Company Profile

ORACLE GRANITO LIMITD is a Closely held Limited Company, having Registered

office at Shop No, 5 Survey No. 322/1, Near Kubereshwer mahadev, Saijpur Bogha,
Naroda Road, Ahmedabad was incorporated on 4th August, 2003 under the Company
Act, 1956 in state of Gujarat and received certificate for Commencement of Business on
18th August, 2003 from the registrar of companies, Gujarat. The Company was
incorporated with objective of setting up a plant for manufacturing of Vitrified Plant.

Oracle granito ltd. (MARBITO) is one of the leading manufacturer of vitrified and
ceramic tiles. The company has stands amongst the best players in the ceramic industry.
The company is well known by its MARBITO brand which is a symbol of trust and
quality in itself. The company has a state of the art technology and a very experienced
management team. The company has its distribution facility in each and every part of the
country, with regional offices in Delhi, Mumbai, Ahmedabad, Banglore. The company
also has a presence in the international market. So if u want to deal in any kind of tiles,
we have a tiling solution to every need of yours. Kyuki we want ke khusiyan chume
apke kadam.

The Company has been promoted by promoters of Sterling Group and Safari Group. the
The group has been manufacturing and distributing Ceramic Wall Tiles under the brand
name of BAJAJ Tiles. The group then decided to enter into a new range of product
Vitrified tiles under a separate entity. As the sabarkantha district was notified as
Backward District under Income tax Act and was granted exemption of 100% profit for
first three years and 30% of profit for next five years of the company section 80-IB of the
Act, the promoter decided to set up a plant at village Gadhoda, Tal. Himmatnagar, Dist.
Sabarkantha.

The Company commenced commercial production of Vitrified Tiles with a capacity of

4000 square meter per day in the financial year 2004. The project was completed well
before the estimated time schedule and as against the estimated 45% capacity utilization
the company soon reached the capacity utilization of 85% showing the acceptability of its
product. Looking to the increased demand of the product and mass acceptability of the
brand of the Company i.e. MARBITO, the company then decided to increase the capacity
by setting up another line of Vitrified Tiles and thus increased the capacity to 9000 square
meter per day in 2006.

The Company sell its product under the brand name of MARBITO and supplies its
produce all across India. Presently the Company is operating at about 100% and the
reaches of the brand is increase day to day. To meet the demand of the customers, the
company then decided to set up another line of Vitrified Tiles at the same plant with a
capacity of 5000 square meter per day.

Presently the Company at its own is only dealing in Vitrified tiles and the demand of
other Ceramic products is met by its associate concerns. The company has envisaged a
huge demand of premium ceramic Floor tiles and imported wall tiles which is increasing
in many fold. The company gas thus decided to diversify its own port folio by entering
into new segment and capitalize on existing and well developed brand of MARBITO
which is being looked over as premium brand.

Thus the company propose to setup a plant for manufacturing of ceramic floor Tiles with
a capacity of 6000 square meter per day by purchasing a land admeasuring 81318 square
meter at survey no.291 (Earlier divided in survey No.291,292,293,294),278 and 279,
Village Gadhoda , Tal. Himmatnagar , Dist. Sabarkantha near the existing plant only.

Further the company has envisaged the demand and premium wall tiles which is picking
up day by day. The demand is presently met by the importing the same from countries
like countries like Spain ,Brazil, ,Italy, China, etc.. Thus the Company has decided to
import the wall tiles from various and sell under its brand.

Thus with the completion of the proposed project the capacity of the Vitrified Tiles will
be increased to 14000 square meter per day from the existing capacity of 9000 square
meter per day and capacity of Ceramic Floor tiles will be 6000 square meter per day.
Further the Company will be importing and trade in the Ceramic Wall tiles. the Company
proposes to carry out the expansion project at a Capital outlay of Rs.36.15 Crores , with a
term loan facility of Rs. 20.00 Crores (Rs.8.00 crores for expansion for vitrified tiles and
Rs.12.00 crore for proposed Ceramic floor tiles) to be repayable in 72 equated monthly
installments commencing from October , 2008 & April, 2009 respectively.

PARTICULAR OF THE PROMOTER

The Promoters and Director of the Company

The Company has been promoted by promoters of Sterling Group and Safari Group. the
The group has been manufacturing and distributing Ceramic Wall Tiles under the brand
name of BAJAJ Tiles and the promoters were well known with that before creation of
new brand in Oracle Granito ltd. The promoters have rich experience in the ceramic
industry and thus for management of Oracle Granito ltd, they along with experience
persons from ceramic industry have been appointed on the board of the company. The
board of director of the company constitute the following.

1) Shri Harshadbhai Patel

2) Shri Manilal Patel
3) Shri Ashvinbhai Patel
4) Shri Prgnesh Patel
5) Shri Devchandbhai Patel (Independent Director)

All the Directors are having rich experience in Industry. They are also assisted by other
Senior Executive and Managerial Personal for the development of business.
As the promoters of the company were already in the line of manufacturing business of
ceramic walls and floor tiles in various four units and having a network of 250 dealers in
india ,the dealers were demanding vitrified tiles from the company and meet the demand
of the dealers , the promoters of the company has been decided to set up a project of
vitrified tiles jointly in this company.
Mission &Vision

Mission:-
 To manufacture, market and service product of international standards.
 Ensure that all company processes are geared to deliver the highest level of
customer satisfaction.
  Keep an employees-centre focus in all operation.
 Foster innovation and creatively at all levels.
Vision:-
 Oracle Granito Ltd. dedicates our slaves to total quality.
 We give prominence to a healthy creative climate for new IDEAS to blossom with
constant and continuous innovation.
 We, as one big finally commit ourselves to excellence and satisfy customer need
by delivering consistency high quality product every time.

INDUSTRY SCENARIO

ORACLE GRANITO LTD. having installed capacity of 12,000 sq. mt./day and
capacity of 18,500 sq. mt./day. MARBITO is a leading manufacturer of vitrified tiles.

ORACLE GRANITO LTD procure sophisticated technology from world leaders in

vitrified technology such as Sacmi, Barbieri, Itaca, Italy. ORACLE GRANITO LTD also
have latest R & D laboratory with constantly trained workforce.

ORACLE GRANITO LTD has been providing fascinating shades of marbles, plain
colors, anti skid, multi prints & double charge excelling international technical
specifications to provide better floor solutions for our valued customers.

ORACLE GRANITO LTD tiles features high quality, original pattern and diversified
varieties. Since launching into the market, the products have earned high popularity from
the domestic consumers and distributors. The sales network of the company covers
throughout INDIA currently has developed over 250 dealers network and exclusive stores
in INDIA. Besides focusing on the development at home, ORACLE GRANITO LTD
tiles opened his hands to international market. Pay attention to the market trend,
ORACLE GRANITO LTD has accumulated rich experience, and has transferred
thepressure into promotion

 Process of production
For manufacturing of vitrified tiles, the various process/ operation are
described below:

Processing of Raw Material:

Various types of clays and minerals such as quartz, feldspar and sand are lifted by a pay
loader and put into a weighing box in a pre-determined proportion to make one charge.
Pigments/ceramic colourants are added to the charge.

The charge is then fed into the Ball Mills with the help of grinding media. The ground
materials in the slurry from are thereafter discharged into storage tanks fitted with
agitators to keep the slurry in suspension. From this storage tank, the slip is transferred to
another storage tank after sieving. The filtered slurry thereafter fed to Spray Dryer
Chamber, which is heated upto a temperature of around 550 to 600 degree centigrade by
hot air blast coming from the Hot Air Generator using LDO/LPG as fuel. The output
available from the Spray Dryer is in the form of powder, which is obtained with a specific
moisture content by adjusting the inlet and outlet temperatures of the Spray Dryer. The
powder is collected in the Storage Silos.

Formation of Tile Body and Drying

The powder is taken from silos and after sieving on a Vibrator fitted with a magnet, it is
fed into the Hoppers of the Hydraulic Press where the powder is pressed in the die to take
the shape of tile of specific size as per the cavity of the die. Green tiles coming out of the
press are sent to Horizontal Roller Dryer where they are heated to specific temperature to
remove the moisture.

iii) Preparation of design and screen printing of Tiles

In the Printing Section, various types of design are prepared and printing on the dried tiles
by applying colours on the screen printing machines. Tiles with ‘marble finish’ need to be
screen-printed, where as other types of tiles may not be subjected to this operation.

Firing
The tiles thereafter are fed into the fast Single Layer Roller Kiln in which the tiles are
fired. The kiln has different temperatures ranging from 500 degree centigrade to 1400
degree centigrade in its different zones. Here vitrification takes place in the body of the
tile.

Polishing
The baked tiles are subjected to polishing by using 36-48 head polishing line. The tiles
are also side-chamfered. Thus in this section , size and thickness variation are minimized
Matt finish tiles do not need polishing operation.

Sorting & packing

The polished tiles are subjected to quality checking and sorting , where an operator marks
out tiles with defects and segregates them into different categories such as first , second or
third grade quality . Different grades of the finished tiles are then packed into different
types packing boxes, which are marked accordingly. The packed finished goods are
thereafter sent for dispatch.

Process flow chart for manufacture of Vitrified Tiles

A typical Process Chart indicating major operation and equipment needed for the
manufacturing process if vitrified tiles is presented hereafter.
 PROCESS FLOW CHART

Section/operation Equipment

Slip House→ Clay & Mineral Weighting Hopper, Conveyor, Ball

Mixing→ Slurry Mills/Stirrers/Blungers

Spray Drying Section Spray Drying Plant

 Feeding Slip Pump
 Air Heating Silos
 Spray drying of slurry
 Storage of powder

Sieving, Powder Feeding Vibrator with magnate, conveyor/Elevator

Pressing Hydraulic presses/ Chilling Plant

Automatic Conveyor/Fettling Conveyor

Loading into Dryer Loading Machine

Drying Horizontal Dryer Cooler Box

Unloading of Transfer Car Unloading Machine

Screen printing of tiles Glaze line/Glazing accessories/screen printing

machine

Firing Compensator, Fast single layer Roller Kilm

Polishing Polishing Line/Squaring & Chamfering line

Sorting & Packing Manual/ Plastic strapping machine, Fork lift

Stock/Finished Goods Despatch Handling and Transport Equipment

2. REASEARCH METHODOLOGY

Subject of Study:-
I have prepared a report on working capital management in Oracle Granito Ltd.

Study objectives:-
a) To study the nature of working capital, concepts and definition of working
capital.
b) To examine the effectiveness of working capital management practices of
the firm.
c) To find out how adequacy or otherwise of working capital affects
commercial operations of the company.
d) To prescribe remedial measures to encounter the problems faced by the
firm.
e) To study the working capital financing or means of financing of the
company.

Scope of the study :-

a) Planning of working capital management
b) Working capital finance

Methods of Data collection :-

a) Primary data:
Basic information collected from the local sources as well as from the company
staff like managers, accountants and officers. Moreover information gathered through
practically preparing the data for working capital.
b) Secondary data:

i. From the B/S of the company

ii. From the P&L A/C and Cash Flow
iii. From internet
iv. From books

Limitation
this study will be based on primary as well as secondary data. Secondary data taken from
published Balance Sheet , Profit & Loss A/c and Cash Flow Statement of Company
which may not provide the scope to understand finding clearly and particularly when you
are in need of the data may not be accurate at that time.
The study will also depend on the ratio and fund flow analysis which has its own
limitation applies to study.
Introduction to Finance Function

Finance is of immense importance in every organization . Without finance neither any

business can be started nor successfully run so it’s like a life blood of business economy .
it is that agent which produce batter result for the organization.

A firm’s success even survival , it’s ability and willingness to maintain production and to
invest in fixed or working capital , are very extent considerably determined by it’s
financial policies , both past and present. The financial decision is involved so extensively
in each type of business attitude, so its rightly called a binding force. It is so intermingled
with other function – production, marketing , personal, etc. that there is very difficulty in
appreciating the part it plays . in reality financial operation are a constant force of liaison
among and within the units of enterprise .

Thus study of financial management and it’s areas are very important for individuals , and
for profit and non profit organization..

Nature of Working Capital

Working capital means that part of capital which is required to keep the flow of
production smooth and continuous, and it is very important to manage it manage it
properly in each organization because fixed assets can not generate income unless they
are used with the help of working capital and that is why when is considered as life blood
of Business and its proper management is proper management is essential for the success
of business enterprise.
Working capital may be regarded as the life blood of Business. Working capital is of
major important to internal and external analysis because of its close relation with the
current day to day operation of a business. Every business needs fund for two purpose
 Long term fund are required to create production facilities through purchase of
fixed assets such as plant, machineries, land, building etc.
  Short term fund are required for the purchase of raw material, payment of wages,
and other day to day expenses . it is other wise known as revolving or cir
circulating capital.
It is nothing but the difference between current assets and current liability. i.e Working
capital = Current assets- current liability
Businesses used capita for construction, renovation furniture, software, equipment or
machinery . it s also commonly used to purchase inventory or to make payroll. Capital is
also used often by business to put a down payment down on a piece of commercial real
estate. Working capital is essential for any business to succeed. It is becoming increasing
important to have access to move working capital when we need it.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

 The term gross working capital, also referred to as working capital, means the
total current assets.
 The term net working capital can be defined in two ways:
1. the most common definition of net working capital(NWC) is the
difference between current assets and current liabilities; and
2. Alternate definition of NWC is that portion of current assets which is
financed with long-term funds.

The task of the financial manager in managing working capital efficiently is to ensure
sufficient liquidity in the operations of the enterprise. The liquidity of a business firm is
measured by its ability to satisfy short-term obligations as they become due. The three
basic measures of a firm overall liquidity are
i. The current ratio
ii. The acid-test ratio, and
iii. Net working capital ratio
Net working capital (NWC), as a measure of liquidity is not very useful for comparing the
performance of different firms, but it is quite useful for internal control. The NWC helps
in comparing the liquidity of the same firm over time. For purpose of working capital
management, therefore, NWC can be said to measure the liquidity of the firm. In other
words, the goal of working capital management is to manage the current assets and
liabilities in such a way that an acceptable level of NWC is maintained.

The two concepts of working capital – Gross and Net – are not exclusive; rather, they
have equal significance from the management viewpoint.

5.3 DEFINITION

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.

Working capital is commonly defined as the difference between current assets and
current liabilities. Efficient working capital management requires that firm should operate
with some amount of working capital, the exact amount varying from firm to firm and
depending, among other things, on the nature of industry. The theoretical justification for
the use of working capital to measure liquidity is based on the premise that the greater the
margin by which the current assets cover the short –term obligations, the more is the
ability to pay obligations when they become due for payment. The NWC is necessary
because the cash outflows and inflows do not coincide. In other words, it is the non-
synchronous nature of cash flows that makes NWC necessary. In general, the cash
outflows resulting from payment of current liabilities are relatively predictable.

Some companies are inherently better placed than others. Insurance companies,
for instance, receive premium payments up front before having to make any payments;
 however, insurance companies do have unpredictable outgoings as claims come in.
Normally a big retailer like Wal-Mart has little to worry about when it comes to accounts
receivable: customers pay for goods on the spot. Inventories represent the biggest
problem for retailers. Manufacturing companies, for example, incur substantial up-front
costs for materials and labor before receiving payment. Much of the time they eat more
cash than they generate.

5.5 TYPES OF WORKING CAPITAL

WORKING CAPITAL

Permanent Temporary

Initial working Regular working Seasonal working Special working

capital capital capital capital

Business activity does not come to an end after the realization of cash from
customers. For a company, the process is continuous and, hence, the need for a regular
supply of working capital. For all practical purposes, this requirement has to be met
permanently as with other fixed assets. This requirement is referred to as permanent or
fixed working capital.

Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable working capital. This portion 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.

Amount
Of Temporary
Working
capital

Permanent

Time

Figure shows that the permanent level is fairly constant, while temporary working
capital is fluctuating-increasing and decreasing in accordance with seasonal demands.

  Initial working capital:

In the initial period of its operation, a company must have enough money to pay
certain expenses before the business yield a cash receipt. In the initial years bank may
not grant loans or overdraft. Sales may be made in credit and may be necessary to make
payment to creditors. Hence the necessary fund will have to be supplied by the owner in
initial year.

  Regular working capital:

It is the working capital required to continue the regular business operation. It is
required to maintain regular stock of raw material and work –in-progress, finished goods.
Regular working capital is the excess of current assets over current liabilities; it ensures
smooth operation of business.

  Seasonal working capital:

Some business enterprises require additional working capital during the season.
For ex: - sugar mill have to purchase sugarcane in particular season and have to employ
additional labor to produce.

  Special working capital:

In all enterprise some unforeseen events do occur, when extra funds are needed to
tide over such situation. Some of these events are sudden increase in demand of final
product, downward movement of price, and sales during depression.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in

public utility undertakings such as electricity, water supply and railways
because they offer cash sale only and supply services not products, and no
funds are tied up in inventories and receivables. On the other hand the trading
and financial firms requires less investment in fixed assets but have to invest
large amt. of working capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the
requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by

accumulating inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time

the raw material and other supplies have to be carried for a longer in the
process with progressive increment of labor and service costs before the final
product is obtained. So working capital is directly proportional to the length of
the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires
larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle
completes one cycle determines the requirements of working capital. Longer
the cycle larger is the requirement of working capital.

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship

between the question of working capital and the velocity or speed with which
the sales are affected. A firm having a high rate of stock turnover wuill needs
lower amt. of working capital as compared to a firm having a low rate of
turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and

sales its product / services on cash requires lesser amt. of working capital and
vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous,

there is need for larger amt. of working capital due to rise in sales, rise in
prices, optimistic expansion of business, etc. On the contrary in time of
depression, the business contracts, sales decline, difficulties are faced in
collection from debtor and the firm may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall

require large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms

have more earning capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may generate cash profits from
operations and contribute to their working capital. The dividend policy also
affects the requirement of working capital. A firm maintaining a steady high
rate of cash dividend irrespective of its profits needs working capital than the
firm that retains larger part of its profits and does not pay so high rate of cash
dividend.
 12. PRICE LEVEL CHANGES: Changes in the price level also affect the
working capital requirements. Generally rise in prices leads to increase in
working capital.

IMPORTANCE OR ADVANTAGE OF WORKING CAPITAL

 SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining

the solvency of the business by providing uninterrupted of production.

 Goodwill: Sufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

 Easy loans: Adequate working capital leads to high solvency and credit standing
can arrange loans from banks and other on easy and favorable terms.

 Cash Discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence reduces cost.

 Regular Supply of Raw Material: Sufficient working capital ensures regular

supply of raw material and continuous production.

 Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises the morale
of its employees, increases their efficiency, reduces wastage and costs and
enhances production and profits.

 Exploitation Of Favorable Market Conditions: If a firm is having adequate

working capital then it can exploit the favorable market conditions such as
purchasing its requirements in bulk when the prices are lower and holdings its
inventories for higher prices.

 Ability To Face Crises: A concern can face the situation during the depression.

 Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors and gains
confidence of the investors and can raise more funds in future.
 High Morale: Adequate working capital brings an environment of securities,
confidence, high morale which results in overall efficiency in a business.

DISADVANTAGES OF WORKING CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the
firm and business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective credit

policy which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks
and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions

Working Capital cycle

Cash flow cycle into, around and out of the business it is the business life blood and every
manager’s primary task is to help keep is following and to use the cash flow to generate
profit. If business is operatic profitability, then is should generate cash surplus. If doesn’t
generate surpluses , the business will eventually run out of the cash and expire. The faster
a business expands the more cash it will need for working capital and investment . the
cheapest and best sources of cash exists as working capital right within business .

Cash will help to improve profit and reduce risk. Bear in mind that the cost of providing
credit to customer and holding stocks can represent substantial proportion of a firm’s total
profit.

There are two elements in the business cycle that absorb cash inventory (stock and
working progress) and receivable (debtors owing you money). The main source of cash
are payables (your creditors) and equity and loans.
Each component of working capital(namely inventory , receivables and payables) has two
dimensions ……..TIME……and MONEY. When incomes to managing working capital-
TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect
monies due from debtors more quickly) or reduce amount of money tied up(e.g. reduce
inventory level relative to sales), the business will generate more cash or it will need to
borrow less money to fund working capital. As a consequence, you could reduce the cost
of bank interest or you will have additional free money available to support additional
sales growth or investment.

Components of working capital

Inventory Management
“Inventory is the life of the manufacturing industry.”
But an excess of certain of inventory is harmful for the smooth running of an
organization. Inventory is the most important component of working capital and has an
important contribution to the maximization of profit of a business enterprise.

In financial parlance, inventory defined as “The sum of value of raw material, fuel and
lubricant, spare part, maintenance consumer, semi processed material and finished goods
stocks etc. which are used In production.

Inventory may be durable or endurable, perishable or non-perishable, valuable or

inexpensive. Whatever the nature of the inventories, the accounting process is careful to
distinguish between goods help for resale from other current assets such as office supplies
or furniture which are not sold but are used to help to organization conduct its business.
Nature of inventory included the following:

1. Raw Material: Raw materials are those basic input material that are converted into
finished goods product through manufacturing process. Raw material inventory
are, therefore, those units of inputs which have been purchased and stored for
future production. An organization should maintain adequate stock of raw
materials for continuous supply to the factory for the uninterrupted production. It
is not possible for the company to production. It is not possible for the company
to produce raw material whenever they need. A time leg exits uncertainty in
procuring raw material in time at many occasions. The procurement maybe
delayed because of strike, transport disruption, short supply etc. therefore, the
organization should maintain sufficient stock of raw materials at the given time
to streamline the production.

2. Work- in-progress inventory: Work-in-progress inventory are semi manufactured

products. They represent products that need more work before they become
finished products for sale.
Work- in-progress inventory are built up because of the production cycle.
Production cycle is the time span between the introduction or raw material into
production and the emergency of finished products at the completion of
production cycle. Till the production cycle completes, the stock of work – in –
progress has to be maintained.
 3. Finished goods : finished goods inventory are those completely manufactured
products which are ready for sales they are the final output of the production
process in a manufacturing organization. In case of whole seller and retailers,
they are generally referred to as merchandise inventories.
The stock of finished goods has to be held because production and sales are not
instantaneous. A concern can not produce immediately whene the goods are
demanded by customer therefore to supply finished goods on a regular basis,
their stock has to been maintained for abrupt or spontaneous demand from
customer

4. Store and Spare parts : store and spare parts includes loose tools and small parts
which are essential for production.
5. Safety inventory: safety inventory provides for failures in supplies, unexpected
spurt in demand etc.

RECEIVABLES MANAGEMEBNT

“The tern receivable are defined as debt owed to the firm by customers arising from sale
of goods or services in the ordinary course of business.”
Receivable is the major and second most important component of working capital. Trade
credit, considered as a marketing tools, acts as a bridge for the movement of goods
through production and distribution stages to customer finally. Receivables are also a part
of working capital and next only to inventories. Receivable or book debts constitutes a
substantial portion of current assets of several organization. Receivable accounts results
from the organization’s decision to extend credit to customer. They are credited and exist
until a case payment is received.

“Account receivable is the total of all credit extended by firm to its customer.” Investment
in accounts receivable should be viewed as a portfolio of accounts, this having risk return
characteristics that affect the concern’s overall risk and return. Granting credit and
creating debtors account to blocking of concerns sources.
CASH MANAGEMENT
In modern time money management is both an art and science.The science part dealing
with the tools and techniques of money management. The art side involves planning,
organization, staffing, and decision making and control of various dimensions of money
management. Cash management is the most important component of the working capital
cycle.
In the organization, cash management is necessary for collect the money from the creditor
and payment to the debtors, raw materials suppliers, other day to day expenses which do
for production of products.
RATIO ANALYSIS

Accounting ratio are very useful tools for grasping the true message of the financial statement and
understanding them. Ratio naturally should be worked out between figures that are significant related to one
another. Obviously no purpose will be served by working out of ratios between two entirely related figures,
such as discount on the debentures and sales. Ratio may be worked out on the basis of figures contained in
the financial statement.
Ratio provides clues and symptoms of underlying condition. They act as indicators of financial
soundness, strength, position and status of an enterprise

LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these become
due. The short-term obligations are met by realizing amounts from current, floating or circulating assts. The
current assets should either be liquid or near about liquidity. These should be convertible in cash for paying
obligations of short-term nature. The sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities. If current assets can pay off the current liabilities then the
liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current
assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be
calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and its most
widely used to make the analysis of short-term financial position or liquidity of a firm. It is defined as the
relation between current assets and current liabilities. ,
Recommended current ratio is 2:1. Any ratio below indicates that the entity may face liquidity
problem but also Ratio over 2:1 as above indicates over trading, that is the entity is under utilizing its
current assets.

1) Current Ratio=Current Assets/Current Liabilities

2005-06 2006-07 2007-08

Current Assets
321,737,617 392,447,814 472,769,785
 Current Liabilities
122,756,763 133,045,994 104,667,002
Ratio(Times)
2.62:1 2.95:1 4.52:1

Current Ratio

4
Ratio

0
2005-06 2006-07 2007-08
Year

Interpretation: It can be observed that Current Ratio of Oracle Granito Ltd. varied between
2.62:1, 2.95:1 and 4.52:1 during the period from 2005-06 to 2007-2008. It is evident that, on an
average, per every one rupee of current liability, the company has been maintaining 3.36 rupee of
current assets as a cushion to meet the short term liabilities. Usually, a Current Ratio of 2:1 is
considered to be the standard to indicate sound liquidity position but in the case of the firm under
study, it is better then the standard Current Ratio.

QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as
the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be
liquid if it can be converted into cash with a short period without loss of value.

It measures the firms’ capacity to pay off current obligations immediately. . It is often theorized
that an acceptable figure should be 2:1 for current ratio and 1: 1 for quick ratio but these should
only be used as a guide. Different businesses operate in very different ways.
 Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors.

2) Quick Ratio= Quick Assets/Current Liabilities

2005-06 2006-07 2007-08

Quick Assets
157,820,762 188,740,163 275,872,115
Current Liabilities
122,756,763 133,045,994 104,667,002
Ratio(Times)
1.29:1 1.42:1 2.64:1

QuickRatio

2.5

2
Ratio

1.5

0.5

0
2005-06 2006-07 2007-08
Year

Interpretation: Current Assets minus Inventory are Quick Assets and on an average, it has been
maintained at Rs. 1.78 for every rupee of quick liabilities. The Current Ratio and Quick Ratio of
Oracle Granito Ltd. reflect that short-term liquidity and solvency is in safety and it of course
determined how the short-term financial obligation of the firm would be met under such sound
financial position. The combined interpretation of these two ratios reflects that the interest of
short-term creditors is at all protected by adequate solvency and liquidity of far from money
assets.

ABSOLUTE LIQUIDE RATIO

Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may
be doubts regarding their realization into cash immediately or in time. So absolute liquid ratio should be
calculated together with current ratio and acid test ratio so as to exclude even receivables from the current
assets and find out the absolute liquid assets.

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES

3) Absolute liquid Ratio= Absolute liquid Assets/Current Liabilities

2005-06 2006-07 2007-08

Absolute liquid
Assets 2,725,315 6,892,174 31,909,132

Current Liabilities
122,756,763 133,045,994 104,667,002
Ratio(Times)
0.02:1 0.05:1 0.30:1

Absolute LiquidRatio

0.35
0.3
0.25
Ratio

0.2
0.15
0.1
0.05
0
2005-06 2006-07 2007-08
Year

Interpretation: These ratio shows that company carries a small amount of cash and on an average, it has
been maintained at Rs. 0.12 for every rupee of quick liabilities.. But there is nothing to be worried about the
lack of cash because company has reserve, borrowing power & long term investment

CURRENT ASSETS MOVEMENT RATIOS

 Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly affects the volume of sales. The better the
management of assets, large is the amount of sales and profits. Current assets movement ratios
measure the efficiency with which a firm manages its resources. These ratios are called turnover
ratios because they indicate the speed with which assets are converted or turned over into sales.
Depending upon the purpose, a number of turnover ratios can be calculated. These are :

1. Inventory Turnover Ratio

2. Inventory conversion Ratio

3. Debtors Turnover Ratio

4. Average collection period

5. Working Capital Turnover Ratio

6. Current asset turnover ratio

Inventory Turnover Ratio

Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements
of the business. But the level of inventory should neither be too high nor too low. Because it is harmful to
hold more inventory as some amount of capital is blocked in it and some cost is involved in it.
Inventory turnover ratio measures the speed with which the stock is converted into sales. Usually a high
inventory ratio indicates an efficient management of inventory because more frequently the stocks are sold ;
the lesser amount of money is required to finance the inventory. Where as low inventory turnover ratio
indicates the inefficient management of inventory. A low inventory turnover implies over investment in
inventories, dull business, poor quality of goods, stock accumulations and slow moving goods and low
profits as compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

2

1) Inventory turnover ratio = Cost of Goods sold /Average Inventory

2005-06 2006-07 2007-08

Cost of Goods sold
- 683,360,979 703,173,140
Average Inventory
- 183,812,253 200,302,660.5
Ratio(Times)
- 3.72 3.51
 InventoryTurnoverRatio

4
3.5
3
Ratio

2.5
2
1.5
1
0.5
0
2005-06 2006-07 2007-08
Year

Interpretation: Inventory Turnover Ratio decreases from 3.72 times in 2006-2007 to 3.51 times in
2007-2008. This shows that the company’s inventory management technique is less efficient as
compare to last year. It indicates that, on an average, a rupee invested in inventory generates Rs.
3.62 worth of sales.

Inventory conversion Period

2) Inventory conversion Period = 365 / Inventory turnover ratio

2005-06 2006-07 2007-08

365
- 365 365
(net working days)
Inventory turnover ratio - 3.72 3.51
Ratio(Days)
- 98 104

InventoryConversationRatio

120

100

80
Day

60

40

20

0
2005-06 2006-07 2007-08
Year
 Interpretation: Inventory conversion period shows that how many days inventories takes to convert
from raw material to finished goods. In the company inventory conversion period is decreasing. This shows
the efficiency of management to convert the inventory into cash.

Debtors Turnover Ratio

Trade debtors are expected to be converted into cash within a short period and are included in current
assets. So liquidity position of a concern also depends upon the quality of trade debtors. Two types of ratio
can be calculated to evaluate the quality of debtors.
a) Debtors Turnover Ratio
b) Average Collection Period
Whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors.
This ratio should be compared with ratios of other firms doing the same business and a trend may be found
to make a better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

2
Increase in receivable days may also indicate overtrading especially when the profit levels increases,
together with receivable amounts but there is no improvement in collection of receivables.

3) Debtors turnover ratio =Total Credit Sales/Average Debtors

2005-06 2006-07 2007-08

Total Credit Sales 1,015,338
- 904,048,312
,861
Average Debtors
- 125,954,922 158,829,183.5
Ratio(Times)
- 7.18 6.39

DebtorsTurnover Ratio

8
7
6
Ratio

5
4
3
2
1
0
2005-06 2006-07 2007-08
Year

Interpretation: The Debtors Turnover Ratio is highest (7.18 times) in 2006-2007 and lowest (6.39
times) in 2007-2008 and average is 6.79 times. Debtors and Receivables management appears
to be satisfactory.

Average collection period

The average collection period ratio represents the average number of days for which a firm has to wait
before its receivables are converted into cash.

4) Average collection period = 365 / Debtors turnover ratio

2005-06 2006-07 2007-08

No.Of Working Days
- 365 365
Debtors turnover ratio
7.18 6.39
Ratio(days)
51 57

AverageCollectionPeriod

60

50
40
Days

30

20
10

0
2005-06 2006-07 2007-08
Year

Interpretation : The average collection period measures the quality of debtors and it helps in analyzing
the efficiency of collection efforts. It also helps to analysis the credit policy adopted by company. In the
firm average collection period increasing 2006-07 (51Days) to 2007-08 (57Days). It shows that the firm has
Liberal Credit policy. These changes in policy are due to competitor’s credit policy.

Working Capital Turnover Ratio

Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio
indicates the number of times the working capital is turned over in the course of the year. This ratio
measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient
utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover
is not a good situation for any firm.

5) Working capital turnover ratio= Net Sales/Net working capital

2005-06 2006-07 2007-08

Net Sales
591,408,079 764,471,884 862,921,260
Net working capital
198,980,854 259,401,820 368102,782
Ratio(Times)
2.97 2.95 2.34
 WorkingCapital TurnoverRatio

3.5
3
2.5
Ratio

2
1.5
1
0.5
0
2005-06 2006-07 2007-08
Year

Interpretation: Working Capital Turnover Ratio indicates the efficiency of the firm in utilizing the working
capital in the business. Working Capital Turnover Ratio has been found to be positive through out the
period under study. It varies between 2.97 times and 2.95 times. This ratio signifies that on an average, a
rupee of negative working capital succeed to generate Rs. 2.74 worth of business/sales of the firm, which is
obviously an honest situation for the management of the firm.
Current Assets Turnover Ratio
Current asset turn over ratio indicates that on an average, the firm has generated sales with the worth of
current assets

6) Current asset turnover ratio = Net Sales/current assets

2005-06 2006-07 2007-08

Net Sales
591,408,079 764,471,884 862,921,260
Current assets
321,737,617 392,447,814 472,769,785
Ratio(Times)
1.84 1.95 1.83
 Current AssetsTurnover Ratio

1.95
Ratio

1.9

1.85

1.8

1.75
2005-06 2006-07 2007-08
Year

Interpretation: The Current Assets Turnover Ratio varied between 1.84 times and 1.83 times
during the entire period of study. This ratio indicates that, on an average, the firm has generated
sales of Rs. 1.87 with the current assets worth Re. 1.00 and this is indeed a very near to the
ground ratio in comparison to the standard norms of the industry. Moreover, current assets worth
Re. 1.00 has been able to generate only Re. 1.83 worth of sales in 2007-2008 and this is
obviously a testing and disappointing picture of inefficient utilization of current assets of the firm in
these two years.
2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from
which additional funds were derived and the use to which these sources were put.
The fund flow analysis consists of:

 Adjusted Profit and Loss A/c

 Preparing schedule of changes of working capital
 Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position

(working capital) business enterprise between beginning and ending of the
financial dates.

Adjusted Profit & Loss A/c

Particular Amount Particular Amount

To change in net profit 60,201,981 By Source Of Fund 120,682,600
To Depreciation 32,136,187
To Preliminary Expenses 60,350
To Provision For Taxation 28,284,081
. 120,682,600 120,682,600

Statement Showing Change in the

Working Capital
Particular Increase/Decrease
Increase in the Debtors (43,115,789)

Loan and Advances (18,999,205)

Decrease in Inventory 6,809,981

Decrease in Trade Payable (28,378,992)

Increase in Cash (25016959)

Increase Working capital 108,700,964

 Statement Of Fund Flow At the Year
Ending on 31-03-2007

Source Of Fund Amount Application Of Fund Amount

To Adj. P&L A/c 120,682,600 By purchase of the assets 209,806,526
To Issue of Share capital 27,351,600 By Misc. Expenses 565,340
To Bank A/c (Secured loan) 154,245,944 By tax Paid 10,597,690
To Bank A/c (Unsecured loan) 27,390,376 By increase in working capital 108,700,964

. 329,670,520 329,670,520
3. WORKING CAPITAL BUDGET
A budget is a financial and / or quantitative expression of business plans and
polices to be pursued in the future period time. Working capital budget as a part of
the total budge ting process of a business is prepared estimating future long term
and short term working capital needs and sources to finance them, and then
comparing the budgeted figures with actual performance for calculating the
variances, if any, so that corrective actions may be taken in future. He objective
working capital budget is to ensure availability of funds as and needed, and to
ensure effective utilization of these resources. The successful implementation of
working capital budget involves the preparing of separate budget for each element
of working capital, such as, cash, inventories and receivables etc.