how do they
maintain a particular liquidity position.
DATA SOURCES:
The following sources have been sought for the preparation report:
Secondary sources like previous years annual reports, CMA Data, reports on
working capital for research, analysis and comparison of
While doing this project, the data relating to working capital, cash management,
receivables management, inventory management and
This data was gathered through the companys websites, its corporate intranet,
Sintechs annual reports and CMA Data of the last three
years.
A detailed study on the actual working processes of the company is also done
through direct interaction with the employees and by timely
Also, various text books on financial management like Khan & Jain, Prasanna
Chandra and I.M.Pandey were consulted to equip ourselves
Only the printed data about the company will be available and not the back
end details.
Future plans of the company will not be disclosed to the trainees.
Lastly, due to shortage of time it is not possible to cover all the factors and
details regarding the subject of study.
The latest financial data could not be reported as the companys websites
have not been updated.
INDUSTRY PROFILE
Indian Economy
Pump Industry
In the beginning of the year 2008 the economy was on a higher growth path with the
macro-economic fundamentals inspiring confidence and a general optimism about
the medium to long term prospects of the economy. The economy was expected to
slow down marginally from the three years of 9% plus growth in real GDP reflecting a
cyclical downturn in the global economy and expectations were that the growth would
be around 8.5%. High oil prices and domestic inflation and worsening of international
financial crisis which had surfaced in 2007 have been definite areas of concern. But
the global situation deteriorated massively after mid-September 2008 following
collapse of series of investment banks in the US. This resulted in choking of credit
and global crash in stock markets. Crisis of this magnitude in industrialized countries
has impact around the world especially in the emerging market countries like India.
The Indian economy which started with a strong economic performance lost the
momentum once the ripple effects of the gloom in the global economy set in. Sensex
in January 2008 was all time high at 21206, came down to around 9000 towards the
end. The high cost of crude oil around US$ 150 per barrel in August,
2008 added to the countrys woes in terms of higher import bill. Rupee weakened
against dollar sliding down from Rs.39 in the beginning of the year to Rs.48 towards
the end.
Indias balance of payments position witnessed widening of trade deficit. The crisis
in global financial markets deepened since mid September, 2008 exerting pressure
on financial markets and crashing of equity markets leading to wide spread volatility.
The global turmoil in the financial markets spilled over the emerging markets. This
Pumps Industry
The growth witnessed by the Pumps Industry was in line with the performance of the
Indian economy. The growth in these sectors mainly came from Energy sector. This
was the result of capacity additions in Super Critical plants including Ultra Mega
Plants. On the other hand, increased forays from Chinese contractors into Energy
Sector continued to exert pressure on the demand. Demand for Submersible pumps
is weather dependent and varies with geographical location. Growth in standard
industrial pumps is closely linked to the development in the industrial sector of the
economy. Trends in waste water sewage market are encouraging due to increased
Government spending. The earlier buoyant demand for industrial valves tapered off
in the latter part of the year due to drop in activities in Steel and General Industry.
The industry, now holding euro 500 million worth of global market share, "is expected
to grow at a rate faster than the world pump market growth, capturing a larger share
of the market," states the study released by the Confederation of Indian Industry
(CII). According to industry estimates, India produces around one million pumps of
various kinds. There are around 800 large, medium and small units producing the
pumps for sectors from agriculture to nuclear power generation. "Indian pump
manufacturers are able to meet most of the domestic market demand," said Sarita
Nagpal, head of manufacturing services of CII, which works closely with the Indian
Pump Manufacturers Association.
Exports have registered a 11 percent growth in the last two years after reversing a
negative 11.5 percent trend in 2002-03 to clock 45 percent growth in 2003-04. India
has today become a reliable, technically competent, competitive and enterprising
outsourcing option for many multinational companies in industrial pumps and
systems.
The growth story has emerged through technical collaborations and joint ventures
that Indian companies have had with multinational majors. Technical know-how of
global standard has thus been well absorbed. In addition, various research institutes
such as the Small Industries Testing and Research Centre (Si'Tarc) in Coimbatore,
have developed energy-efficient designs for pumps to meet the norms of Indian
standards.
The Indian pump industry has an outstanding record of indigenous research and
development in all three areas of technological intensities - from mass-produced
pumps for agriculture to gigantic pumps for interlinking rivers, and pumps for critical
services such as nuclear power generation. The Bureau of Indian Standards has
developed 42 specifications for indigenous pumps.
The world pump market is governed by the demand in United States, European
Union and Japan. With these countries burdened by recession, market forecasts up
to 2013 have been revised to a compounded average growth rate of just 0.3% from
3-4%. The global market for centrifugal pumps in 2009 and 2010 is likely to contract,
while that for positive displacement pumps will post good gains. Consolidation of
players in the pump industry through mergers and acquisitions, may catch
momentum in 2009 -10 in spite of the present recessionary trends.
Although water and sewage, power, building services, industry, oil and gas are major
drivers of the global pump market, for KBL, water, power and irrigation will continue
to be chief market drivers.
Per capita availability of water in Asia is less than other continents; and it will
continue to grow rapidly, thus increasing demand for delivery and treatment of that
water. Rising consumption with decreasing supplies of uncontaminated water is
pushing up the market of desalination plants for treating seawater.
Urbanization of Asia has seen relocation of more than one billion migrants from villages
to cities. This is creating pressure on the existing infrastructure including delivery of utility
water and removal and treatment of wastewater.
Most governments in Asia and in Africa are likely to increase their spending on infrastructure
projects like irrigation and drinking water schemes.
The world is moving towards energy efficient products and services to be able to sustain
the growth rates achieved in the past few years with petroleum being the primary energy
source.
Companys Profile
Product Range
Key Players
Sectoral Overview
Company Profile
Sintech Precision Products Ltd. an ISO 9001 certified company is now a leading &
respected pump manufacturer in India. Sintech make pumps are manufactured as
per DIN-24256/ISO-2858/IS 5120 /HIS/IS - 1520 standards and tested as per IS9137, API-610 & ISO 2548 standards. Sintech make pumps constitutes of highly
standardized and is designed with modular structures and offers the best possible
interchangeability. This largely reduces spares inventory. Sintech has a high
production system with two Manufacturing units.
Sintech Precision Products Ltd. has now expanded in all type of pumps suitable for
diverse multifarious applications like clear water, process, slurry, liquid with
suspended solids, sewage, acids, alkalies, sea water and many more application.
Till date SINTECH has supplied thousands of pumps for various critical and non
critical applications, which are working quietly and efficiently to the entire customer
satisfaction.
Vision
Mission
Quality
Sintech Precision Products Limited has in house facilities and equipments required
for ensuring quality, such as
For non-destructive testing such as ultrasonic test magnetic particle test inspection is
carries out through external reputed agencies.A well laid test field for performance
testing having sophisticated flow meter with digital display by which flow of the liquid
can be tested accurately is available at our works.
Product Range
Type
Design
Rating
Capacity : upto 1,000
SMS m3/hr
SCS &
m3/hr
SCSD
SWP &
m3/hr
Process Pump
CPS
Water Pump
Application/Sector
Boiler Feed
Fire Fighting
Mine De-watering
Irrigation
Water Supply
Jockey
Water Supply
Condensate Transfer
Drip Irrigation
Descaling Operations
Cooling Tower
Condensate handling
Air-conditioning
Fire Fighting
Industrial and
Municipal Water
Supply
Cooling Towers
Service Water
Chemical Process
Effluent Treatment
Hydrocarbon Viscous
Liquid Acids Juice
Pump Distillery
Injection Water
Spray Pond
Air-conditioning
Water
Treatment Plant
Sea Water
River Water
Canal Water
Sewage
Head upto 60 m
SSHQ
m3/hr
SMF
m3/hr
Head upto 45 m
Vertical Mixed
Flow
SVT
SVMF
m3/hr
SVAF
Vertical Turbine
Vacuum
SV
Liquid Ring
mmHg
Pump
Sewage
SGP
Effluent Treatment
Unscreened Juice
Slurry
m3/hr
Drainage River
water Sludge Grain
Wash Syrup
Melt
Mud
Gear Pump
Effluent Treatment
Drainage
River Water
Water Supply
General Water
Supply
Cooling Tower
Plastic
Water
Paper
Irrigation
Pulp
Hydropower
Thick Viscous Liquid
Dyes
Chemicals
Coaltar
Pharmaceuticals
Mollasses
Food
Soaps
Sugar
Paint
m3/hr
Lobe Pump
/ Star Pump
Capacity : upto
1,500
STF
m3/hr
Pump
Torque Flow
EB
&
SSPL
m3/hr
EBM
m3/hr
Head upto 50 m
Self Priming
Head upto 50 m
Rota Pump
Pump
Steel
Power
Fibre
Textile
Waste Water
Grain Wash
Solid Handling
Cement Aquaculture
Thick Mollasses
Massecuite
Magma
Abrasive Slurries
Sewage
Sump Drainage
Industrial Waste
Dewatering
Sugar
Ash Slurry
SECTORAL OVERVIEW
Power
This business group caters to the needs of power industry - conventional and
renewable. Considering the chronic shortage of power, this sector is bound to
emerge as a major market driver for decades to come. The Power group is proud
to have successfully completed the sump model test of cooling water system for
India's first ultra mega power project of 4000 MegaWatt (5 x 800 MW) at
Kirloskarvadi. Orders received include:
2x250
MW Korba East
2x210
MW Rayalaseema
This business group addresses the needs of water supply, water treatment and
waste water treatment segments. Water, like power is a major market driver for the
pump industry and equipment peripheral to water industry. Water stressed regions in
the world are on the rise, thanks to uncurbed urbanization, growing industrialization,
increasing pollution levels and absence of sufficient teeth to the
legislation to deal with water pollution across the world. India is no exception. Such a
scenario demands better and better water management, with latest technologies,
cheaper methods and sustainable operations.
This business group continues to serve municipal corporations, water and sewerage
boards of India. Delhi Jalboard's Vishwakarma project, Nagpur municipal
corporation's Gorewada and Mahadula projects and Maharashtra Jal
Pradhikaran's Malegaon project went on stream this year.
Steel Authority of India Llimted, Bhilai for a 30 million liters per day (MLD) sewage treatment plant
Vadodara municipal Sewa Sadan for a 8.5 MLD sewage treatment plant
Sugar Industry
Khumbi Project
Gularia Project
Kinauni Project
Kinauni Expansion
Barkatpur Project
Shermau Project
Panipat Project
Bhiwadi Project
Indus.Ltd.
Ghaziabad Project
Adinath Enterprises
Limited
Steel
Limited
Bellary Project
Rourkela Project
Mines
15 HP
40 HP
75 HP
125 HP
Introduction
A firms working capital consists of its investment in current assets, which include
short-term assets such as:
Inventories,
Marketable securities.
It refers to firm's investment in current assets. Current assets are the assets, which
can be converted into cash with in a financial year. The gross working capital points
to the need of arranging funds to finance current assets.
It refers to the difference between current assets and current liabilities. Net working
capital can be positive or negative. A positive net working capital will arise when
current assets exceed current liabilities. And vice-versa for negative net working
capital. Net working capital is a qualitative concept. It indicates the liquidity position
of the firm and suggests the extent to which working capital needs may be financed
by permanent sources of funds. Net working capital also covers the question of
judicious mix of long-term and short-term funds for financing current assets.
PAYMENT
TO
SUPPLIERS
EASY LOAN
DIVIDEND
FROM
DISTRIBU-
BANKS
TION
SIGNIFICAN
--CE OF
WORKING
CAPITAL
INCREASE
INCREASE
EFFECIENY
DEBT
CAPACITY
INCREASE
IN FIX
ASSETS
For one thing, the current assets of a typical manufacturing firm account for half
of its total assets. For a distribution company, they account for even more.
Working capital requires continuous day to day supervision. Working capital has
the effect on company's risk, return and share prices,
There is an inevitable relationship between sales growth and the level of current
assets. The target sales level can be achieved only if supported by adequate
working capital Inefficient working capital management may lead to insolvency of
the firm if it is not in a position to meet its liabilities and commitments.
Sound working capital involves two fundamental decisions for the firm. They are the
determination of:
The optimal level of investments in current assets.
The appropriate mix of short-term and long-term financing used to support this
investment in current assets, a firm should decide whether or not it
should use short-term financing. If short-term financing has to be used, the firm
must determine its portion in total financing. Short-term financing may be preferred
over long-term financing for two reasons:
The cost advantage
Flexibility
But short-term financing is more risky than long-term financing. Following table will
summarize our discussion of short-term versus long-term financing
Maintaining a policy of short term financing for short term or temporary assets
needs (Box 1) and long- term financing for long term or permanent assets needs
(Box 3) would comprise a set of moderate risk profitability strategies. But what one
gains by following alternative strategies (like by box 2 or box 4) needs to weighed
against what you give up.
The need for current assets tends to shift over time. Some of these changes
reflect permanent changes in the firm as is the case when the inventory and
receivables increases as the firm grows and the sales become higher and
higher. Other changes are seasonal, as is the case with increased inventory
required for a particular festival season. Still others are random reflecting the
uncertainty associated with growth in sales due to firm's specific or general
economic factors.
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position of the
required working capital is needed to meet fluctuations in demand
consequent upon changes in production and sales as a result of seasonal
changes.
Sintech has a good position in its segment and they are also spending their
operations in the domestic market as well as in foreign market. The scale of
operations and the size it holds in the market makes it a must for them to
hold their inventory and current asset at a huge level.
The rate of growth of sales indicates a need for increase in the working
capital requirements of the firm. As the firm is projected to increase their
sales by 69% from what it was in 2009, it is required to guard them against
the increasing requirements of the net current asset by way of efficient
working capital management. The sales and projected sales level determine
the investment in inventories and receivables.
Changes in the price level also affect the working capital requirements. It was
the reduced margins in the price of the raw materials that had prompted them to
go for bulk purchases thus making on additions to their net current assets. They
might have gone for this large-scale procurement for availing discounts and
anticipating a rise in prices, which would have meant that more funds are
required to maintain the same current assets.
Sintech has the following banks available for the fulfillment of its working capital
requirements in order to carry on its operations smoothly:
Banks:
Indian Bank
Syndicate Bank
The upper portion of the diagram below shows in a simplified form the chain
of events in a manufacturing firm. Each of the boxes in the upper part of the
diagram can be seen as a tank through which funds flow. These tanks, which
are concerned with day-to-day activities, have funds constantly flowing into
and out of them.
CASH RAW
MATERIAL
DEBTORS &
OPERATING CYCLE
BILLS
WORK IN
RECEIVABL-
PROGRESS
ES
SALES
FINISH
GOODS
The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be carried out
on the stock, and it will become part of the firm s work-in-progress.
Work will continue on the WIP until it eventually emerges as the finished
product.
When the finished goods are sold on credit, debtors are increased.
will eventually pay, so that cash will be injected into the firm.
They
Each of the areas- Stock (raw materials, WIP, and finished goods), trade
debtors, cash (positive or negative) and trade creditors can be viewed as
tanks into and from which funds flow.
Working capital is clearly not the only aspect of a business that affects the
amount of cash.
Shareholders (existing or new) may provide new funds in the form of cash
Some shares may be redeemed for cash
Long-term loan creditors (existing or new) may provide loan finance, loans
will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business
events (e.g. tax payments, lease payments, dividends, interest and, possibly,
fixed asset purchases and sales). Others (e.g. new equity and loan finance
and redemption of old equity and loan finance) would typically be rarer events.
INVENTORY MANAGEMENT
Inventories
Inventories constitute the most important part of the current assets of large
majority of companies. On an average the inventories are approximately 60%
of the current assets in public limited companies in India. Because of the large
size of inventories maintained by the firms, a considerable amount of funds is
committed to them. It is therefore, imperative to manage the inventories
efficiently and effectively in order to avoid unnecessary investment.
Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale
and components make up of the product. The various forms of the inventories
in the manufacturing companies are:
Raw Material: It is the basic input that is converted into the finished
product through the manufacturing process. Raw materials are those units
which have been purchased and stored for future production.
represent product that need more work they become finished products for
sale.
products which are ready for sale. Stocks of raw materials and work-inprogress facilitate production, while stock of finished goods is required for
smooth marketing operations. Thus, inventories serve as a link between the
production and consumption of goods.
Ordering Costs: This term is used in case of raw material and includes all
the cost of acquiring raw material. They include the costs incurred in the
following activities:
Requisition
Purchase Ordering
Transporting
Receiving
Inspecting
Storing
Ordering cost increase with the number of orders placed; thus the more
frequently inventory is acquired, the higher the firm s ordering costs. On the
other hand, if the firm maintains large inventorys level, there will be few
orders placed and ordering costs will be relatively small. Thus, ordering costs
decrease with the increasing size of inventory.
Carrying Costs: Costs are incurred for maintaining a given level of inventory
are called carrying costs. These include the following activities:
Warehousing Cost
Handling
Administrative cost
Insurance
ABC System:
CASH MANAGEMENT
Sources of Cash:
Long-term loans
If you have insufficient working capital and try to increase sales, you can
easily over-stretch the financial resources of the business. This is called
overtrading.
Exceptional cash generating activities e.g. offering high discounts for early
cash payment
Frequent short-term emergency requests to the bank (to help pay wages,
pending receipt of a cheque).
LTD.
The branch offices of the company at various locations hold the collection of
cheques of the customers.
Those cheques are either handed over to the CMS agencies or bank of the
particular location take charge of whole collection.
These CMS agencies or bank send those cheques to the clearing house to
make them realized. These cheques can be local or outstation.
The CMS agencies or bank send information to the central hub of the
company regarding realization/cheque bounced.
The central hub passes on the realized funds to the company as per the
agreed agreements.
The CMS agencies or concerned bank provides the necessary MIS to the
company as per requirement.
In cash management the collect float taken for the cheques to be realized into
cash is irrelevant and non-interfering because banks such as Standard
Chartered, HDFC and CitiBank who give credit on the basis of these cheques
after charging a very small amount. These credits are given to immediately
and the maximum time taken might be just a day. The amount they charge is
very low and this might cover the threat of the cheque sent in by two or three
customers bouncing. Even otherwise the time taken for the cheques to be
processed is instantaneous. Their Cash Management System is quite
efficient.
RECEIVABLES MANAGEMENT
are collected faster. Every business needs to know.... who owes them
money.... how much is owed.... how long it is owing.... for what it is owed.
Have the right mental attitude to the control of credit and make sure that it
gets the priority it deserves.
Make sure that these practices are clearly understood by staff, suppliers and
customers.
Check out each customer thoroughly before you offer credit. Use credit
agencies, bank references, industry sources etc.
Continuously review these limits when you suspect tough times are coming
or if operating in a volatile sector.
12.Monitor your debtor balances and aging schedules, and don't let any
debts get too old.
Debtors due over 90 days (unless within agreed credit terms) should
generally demand immediate attention. Look for the warning signs of a future
bad debt. For example..
Longer credit terms taken with approval, particularly for smaller orders.
Dont feel guilty asking for money .. its yours and you are entitled to it.
Make that call now. And keep asking until you get some satisfaction.
In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.
When asking for your money, be hard on the issue but soft on the person.
Dont give the debtor any excuses for not paying.
Make that your objective is to get the money, not to score points or get
even.
Do you use order quantities, which take account of stock holding and
purchasing costs?
Do you know the cost to the company of carrying stock? How many of your
suppliers have a return policy?
If a supplier of goods or services lets you down can you charge back the cost
of the delay?
There is an old adage in business that "if you can buy well then you can
sell well". Management of your creditors and suppliers is just as important as
the management of your debtors. It is important to look after your creditorsslow payment by you may create ill feeling and can signal that your company
is inefficient (or in trouble!).
Remember that a good supplier is someone who will work with you to
enhance the future viability and profitability of your company.
The firm has to decide about the sources of funds, which can be availed to
make investment in current assets.
It is for a period less than one year and includes working capital funds from
banks, public deposits, commercial paper etc.
Depending on the mix of short and long term financing, the company
can follow any of the following approaches.
Matching Approach
In this, the firm follows a financial plan, which matches the expected life of
assets with the expected life of source of funds raised to finance assets.
When the firm follows this approach, long term financing will be used to
finance fixed assets and permanent current assets and short term financing to
finance temporary or variable current assets.
Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary
current assets with long term financing. In the periods when the firm has no
need for temporary current assets, the long-term funds can be invested in
tradable securities to conserve liquidity. In this the firm has less risk of facing
the problem of shortage of funds.
Aggressive Approach
In this, the firm uses more short term financing than warranted by the
matching plan. Under an aggressive plan, the firm finances a part of its
current assets with short term financing.
(Rs.in lacks)
YEAR
31.03.07
31.03.08
31.03.09
CURRENT ASSETS
INVENTORIES
180.26
291.13
653.95
SUNDRY DEBTORS
114.33
390.84
219.79
CASH AND BANK
10.81
34.30
28.22
OTHER CURRENT ASSETS
6.67
28.08
21.99
-
-----------------------------------------
LESS:-
70.34
---------------------------------------
--------------------------------------------
48
A
M
O
UN
T(I
N
LA
CK
S)
140
100
12
0.
65
12
0
1
0
2.
3
8
60
8
0
20
4
0
1.14
2009
2
0
0
7
YEAR
2
0
0
8
Data Interpretation
If we analysis the three years working capital position of the company, we find out that company
has sufficient working capital to meets its short term liability, it is good indicator for the company
but in 2008, working capital is increased by 101.24 lacs which shows that a sufficient amount
has been blocked in working capital which could be used for some other more beneficial
purpose.
49
INVENTORY ANALYSIS
Raw materials
Semi finished goods.
Finished goods.
(Rs.in lacks)
YEAR
31.03.07
31.03.08
31.03.09
.87
25.57
Stock In trade-
Finished Goods
37.04
26.93
41.76
Raw Materials
78.74
184.53
340.08
78.80
246.54
---------------
------------------------------
180.26
291.13
653.95
-------------------
----------------------------
700
600
500
LACKS)300
200
100
2007
2008
2009
YEAR
INTERPRETATION:
By analyzing the 3 years data, We are looking increasing pattern in inventories. We can see that
inventories are increased from 180.26 lacs to 291 lacs in the year 2008 and in the year 2009 it
is increased from 291 lacs to 653 lacs. By seeing this pattern we can say that the company is
managing the inventory according to the sale. Company have a great demand for the pump in
the year 2010 that is biggest reason for increase in inventories. From other point of view we can
say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty
of availability of raw material in time.
50
Debtors or an account receivable is an important component of working capital and fall under
current assets. Debtors will arise only when credit sales are made.
(Rs.in lacks)
YEAR
31
.0 3 .07
31.03.08
31.03.09
Sundry Debtors
114.33
390.84
219.79
-------------
--------------------
114.33
390.84
219.79
---------------
-------------------------
400
300
AMOUNT ( IN 200
LACKS)
100
0
2007
2008
2009
YEAR
INTERPRETATION
In the table and figure we see that there is rise in the debtors in the year 2008 and decrease in
the year 2009. A simple logic is that debtors increase only when sales increase and decrease if
sales decrease. In the year 2008, sales is increased by 72.30% and decreased by 19.24% in
the year 2009.
We can say that it is a good sign as well as negative also. Company policy of debtors is very
good but a risk of bad debts is always present in high debtors. when sales is increasing with a
great speed the profit also increases. If company decreases the Debtors they can use the
money in many investment plans.
51
Cash is called the most liquid asset an vital current assets, it is an important component of
working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a
broader sense it includes near cash assets such as marketable securities and time deposits
with bank.
(Rs.in lacks)
YEAR
31.03.07
31.03.08
31.03.09
Cash Balance in hand
1.45
27.30
2.90
Bank Balance-
------------------------------------
10.81
34.30
29.02
------------------------------------
35
30
25
AMOUNT ( IN 20 LACKS ) 15
10
0
2007
2008
2009
YEAR
INTERPRETATION
If we analyze the above table and chart we find that it follows a uneven pattern. In the year 2007
it had maintained a low amount of cash and bank balance. But in the year 2008, cash and the
bank balances has increased from 10.81 lacs to 34.30 lacs which is not a good sign for the
company because it shows that company is not using its cash for beneficial activities. Although,
in the year 2009, cash has reduced from 34.30 lacs to 29.02 lacs but this is very good sign for
company because they are not holding the cash in hand but using the cash for better projects,
but still it is not conducive. From the other point of view, company will not face the problem of
liquidity as company is maintaining the cash balance.
52
Loans and Advances here refers to any to amount given to different parties, company,
employees for a specific period of time and in return they will be liable to make timely
repayment of that amount in addition to interest on that loan.
(Rs.in lacks)
YEAR
31.
03
. 07
31.03.08
31.03.09
Advances to suppliers
10.91
39.69
44.62
Advances
10.53
39.05
39.30
Deposits
6.67
28.08
21.99
---------------
--------------------------
28.11
106.82
105.91
--------------
--------------------------
INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is a
good sign for the company. We can see that from the year 2007 to 2008 it increased more than
triple. We can see that the increase of 275% and 6.08% in 07-08 and 08-09 respectively from
previous year.
The increasing pattern shows that company is giving advances for the expansion of plants and
machinery which is good sign for better production of pumps and other goods. Although
companys cash is blocked but this is good that company is doing modernization of plants In
time to compete with other competitors in market.
53
Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
liabilities that has to be paid by the firm with in one year.
(Rs.in lacks)
YEAR
31.03.07
31.03.08
31.03.09
Current Liabilities
Sundry Creditors
159.49
256.33
305.99
Bank Loan
94.54
336.70
315.76
Advance Received
25.30
18.16
59.88
Provisions for taxes
21.56
59.05
64.05
Other Liabilities
16.82
29.36
70.34
------------------------------------------------
332.37
720.71
888.02
------------------------------------------------
1000
800
AMOUNT ( IN
600
LACKS ) 400
200
2007
2008
2009
YEAR
INTERPRETATION
If we analyze the above table then we can see that it follow an uneven trend. The important
component of current liabilities is sundry creditors and other liabilities. In 07-08 it decreased
from 359.41 lacs to 256.33 lacs and in 08-09 it increased from 256.33 lacs to 305.99 lacs. This
is liability for company so this should be less. when company have minimum liabilities it creates
a better goodwill in market. High current liabilities indicate that company is using credit facilities
by creditors.
54
Creditors or an account payable is an important component of working capital and fall under
current liability. Creditors will arise only when credit purchases are made.
(Rs.in lacks)
YEAR
31
.0 3 .07
31.03.08
31.03.09
Sundry Creditors
159.49
256.33
305.99
---------------------
159.49
256.33
305.99
---------------
-------------------------
350
300
250
AMOUNT ( IN 200
LACKS)150
100
50
2007
2008
2009
YEAR
INTERPRETATION
In the table and figure we see that there is continuous rise in the creditors in the company in the
successive years. A simple logic is that creditors increase only when purchases increase and if
purchase increases on credit it is not good sign for growth. This is liability for company so this
should be less. when company have minimum liabilities it creates a better goodwill in market.
High current liabilities indicate that company is using credit facilities by creditors.
55
(Rs.in
lacks)
YEAR
31.03.07
31.03.08
31.03.09
Bank Loan
94.54
336.70
315.76
Advances from the customers
25.30
18.16
59.88
----------------------------------------
122.84
354.86
375.64
---------------------------------------
400
350
300
250
AMOUNT ( IN 200
LACKS )
150
100
50
0
2007
2008
2009
YEAR
INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is not
a good sign for the company. We can see that from the year 2007 to 2008 it increased more
than double. The increasing pattern shows that company is taking loan for the expansion of
plants and machinerecy which is not a good sign because company depends on the external
source. On the other hand, company has reduced the bank loan in 2009 and increase in
advances received from the customer, this is good sign for company.
56
PROVISIONS ANALYSIS
(Rs.in lacks)
YEAR
31.03.07
31.03.08
31.03.09
Provision for Taxes
21.56
59.05
64.05
-----------------------------------------
21.56
59.05
64.05
-----------------------------------------
70
60
50
AMOUNT ( IN
LACKS )
40
30
20
10
0
2007
2008
2009
YEAR
INTERPRETATION
From the above table we can see that provision shows an increasing trend and the huge
amount is being kept in these provisions. Though the profits of the company are increased
income tax is also increased which is good that company is creating goodwill in market by
paying income tax in time. Although company is paying more income tax but also they are
earning more. Other provisions are also for the benefit of employees and public. This is good
sign for Company growth.
57
58
FORMULA
INVENTORY
+RECIVEABLE - PAYABLE
(AS % OF SALES)
SALES
YEAR
31.03.07
31.03.08
31.03.09
WORKING CAPITAL RATIO
18
32
53
40
30
20
AS %
10
60
2007
2008
2009
50
YEAR
INTERPRETATION
This ratio indicates whether the investments in current assets or net current assets ( i.e.,
working capital ) have been properly utilized. In order words it shows the relationship between
sales and working capital. Higher the ratio lower is the investment in working capital and higher
is the profitability. But too high ratio indicates over trading.
This ratio is an important indicator about the working capital position. Now if we analyze the
three years data, we find that it follows an increasing trend which means that its investment in
working capital is lower and the company is utilizing more of its profit. But we find that ratio is
increasing at a very fast rate which is not a good sign for the company and the company is
required to look into these matters closely.
59
FORMULA
YEAR
31.03.07
31.03.08
31.03.09
CURRENT RATIO
1.00
1.14
1.14
1.2
1.15
1.1
1.05
0.95
0.9
2007
2008
2009
YAER
INTERPRETATION
This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1
but in most of companies standard is taken according to Tandon Committee which is taken as
1.33:1.
Now if we analyze the three years data it can be predicted that it holds a stable position all
through out period but it is seen that it holds a low position than the standard one and the
company is required to improve its position.
60
FORMULA
YEAR
31.03.07
31.03.08
31.03.09
QUICK RATIO
0.46
0.74
0.40
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
2007
2008
2009
YEAR
INTERPRETATION
It is the ratio between quick liquid assets and quick liabilities. The normal value for such ratio is
taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It
indicates the relationship between strictly liquid assets whose realizable value is almost certain
on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current
assets minus stock.
By analyzing the three years data it can be said that its position was weak in the year 2007 but
it improved significantly in the next year and again it is declined during the 2009. It is to be said
that it does not meet with the standard but in the year 2008 it was very close to the standard
and it can be said that its liquidity position is not good & stable.
61
FORMULA
CURRENT ASSETS
CA TO FA RATIO = -----------------------------
FIXED ASSETS
YEAR
31.03.07
31.03.08
31.03.09
CATO FA RATIO
1.65
2.93
3.21
DAYS
1.5
3.5
2.5
0.5
2007
2008
2009
YEAR
INTERPRETATION
Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current
assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming
other factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity
and lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor
liquidity.
Now if we analyze the three year data we find the CA TO FA Ration in increasing pattern, so we
can say that company is following the conservative policy to finance its short term capital
requirement.
62
FORMULA
AVERAGE STOCK
* 365
YEAR
31.03.07
31.03.08
31.03.09
INVENTORY TURNOVER RATIO
104
79
227
( in Days)
150
100
50
DAYS
2007
2008
2009
250
YEAR
INTERPRETATION
This ratio tells the story by which stock is converted into sales. A high stock turnover ratio
reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned
over or sold during the year. If a firm maintains a minimum stock level in order to maximize
sales by quick rotation of inventory and the holding cost of inventory will be minimum. A low
stock turn over ratio reveals undesirable accumulation of obsolete stock.
By analyzing the three year data it seen that it follows an uneven trend. We see that it is
reduced to 79 from the 104 days in 2008 and in 2009 it is increased by 148 days, Which is not
a good indicator for the company. Company should have to reduce the inventory conversion
period in order to reduce the cost.
63
FORMULA
DEBTORS
SALES
YEAR
31.03.07
31.03.08
31.03.09
RECEIVABLE RATIO (IN DAYS)
54
70
104
80
60
DAYS
40
20
0
120
2007
2008
2009
100
YEAR
INTERPRETATION
Generally a low debtors turnover ratio implies that it considered congenial for the business as it
implies better cash flow. The ratio indicates the time at which the debts are collected on an
average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter
collection period which indicates prompt payment made by the customer.
Now if we analyze the three year data we can say that it holds a good position while receiving
its money from its debtors. The ratios are in an decreasing ternd, which implies that recovery
position is not good company and Company have to reduce the receivable period.
64
FORMULA
CREDITORS
YEAR
31.03.07
31.03.08
31.03.09
PAYABLE RATIO (IN DAYS)
92
69
135
160
140
40
120
20
100
80
2007
60
YAER
2008
2009
INTERPRETATION
Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally a low creditors turnover ratio implies favorable since the firm
enjoys lengthy credit period
Now if we analyze the three years data we find that in the year 2008 the ratio was very high
which means that its position of creditors that year was not good, but in the 2009 it is seen that
it has followed a decreasing trend which is very good sign for the company. So we can say it
enjoys a very good credit facility from the from the suppliers.
65
Period
Calculation of Operating Cycle at Sintech:( All Figures in Days)
Particulars
2007-08
2008-09
2009-10
ICP
104
79
227
RCP
54
70
104
Gross Operating
158
149
431
Cycle
DP
92
69
135
Net OP
66
80
296
250
200
150
100
Day
s
50
350
YEAR
Interpretation
When a company has lower d/e ratio, it means that company is utilizing its own funds and
reserves rather than taking loans from outsiders. Company have a uneven trend in d/e
ratio. In the year 2007 it was 1.02 but in the year 2009 it is declined to .55 so we can say
that now company is using more its fund as compare to previous year, but still the ratio is
high. Company have to reduce the ratio.
66
MAJOR FINDINGS
(amt. in lacks)
Particulars
07-08
08-09
Working Capital
102
121
by 5000%
by
19%
Sales
1323
-1069
by 72%
by
19.10%
Current Assets
823
1009
Sundry Debtors
391
220
by 146%
by
by 243%
by 44%
23%
Inventories
291
654
by 62%
by 125%
-29
by 209%
by 15%
107
106
Advances
by 269%
by .93
Current Liabilities
721
888
by 117%
by
Sundry Creditors
256
306
23%
by 42%
by 19.53%
355
376
Advances
by 196%
by 6%
Provisions &
80.16
136
Deposits
by121.31%
by70%
Other Liabilities
29.36
70.34
by 74.55%
by 139.5%
67
Current assets and Current liabilities are increased by 23% in 2008-09 as compare to
previous year but current assets are increased by 146% in 2007-08 as compare to 117%
increase in current liabilities, so we can say that working capital is increased because of
increase in current assets.
Cash and the bank balances are decreased by 15% which shows company might face the
liquidity problem.
Debtors are decreased by 44% in 2008-09 whereas creditors are increased by 19.37% in
2008-09, which shows that company enjoys the good payable period and goodwill among
the creditors.
Bank loan and Advances are increased by 6% only as compare to 196% increase in 200708, which shows that company using more of its debt to fund the short term requirements.
Operating cycle of the company is increasing which shows the poor receivable collection
policy
68
CONCLUDING ANAYSIS
The working capital position of the company is sound and the various sources
through which it is funded are optimal.
The company has used its purchasing, financing and investment decisions to good
effect can be seen from the inferences made earlier in the project.
The debts doubtful have been doubled over the years but their percentage on the debts
has almost become half. This implies a sales and collection policy that get
The various ratios calculated are an indicator as to the fact that the profitability of the
firm and sales are on a rise and also the deletion of the inefficiencies in the
The firm has not compromised on profitability despite the high liquidity is
commendable.
Sintech Precision Product Ltd. has reached a position where the default costs are as
low as negligible and where they can readily factor their accounts receivables
69
Sintech Precision Product Ltd. is managing its working capital in a good manner, but
still there is some scope for improvement in its management. This can help the company
in raising its profit level by making less investment in accounts receivables and stocks
etc. This will ultimately improve the efficiency of its operations. Following are few
recommendations given to the company in achieving its desired objectives:
The business runs successfully with adequate amount of the working capital but the
company should see to it that the cash should not be tied up in excessive amount of
working capital.
Though the present collection system is near perfect, the company as due to the
increasing sales should adopt more effective measures so as to counter the threat of bad
debts.
The over purchasing function should be avoided as it could lead to liquidity problems.
Holding of excessive and insufficient stock must be avoided as it creates a burden on the
cash resources of a business and results in lost sales, delays for customers, etc
respectively.
70
BIBLIOGRAPHY
Following sources have been sought for the preparation of this report:
Corporate Intranet
CMA Data
Internet ----
o www.sintechpumps.co.in o www.scribd.com
71
72
LIABILITIES
STATEMENT
Sheet 1
Lacs
2007
2008
2009
2010
Limited
Aud
Aud
Est.
Proj
CURRENT LIABILITIES
I
II
III
IV
336.70
400.00
400.00
0.00
0.00
0.00
SUB TOTAL
94.54
336.70
400.00
400.00
256.33
90.77
133.33
18.16
20.00
50.00
59.05
8.05
30.68
Dividend payable
Deposits/instalments of term
14.66
58.55
43.76
24.53
loans/DPGs/Debentures,etc.
29.36
25.00
30.00
16.82
29.36
25.00
30.00
SUB-TOTAL (B)
237.83
421.45
187.58
268.54
758.15
587.58
668.54
73
TERM LIABILITIES
Rs. In
-----------------------------------
Lacs
2007
2008
2009
2010
Aud
Aud
Est.
Proj
Preference shares
5.84
0.00
0.00
0.00
16.20
95.93
27.97
3.44
68.51
60.25
180.25
180.25
0.00
0.00
0.00
0.00
90.55
156.18
208.22
183.69
422.92
914.33
795.80
852.23
NET WORTH
-------------------------
24.91
24.91
44.91
44.91
General reserve
Revaluation reserve
provisions)
73.56
85.50
112.45
204.50
Others (specify)
15.13
23.32
23.32
23.32
0.70
0.00
0.00
0.00
Share Premium
0.00
0.00
80.00
80.00
NET WORTH
114.30
133.73
260.68
352.73
TOTAL LIABILITIES
537.22
1048.06
1056.48
1204.96
20.50
58.55
43.76
24.53
74
75