Chapter Chapter Title Page no.

No.
01. INTRODUCTION

1.1General Introduction

1.2Theoretical Background

02. DESIGN OF THE STUDY

2.1 Statement of the problem

2.2 Objectives of the Study

2.3 Scope of the Study

2.4 Research Methodology

2.5 Limitation of the Study

2.6 Operational definition of concepts

2.7 Overview of the Chapter

03. Company Profile

04. Analysis and Interpretation of Working Capital Management

05. Summary

Findings, Suggestion and Conclusions

06. Bibliography

Name of the authors and websites which is used for the project
purposes at the end of the project
 CHAPTER 1

INTRODUCTION OF
THE STUDY
 1. INTRODUCTION

1.1 GENERAL INTRODUCTION OF THE STUDY

A managerial accounting strategy focusing on maintaining efficient levels of

both components of working capital, current assets and current liabilities, in

respect to each other. Working capital management ensures a company has

sufficient cash flow in order to meet its short-term debt obligations and operating

expenses. Implementing an effective working capital management system is an

excellent way for many companies to improve their earnings. The two main

aspects of working capital management are ratio analysis and management of

individual components of working capital. A few key performance ratios of a

working capital management system are the working capital ratio, inventory

turnover and the collection ratio. Ratio analysis will lead management to identify

areas of focus such as inventory management, cash management, accounts

receivable and payable management.

A measure of both a company's efficiency and its short-term financial health.

The working capital ratio is calculated as:

 
Positive working capital means that the company is able to pay off its short-term

liabilities. Negative working capital means that a company currently is unable

to meet its short-term liabilities with its current assets (cash, accounts receivable

and inventory).

Also known as "net working capital", or the "working capital ratio".

If a company's current assets do not exceed its current liabilities, then it may run

into trouble paying back creditors in the short term. The worst-case scenario is

bankruptcy. A declining working capital ratio over a longer time period could also

be a red flag that warrants further analysis. For example, it could be that the

company's sales volumes are decreasing and, as a result, its accounts receivables

number continues to get smaller and smaller.

Working capital also gives investors an idea of the company's underlying

operational efficiency. Money that is tied up in inventory or money that customers

still owe to the company cannot be used to pay off any of the

company's obligations. So, if a company is not operating in the most efficient

manner (slow collection), it will show up as an increase in the working capital.

This can be seen by comparing the working capital from one period to

another; slow collection may signal an underlying problem in the company's

operations.

1.2 THEORITICAL BACKGROUND OF STUDY

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

Decisions relating to and short term financing are referred to as working capital

management. These involve managing the relationship between a firm's  and its .

As above, the goal of Corporate Finance is the maximization of firm value. In the

context of long term, capital investment decisions, firm value is enhanced through

appropriately selecting and funding NPV positive investments. These investments,

in turn, have implications in terms of cash flow and The goal of Working capital

management is therefore to ensure that the firm is able to and that it has sufficient

cash flow to service long term debt, and to satisfy both maturing short-term debt

and upcoming operational expenses. In so doing, firm value is enhanced when, and

if, the exceeds the cost of capital;

DECISION CRITERIA

Working capital is the amount of capital which is readily available to an

organization. That is, working capital is the difference between resources in cash

or readily convertible into cash (Current Assets), and cash requirements (Current

Liabilities). As a result, the decisions relating to working capital are always

current, i.e. short term, decisions.

In addition to working capital decisions differ from capital investment decisions in

terms of and profitability considerations; they are also "reversible" to some extent.

(Considerations as to  \and return targets remain identical, although some

constraints - such as those imposed by - may be more relevant here).

Working capital management decisions are therefore not taken on the same basis

as long term decisions, and working capital management applies different criteria

in  the main considerations are (1) cash flow / liquidity and (2) profitability / return

on capital (of which cash flow is probably the more important).

The most widely used measure of cash flow is the net operating cycle, or. This

represents the time difference between cash payment for raw materials and cash

collection for sales. The cash conversion cycle indicates the firm's ability to

convert its resources into cash. Because this number effectively corresponds to the
time that the firm's cash is tied up in operations and unavailable for other activities,

management generally aims at a low net count. (Another measure is gross

operating cycle which is the same as net operating cycle except that it does not take

into account the creditors deferral period.)

In this context, the most useful measure of profitability is (ROC). The result is

shown as a percentage, determined by dividing relevant income for the 12 months

by capital employed (ROE) shows this result for the firm's shareholders. As above,

firm value is enhanced when, and if, the return on capital, exceeds the. ROC

measures are therefore useful as a management tool, in that they link short-term

policy with long-term decision making.

MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies and

techniques for the management of working capital. These policies aim at managing

the general and the short term financing, such that cash flows and returns are

acceptable.

 Identify the cash balance which allows for the business to meet day to day

expenses, but reduces cash holding costs.

 Inventory management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials - and

minimizes reordering costs - and hence increases cash flow; see (EPQ).

 Debtor’s management. Identify the appropriate, i.e. credit terms which will

attract customers, such that any impact on cash flows and the cash conversion

cycle will be offset by increased revenue and hence Return on Capital (or vice

versa).

 Short term financing. Identify the appropriate source of financing, given the

cash conversion cycle: the inventory is ideally financed by credit granted by the

supplier; however, it may be necessary to utilize a bank (or overdraft), or to

"convert debtors to cash" through.

COMPONENTS OF WORKING CAPITAL MANAGEMENT:

CURRENT ASSETS:

In , a current asset is an  on the which is expected to be sold or otherwise used up

in the near future, usually within one year, or one operating cycle whichever is

longer. Typical current assets include, cash Equivalents, receivable, inventory, the

portion of prepaid accounts which will be used within a year, and short-term
investments. Operating cycle is the average time that is required to go from cash to

cash in producing revenues. On the, assets will typically be classified into current

assets and The is calculated by dividing total current assets by total. It is frequently

used as an indicator of a company’s liquidity, its ability to meet short-term

obligations.

A balance sheet account that represents the value of all assets that are reasonably

expected to be converted into cash within one year in the normal course of

business. Current assets include cash, accounts receivable, inventory, marketable

securities, prepaid expenses and other liquid assets that can be readily converted to

cash.   

In personal finance, current assets are all assets that a person can readily convert

to cash to pay outstanding debts and cover liabilities without having to sell fixed

assets. 

Current assets are important to businesses because they are the assets that are used

to fund day-to-day operations and pay ongoing expenses. Depending on the nature

of the business, current assets can range from barrels of crude oil, to baked goods,

to foreign currency. 
In personal finance, current assets include cash on hand and in the bank, and

marketable securities that are not tied up in long-term investments. In other words,

current assets are anything of value that is highly liquid. 

Current Assets = Cash +Bank + Debtors + Bills Receivable + Short Term

Investment + Inventory + Prepaid Expenses

CURRENT LIABILITIES:

A company's debts or obligations that are due within one year. Current liabilities

appear on the company's balance sheet and include short term debt, accounts

payable, accrued liabilities and other debts.

Essentially, these are bills that are due to creditors and suppliers within a short

period of time. Normally, companies withdraw or cash current assets in order to

pay their current liabilities.

Analysts and creditors will often use the current ratio, (which divides current assets

by liabilities), or the quick ratio, (which divides current assets minus inventories by

current liabilities), to determine whether a company has the ability to pay off its

current liabilities.
Current Liabilities = Creditors +Bank Overdraft+ Bills payables+ Outstanding

expenses+ Accounts payables

CONCEPTS OF WORKING CAPITAL

Working capital (abbreviated WC) is a financial metric which represents liquidity

available to a business, organization, or other entity, including governmental

entity. Along with fixed assets such as plant and equipment, working capital is

considered a part of operating capital. it is calculated as and net working capital is

calculated as assets minus. It is a derivation of working capital, that is commonly

used in valuation techniques such as DCFs (Discounted cash flows). If current

assets are less than current liabilities, an entity has a working capital deficiency,

also called a working capital deficit.

 Working Capital = Current Assets

 Net Working Capital = Current Assets − Current Liabilities

A company can be endowed with  and  but short of  if its assets cannot readily be

converted into cash. Positive working capital is required to ensure that a firm is

able to continue its operations and that it has sufficient funds to satisfy both

maturing short-term debt and upcoming operational expenses. The management of

working capital involves managing inventories, accounts receivable and payable

and cash.
WORKING CAPITAL CYCLE:

The working capital cycle can be defined as:

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a

customer

The diagram below illustrates the working capital cycle for a manufacturing firm

CURRENT ASSETS CYCLE

Finished Goods

Accounts Work in Progress

Receivables

Wages, Salaries
Overheads Raw Materials

Supplier of Raw
Cash Materials
The upper portion of the diagram above 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.

• 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 (WIP)

• Work will continue on the WIP until it eventually emerges as the finished product

• As production progresses, labor costs and overheads will need to be met

• Of course at some stage trade creditors will need to be paid

• When the finished goods are sold on credit, debtors are increased

• They will eventually pay, so that cash will be injected into the firm
Each of the areas – stocks (raw materials, work in progress 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:

• The business will have to make payments to government for taxation

• Fixed assets will be purchased and sold

• Lessors of fixed assets will be paid their rent

• Shareholders (existing or new) may provide new funds in the form of cash

• Some shares may be redeemed for cash

• Dividends may be paid

• 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.

Unlike movements in the working capital items, most of these ‘non-working

capital’ cash transactions are not every day events. Some of them are annual 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.

CALCULATION

Current assets and current liabilities include three accounts which are of special

importance. These accounts represent the areas of the business where managers

have the most direct impact:

  (current asset)

  (current assets), and

  (current liability)

The current portion of  (payable within 12 months) is critical, because it represents

a short-term claim to current assets and is often secured by long term assets.

Common types of short-term debt are bank loans and lines of credit.
An increase in working capital indicates that the business has either increased  (that

is has increased its receivables, or other current assets) or has decreased , for

example has paid off some short-term creditors.

 CHAPTER 2

RESEARCH

METHODOLOGY
 CHAPTER 2

Design of the Study

A study on Working Capital Management in Sidhi Vinayaka Enterprises.

2.1 Statement of Problem:

Working capital management is the process of identifying the Net working capital.

Excess of Current assets over current liabilities results in working capital. Working

capital is the life blood of the business concern or Organized sectors. The future

plans of the firm should laid on in the views of firm financial strength and

weakness.

Working capital has been one of the most popular areas of research now a day. It

involves the efficient management of cash, Raw materials is processing into WIP

and finished goods, debtors management. It also takes into consideration of a

company perception about current liability i.e the creditors.

The efficient management of working capital is one of the important factor for

success failure of an organization. In the Indian scenario the small scale industry

undertakings have always been a matter of discussion regarding working capital

management. Therefore, in this context there is a need for a study on working

capital management in Small Scale Industrial sector undertaking.

2.2 Objectives of Study:

a) To study the fiancé department by utilizing the theoretical knowledge to

practical situations and to notice difference in practice.

b) To analyze the financial statement to study and Present conclusions.

c) To access the liquidity and solvency of the firm.

d) To evaluate the performance of cash, inventory/stock and receivables.

e) To suggest on Working capital structure.

This basically defines working capital management of the organization in the short

term or current period.

2.3Limitation of the Study:

a) Time was an important limiting factor

b) The study conducted in the Unit I , Unit II and Unit III

c) The study takes into consideration only past 3 years.

2.4 Analysis of Data:

Data has been analyzed by using some of the following techniques of financial

analysis.

a) Statement of changes in working capital

b) Charts and Graphs

c) Ratio Analysis
2.5 Sources of Data Collection:

a) Primary Data: This data has been collected from the Accounts and Finance

department of the company.

b) Secondary Data: Data has been collected from Annual Reports pertaining to

Unit I, Unit II and Unit III.

2.6 Methodology:

a) Data collection: This study is analyzed in nature requiring both primary as well

as secondary data. Primary data is collected through personal enquiries with

officials in Accounts and finance department. Secondary data is collected from

Annual Reports, books and news paper.

b) Accuracy: Accuracy of the reports depends on the responses given by the

respondent and accuracy of secondary data.

In order to study the performance of the Units as a whole a reference period of 3

years has been considered. The period is covered is from 2009-2010, 2008-2009,

2007-2008.
OPERATIONS DEFINED OF CONCEPTS.

1.CURRENT RATIO:

Current ratio is calculated by dividing current assets by current liabilities.

Current Ratio = Current Assets

Current Liabilities

Current assets = Inventories + Sundry Debtors + Cash,

Bank Balances + Other Current assets Loans and

advances, Marketable securities (Short term

investments)

Current Liabilities = Sundry Creditors + Acceptances + Other current liabilities +

Provisions.

The Standard (allowable) ratio is 2:1 or 1:5:1

2.QUICK RATIO:

Quick ratio is also called as Acid Test Ratio.

Quick Ratio = Current Assets – (Inventory + Prepaid Expenses)

Current Liabilities
The most advisable ratio is 1:1

3.NETWORKING CAPITAL RATIO:

It helps the firm to meet current obligations.

Networking Capital Ratio = Current Assets – Current Liabilities

Capital Employed

4. Current assets and networking capital to turnover ratio higher this ratio is the

efficiency of the management.

Current Assets Turnover Ratio = Current Assets

Sales (Turnover)

Networking capital turnover ratio = Networking Capital

Sales (Turnover)

5. DEBTOR TURNOVER RATIO: It indicates the quality of debtors and the

sincerity of their payment.

Debtors Turnover Ratio = Total Debtors + Loans and Advances

Sales/Turnover = All sales is considered Credit Sales

Collection Period = Debtors Turnover Ratio/365

6. INVENTORY TURN OVER RATIO:

This ratio indicates the firm’s efficiency of converting into receivables:

Inventory turnover ratio = Cost of goods sold

Average Inventory

Holding Period = Inventory Turnover Ratio/365

Cost of goods sold has been calculated by preparing a cost sheet

Keeping the PEL a/c balances for calculations.

7. CREDITORS TURNOVER RATIO: This ratio shows the firm’s ability to

meet current liabilities .

Creditors turnover ratio = Total Consumption

Total Creditors

Creditors = Only Sundry Creditors not provisions

Payment period = Creditors turnover ratio/365

OVERVIEW OF THE CHAPTER SCHEME

CHAPTER-I : Introduction to working capital, Definition. Need for working

capital, components of working capital, current assets, current liabilities, concepts

of working capital, types of working capital, factors influencing working capital,

Problems with excess of short age of working capital, optimum level of working

capital, operating cycle analysis, duration of operating cycle, principles of working

capital and its estimation, elements if working capital and sources.

CHAPTER-II:

It consists of methodology used for the study including the statement of the

problem, objectives, limitations, sources of data collection, methodology, operation

definitions of concepts and scope.

CHAPTER-III: COMPANY PROFILE

It includes a detail introduction of the company, Sidhi Vinayaka Enterprises.

CHAPTER-IV:
Working capital management at Sidhi Vinayaka Enterprises. This Chapter deals

with a detail theoretical analysis of the working capital and the constituents of the

sames.

CHAPTER-V:

ANALYSIS AND INTERPRETATION OF DATA:

This chapter analyses and interprets the performance of the division (Sidhi

Vinayaka Enterprises) in comparisons with the company as a whole from the data

collected.

CHAPTER-VI:

FINDINGS AND SUGGESTIONS: Findings, suggestions, and conclusions to

enhance the overall working capital of Sidhi Vinayaka Enterprises.

CHAPTER 3
 COMPANY PROFILE

SIDHI VINAYAKA FAB ENGINEERING PVT LTD:

History: During the year 1995, an idea of starting a manufacturing unit on a very

small scale was conceived and the two Directors joined their hands together and

started the industry by name Sidhi Vinayaka Fab Engineering Pvt. Ltd.
Peenya Industrial Area (PIA) is the biggest industrial area in South East Asia,

which is having all the required facilities to feed any industrial requirements and is

just about 25 kms away from Bangalore International Airport. Our Industry is

situated in the vicinity of this PIA and we are the Life Member of this Association.

Our Industry is registered under Small Scale Industry under the Government Act.

We are one of the leading manufacturers and suppliers of Stainless Steel Pressure

Vessels, heavy & light engineering Pharmaceutical application equipments. We

also do general fabrication work of Alloy steels, conventional steel and special

grade steel like Hardox & Weldox, OHNS, HDS.

To perform the above activities, we have a natural ventilated total working area of

10,000 square feet (about 8000 sq. feet for manufacturing activities and about 2000

sq. feet for office & administration) with latest machineries, technologies and good

communication skills.

Vision

Customer is More than a King and our motto is “Quality Assurance & Customer

satisfaction”. To achieve this goal, our employees are playing a very important

role.
Mission

To achieve the goal by reaching higher level of quality, delivering economically in

long term relationship.

Quality Policy

1. Satisfied internal customer, External Customers, through excellence in Quality

of Products and Processes.

2. Continual Improvement in Products, Processes and Quality management system.

3. Satisfied, Motivated and Committed employees.

4. Safe and clean working conditions and Eco-friendly environment.

Certifications & Recognisation

1. Certified for U & UM Stamping by ASME.

2. Certificate No.36, 474

3. Our company is Certified ISO 9001-2000 for quality management system is

applicable to Fabrication of Stainless Steel & Sheet Metal Components by Lloyd’s

Register Quality 4.Assurance Certification No. MUM0061119 Dated: 15/7/2005.

5. SSI Registration on 2/8/96.

6. Peenya Industrial Association Life time Member Ship Certificate.

7. NSIC ISO 9001:2000 certified by Dun & Bradstreet information service India

Pvt. Ltd., Certification No:65-023-1447 dt: 22/8/2006.

Management Team

 
Md. Basheer Ahmed Mr. C. S. Sridhara
 
Director - Technical Director - Finance
We have a strong trained manpower of sixty five, supported by five qualified

administrative staff & two engineers. The manpower is given in-house regular

training under different fields such as job related work, industrial safety awareness,

fire fighting, first aid, eco- environment, self development etc.

Our employees follow the safety rules while manufacturing as per AWS standard

safety rule and health hazards from welding fumes & dust. In addition to the

statutory requirements, we have extended the welfare benefits like life insurance,

medical benefits, and transportation facilities to our employees. We have very

good industrial relations with our employees.

Quality Certificates
    

ISO 9001:2000 Certificate   ASME - Mini Pressure Vessel   ASME - Pressure Vessel

Services:

Our main occupation of work is welding, assembling, finishing, polishing, and

testing. We out source some of our jobs, who have both conventional & CNC

machining facilities, we will meet the customer schedules.

As our industry is situated in the industrial area and also with our good relationship

with the suppliers. Based on this, we plan and maintain our inventory level up to a

maximum of 5% of the turnover, to meet the needs of our valued customers during

the time of exigencies.

To meet the requirements of ASTM standard, chemical composition & mechanical

test, MTR to the raw materials for further clearance, we have third party laboratory
facilities for meeting the standards and visual inspection based on the customer

requirements.

For manufacturing, we follow the system of procurement, process and planning.

We select the tested and quality approved raw material to meet the drawing

specifications as per our checklist. Planning is done on daily, weekly and monthly

basis to meet the delivery schedules, in the areas of conventional machining, CNC

machining, tack welding, pre-polishing, stage inspection, radiography, DP test,

final finishing, visual inspection, dimensional inspection, and leak test etc.

To maintain the consistency in manufacturing, we have a check list for controlled

plan on each individual component.

Clients

Sl no. Customers Product/Projects

1. Millipore India Private Ltd Pressure vessels, tanks etc..
Faively Transport India Ltd (Sab-Wab
2. Reservoirs & Railway products
Co)
3. GTRE (Gas turbine Research Institute) Turbine Spare Parts
4. CMTI (Central Machine Tool Institute) Liquid Seal
5. CCI Fluid Kinetics  
6. National Aeronautical Laboratory  
7. GE Pressure Vessels
8. Bosch Rexroth Spares parts
9. Flowserve Pump Assembly (Columns)
10. ITT Tanks
11. Ingersol-Rand Hardox Plates/rod equipments
12. Westphalia Saparaters India Ltd Mechanical separators
Food Manufacturing
13. FMC Technologies
equipments
14. L&T Hydraulic cylinders
 ORGANIZATIONAL CHART OF SIDHI VINAYAKA FAB ENGINEERING PVT. LTD.

MANAGING
PARTNERS

MR. BASHEER AHMED. MR. C.S. SRIDHAR K.JITHENDAR BABU.

Marketing.
Finance & Accounts Vendor Development.
Business Development
Employee administration Quality Assurance.
MRS. GAYATHRI.

MR. VENKATESH.
Office In charger

Manager-Production &
MR. VENKATESH MR. BABU.
MURTHY Quality Assurance
Maintenance,
Mechanical, Electrical
and Shops.

MR. KRISHNAPPA. MR. DARSHAN. MR. MALLIKARJUNA.

Production in Charge. Quality Assurance Production In charge.

UNIT-I In Charge. UNIT-II & UNIT-III

 CHAPTER 4

WORKING CAPITAL
MANAGEMENT

WORKING CAPITAL MANAGEMENT IN SIDHI VINAYAKA FAB

ENGINEERING PVT LTD

Cash Management

Meaning of Cash Management

 The Term cash management is generally used for management of both

cash and near assets is the most liquid of all the current assets. Cash here includes

both cash and balance.

In a narrow sense, ‘cash’ means coins, currency notes, cheques, and drafts

held by banks, In a broad sensed it also includes new cash assets like marketable

securities and time deposits with bank such securities or deposits can immediately

be sold or converted into cash management is generally used for management of

both cash and new cash assets. A large cash position indicates high liquidity

position outlet for excess cash and are useful for meeting planned outflow of funds

objectives and management.

1)To collect the payment for the sales made through cheques.

2) To meet any emergency as and when the solution crops up.

3)To meet the disbursement need as per the payment schedule.

4)To prepare the cash budget incorporating the needs of various departments.

CHARACTERISTICS OF CASH MANAGEMENT.

1) Easy convertibility into cash on sale.

2) Provides a pool of liquidity at all times.

3) They also provide a short-term investment avenue for surplus cash.

 GOALS OF CASH MANAGEMENT.

Primary goal of cash management in a firm is to trade off

Between liquidity in order to maximize long-term profit. This is possible the

use of funds in the working capital pool.

The overall objective is transformed into some of these goals.

a) To satisfy day-to-day cash requirements.

b) To provide for scheduled major payments.

c) To face unexpected cash drains.

d) To meet the requirements of banks relationships

e) To maximize operating cost of management.

MOTIVES FOR HOLDING CASH

The motives for holding cash are classified as follows:-

1)Transaction motive

2) Precautionary motive
3) Speculative motive

4) Compensation motive

TRANSACTION MOTIVE:

A company in its day-to-day business has to make payments and also receive cash

leading to daily cash outflow, so as to meet daily obligations a company is bound

to maintain an adequate cash balance.

PRECAUTIONARY MOTIVE:

This a motive of holding cash to meet unexpected contingencies in business like

strikes, penalties, or such other emergencies.

SPECULATIVE MOTIVE:

A company also keeps cash balance to time advantage of unexpected

opportunities typically outside the normal course of business such motive is

therefore of purely speculative nature.

COMPENSATION MOTIVE:

Banks provide certain services to their clients free of charges. They there for

usually require clients to keep an interest and thus compensate them for the free

service so provided.
 Cash Collection

Business Operations Deficit Borrow

Surplus Invent

Operation & Control

Cash Payment

CASH MANAGEMENT IN SIDHI VINAYAKA FAB ENGINEERING PVT

LTD

The Management is trying to hold minimum cash balance to minimize the

interest charges since loan fund is the most important source of working capital

and the company is paying heavy interest charges on its debt.

SIDHI VINAYAKA FAB ENGINEERING PVT LTD during 1980’s

introduced a cash management system called “ Centralized cash management

system.”
 It is to be noted that most of the transaction are made through bank accounts

only. An estimate of the required cash flows are made at the beginning of very

month and target regarding cash flows are fixed to various departments. The

routine generation of funds is done through discounting of cash from the

department and customers.

While making the payments, priority is given to statutory payments, which would

invite legal consequences on default. Further the company takes 30-60 days to pay

is following the policy of payments to creditors only after the expiry of due date.

Day-To-Day Cash Management in SIDHI VINAYAKA FAB ENGINEERING

PVT LTD.

Based on the indents and travel advances requisition received from various

departments, and based on contingency requirements, an estimate of cash

requirements for the day is prepared by the cashier. A consolidated indent is

prepared and submitted to the manager (Account) for responsible for issuing

cheques.

The following are some of the important books, statements manuals maintained

by the company to manage and control cash:-

1) Cash management and bank manual.

 The company prepare cash manual and bank manual, which includes all the

sales and regulations to be followed by the clerks, officers, managers and other

executives while receiving and issuing cash or cheques. This helps in maintaining

proper control over cash and bank transactions entered into by the company.

DAILY CASH STATEMENTS

At the end of each day, the daily cash statement is prepared which gives details

retaining all the cash payments and the cash receipts. It also gives a summary of

cash transactions i.e. opening balance, total payment, total receipt, and closing

balance as per the summary.

CASH BOOK

The cashbook is printed for the month showing the consolidated day-to-day

transactions i.e. receipts, payments, and the balance as on the date.

STRATEGIES OF CASH Management in SIDHI VINAYAKA FAB

ENGINEERING PVT LTD.

In order to resolve the uncertainly about cash flows due to lack of

synchronization, some strategies for cash management has been evolved, They are:
 CASH PLANNING: Cash Inflows and Outflows are properly planned to

project cash surplus or deficit for the planning period i.e. daily, weekly or monthly

basis. A cash budget is prepared for this purpose, which is the summary statement

of the company’s excepted cash flows and out flows over a projected time. It is

mainly prepared for the purpose of knowing or estimating the future cash the future

of cash requirements.

MANAGEMENT OF CASH FLOWS: The inflow of cash should be

accelerated as for as possible and outflow of the cash should be decelerated. SVE

has a vast network of dealers, deposit, and distributors. The management has

implemented a policy of collecting cash on regular basis. Whenever there is a

failure in some of the units or other customers, to remit their dues, occasional visits

are made to mobilize cash. The concerned units remit the amount of bill collected

from customers.

Concerned departments remit the amount of the bill collected from customers.

Immediately to the head office through telephonic transfer.

The Head office meets the expenditure of the departments directly. So the blockage

of funds is prevented. This indicates that company follows the practice of

decentralized receipts and centralized disbursement.

 INVENTING SURPLUS CASH:- The Surplus cash balance should be

properly invested to earn profits. The firm should should decide about the division

of such cash balance between alternative short-term investment opportunities such

as bank deposits, marketable securities, or inter corporate lending.

INVESTING IDLE CASH: The idle cash management system will depend on

the firms products, organization structure, competitions, cultures etc. The idle cash

earns nothing, therefore the company invests the excess cash either in short period

deposits or credits some part of the excess cash into the loan account, so that the

interest burden is reduced.

SAILENT FEATURES OF CASH MANAGEMENT in SIDHI VINAYAKA

FAB ENGINEERING PVT LTD.

1) All cash collections by the individual units are transferred to the corporate

office. This means the unit which collects the money, cannot spend it.

2) The head office then transfers back to the units their requirements of funds,

based on their monthly and weekly forecasts of the inflows and outflows.

3) Any shortage of funds will have to be met by the firm on its own borrowing

capacity.
 The cash department at the division is responsible for making all the payments.

The main areas where the request of making payments comes form are:-

 Bills payable section

 Establishment section

 Sales section

 Service bill and stores

Bills payable are arranged in order of their due dates. So the payment is made on

that basis. Generally, the suppliers avail of a credit of 30-60 days. By registered

post. Payments are usually never made in cash instead of cheques except in rare

and special cases only.

The establishment department requires payment to be made to the employees with

respect to their wages and other dues payable them.

Payment can be either by cash or by bank (Upto to a Limit of Rs.10000) depending

on the choice of the employee salaries are usually paid at the respective section.

 The payment requirements of the sales department arise on account of

adjustment in the bill like freight charges, package charges, discount given,

excise duty etc. the service bills arise on account of minor contracts, given

to outsiders or for the purchase of stores, the regular work of maintenance

 etc that company may undertake from time-to-time in respect of its own

activities.

RECEIVABLE MANAGEMENT

Meaning:- It is a decision making process takes into account the certain of debtors,

debtor’s turnover and minimizing the cost of borrowing of working capital due to

locking of funds in account receivables management. The main objective of

account receivable management is to maximize sales and profit with liberal but

sound credit sales policy.

Debtors are often the largest of all the current assets of an enterprise. It is

claimed that debtors are the second liquid assets of all operating current assets next

only to cash and bank balances. However, they are the most troublesome and risk

prone assets of a firm. A well drawn out credit policy followed by careful

monitoring is the key to the financial viability of a business.

Through credit sales is a marketing tool to strength then the company’s

competitive position in the market, facilitating growth of business; a systematic

position in the market, facilitating growth of business; a systematic management of

receivables is vital for healthy working capital management.

The basic strategy adopted by many organizations to reduce their operating cash

requirements is to accelerate the collection period and to optimize average payable

period.

Receivable management involves a tradeoff between profitability and risk. The

optimum investment us determined by comparing benefits to be derived from a

particular level of investment with cost of maintaining that level.

Objectives of receivable management:-

The main objective receivable management is:-

 To obtain the optimum value of sales.

 To control the cost of credit and keep it at minimum

 To maintain the optimum level of investment on receivables.

 To reduce the average collection period.

ASPECTS OF RECEIVABLES MANAGEMENT

 Determining credit policy

 Determining credit terms

 Evaluating the credit applications

  Determining collection policies and methods

 Control and analysis of receivables

DETERMINING CREDIT POLICY

The first decision area of receivable management is determining credit policy. In

developing an optimum credit policy, the financial manager should compare the

major considerations in costs are liquidity and opportunity cost. The tradeoff

between liquidity and profitability as shown in the following figure determines the

optimum credit policy.

Profitability

Cost &
Benefits Liquidity

Tight Credit Liberal

policy

The credit policy of a firm provides the framework to determine

  Whether or not extent credit to a customer and

 How much credit to extend

Goals of credit policy

A firm may follow a lenient or a stringent credit policy. The firm following a

lenient credit policy tends to sell on credit to customers on very liberal terms

and standards. Creditors are granted for longer periods even to those customers

whose credit worthiness is not fully known or whose financial position is

doubtful.

Receivables management consists of two major activities

1) Billing

2 Collections
 Sales

Cash Credit

Billing of Invoice

Prompt Payment Delayed Payment

Remainder Calls Visiting In Person Aging Schedules

Trade credit plays a very important role in modern business. Hence its efficient

management will bring better financial control to an organization where a

substantial amount is tied up in sundry debtors,

Its analyze and proper management becomes indispensable.

Receivable management in SIDHI VINAYAKA FAB ENGINEERING PVT

LTD.

Sidhi Vinayaka Fab Engineering Pvt Ltd follows a firm but discretionary credit

policy depending upon customers and business. A liberal policy, which could be
deter mental to the organization, is avoided for different types of products,

different combinations of collection policies are carried out.

The unit under study is a multi product firm. Its customers vary from Millipore

India Private Ltd, GTRE (Gas turbine Research Institute), CMTI (Central Machine

Tool Institute), CCI Fluid Kinetics, CCI Fluid Kinetics, National Aeronautical

Laboratory, GE, Bosch Rexroth, Flowserve, ITT, Ingersol-Rand, Westphalia

Saparaters India Ltd, FMC Technologies, L & T. Its needs to have collection

policy suited to the needs of all its customers. Its also needs a good monitoring

system to monitor the debt management process. Due to centralize cash credit

systems; Thus classifications scheme cannot be under played. The main forms

reports are regularly sent to the head office with a clear classification, customer

wise showing clearly the dues of individual customers and how much collection

has taken place on a particular date. It also indicates the adjustments made on a

cast to case basis. There fore management information’s reports provides a

valuable information to monitor and control debtors.

BILLING PROCEDURE IN SIDHI VINAYAKA FAB ENGINEERING PVT

LTD.
Sidhi Vinayaka Fab Engineering Pvt ltd gets orders on the basis Job works and

Labour works. The whole billing and accounting procedure is automated. Its make

use of local area network (LAN) to connect the various units; the following are

involved in billing process:

1. Purchase order is received from the Commercial Department/Purchase

Department.

2. Purchase Department issue a manufacturing order

3. The excise cell consists of technical personnel classifies the product

according to the rules and calculators duty on it accordingly

4. The finance department calculates VAT and adjust the advance

received/differed debt after the invoice is raised.

The billing procedure and the credit terms will vary depending on the type of

contract. In case of power equipment components supplied by the unit, the power

equipment components supplied by the unit, the power group of the office will

collect a certain percentage as an advance.

A certain portion is the collected on reaching certain milestones as follows:

1. A certain percentage on dispatch on dispatch to customers

2. A certain percentage on delivery of the equipment at site

3. A certain percentage on commissioning of equipment

4. A certain percentage on testing of equipment.

The advance and differed receipts are collected by the power group and collected

to the units concerned and are followed by the units as well as power group.

COLLECTION PROCESS SIDHI VINAYAKA FAB ENGINEERING PVT LTD.

After the billing is over, than starts the collection from customers on due

dates. The company has classified the different heads of collection as

Direct Collection:

Amount will received from customers directly on schedule dates. Such direction

collection will enable the company to have inflow of cash early settle the accounts

automatically.

Cash Collection:

The amount received in cash is very meager. Company receives all its collections

through cheques or demand drafts.

Regional Operational Division collection (ROD)

The ROD’s are situated mainly in office and headed by Basheer Ahmed. It will

collect the amount from the customers and remit the same to head office daily.

Only book adjustments are corporate office and crediting debtors account. The

above adjustments are nothing but centralize cash credit adjustments. Every unit is
treated as a profit center and dispatches are also treated as inter unit billing and

book adjustments are made to affect the above the inter unit and office balances.

The inter dependence of one unit on the other from its final product creates

problem in getting payment form customer. For example in one unit has not

supplied a particular component in time to certain project, the mile stone

productions gets delayed and so does the payment.

Other project works are influenced by a host of factors outside the control of either

of the parties. This is the reason why delinquency of cost in such industries is

extremely high. In order to have a proper knowledge of the collection process in

various cases, the unit has made a list of reasons for the collections not being as per

schedule. These reasons include freight disallowances, defective supplies, price

variations clause etc. in case of capacitors and semi conductor devices where

private parties are the main customers, strict credit terms are enforced for a period

of 30-45 days only and cash discounts is given. 50% is received on supply for

photovoltaic and the unit charges about 10% as advance and rest on deliver.

MISCELLANEOUS COLLECTION:

Collection on sale of scrap, assets etc constitute miscellaneous collection. This

forms a very small portion of the total collection made of payment allowed to
sundry debtors in SIDHI VINAYAKA FAB ENGINEERING PVT LTD. Five

method of payments are generally made available to customers, they are

1. Direct payment: This method is extended to products, which are less

voluminous and easily dispatch able. The customer’s financial ability

is also considered in this case.

2. Letter of credit: This is the method mostly adopted and it is favourable

to the organization also, but the procedure when followed must ensure

a sound financial position of the customers.

3. Letter of agreement: In this mode, agencies such IDBI, Central

assistance, and power finance corporation assist the customer in

paying the bill to the respective to the customer firm for developments

and using that, they settle the payment on behalf the customer to the

respective unit.

4. Deferred payment: This could be said as the most widely practiced

one. In this method, the payment by the customer is expected as each

consignment of the product is dispatched to the party and usually the

customer, unit completion of the product with holds 2% of the gross

amount.
5. Competition: Generally higher the degree of competition, the more

than credit granted by a fir. However, there are exceptions, such as

firms in the Small scale industries in India.

6. Company’s bargaining powers: Id a company has a higher bargaining

power vis-à-vis it buyers. It may grant no or less credit. The company

will have a strong bargaining power if it has strong product, monopoly

power, brand image, large size or strong financial position.

7. Buyer’s Requirements: In a number of business sectors,

buyer’s/dealers are not able to operate without extended credit. This is

particularly so in the case of industrial products.

8. Buyer’s Status: large buyer’s demand easy credit terms because of

bulk purchase a higher bargaining power. SIDHI VINAYAKA FAB

ENGINEERING PVT LTD. Follows a policy of not giving much

credit to small relation since it is quite difficult to collect dues from

them.

9. Relationship with dealers: Companies sometimes extends credit to

dealers to build long term relationships with them or to reward them

for their loyalty.

 10. Marketing Tool: Credit is used as marketing tool, particularly when a

new product is launched or when company wants to push its weak

product.

11. Industry Practice: Companies have been found guided by industry

practice . In addition, these companies continue giving credit because of

past practice rather than industry practice.

Transit Delays

This is a forced reason for extended credit in the case of a number of

companies in India SIDHI VINAYAKA FAB ENGINEERING PVT

LTD has evolved systems to minimize the impact of such delays.

The credit policy decision of SIDHI VINAYAKA FAB ENGINEERING PVT

LTD has two broad dimensions:

 Credit Standards

 Credit Analysis.

Credit Standards:

Credit standards mean the basic criteria for the extension of credit to

customers. In macro sense, credit is concerned with determining the appropriate

level of risk to accept in order to maximize profits. Credit standards defines the
level of investment in the current assets and examines the impact of liberalizing

credit policy of tightening it.

TOOLS FOR MANAGING ACCOUNT RECEIVABLES

1. Formulation of suitable credit and collection policies.

2. Computation of debtor’s turnover ratio and average collection period.

Debtor’s Turnover ratio=Annual Credit Sales/Avg Accounts Receivables

Average Collection period ratio=365/Debtors Turnover Ratio

Maintaining accounts receivables

Maintaining accounts receivables involves certain costs

1. Cost of financing

2. Administrative cost

3. Collection cost

4. Defaulting cost

Inventory Management

The term inventory is used to designate the aggregate of those items of

tangible assets which are

1. Finished goods ( salesable )

2. Work-in-progress (convertible )

3. Material and supplies (consumable )

In financial view, inventory defined as the sum of the value of raw material and

supplies, including spares, semi-processed material or work in progress and

finished goods. The nature of inventory is largely depending upon the type of

operation carried on. For instance, in the case of a manufacturing concern, the

inventory will generally comprise all three groups mentioned above while in the

case of a trading concern, it will simply be by stock- in- trade or finished goods.

Inventory management

In company there should be an optimum level of investment for any asset,

whether it is plant, cash or inventories. Again inadequate disrupts production and

causes losses in sales. Efficient management of inventory should ultimately

result in wealth maximization of owners wealth. It implies that while the

management should try to pursue financial objective of turning inventory as

quickly as possible, it should at the same time ensure sufficient inventories to

satisfy production and sales demand. The objectives of inventory management

consist of two counterbalancing parts:

1. To minimize the firm’s investment in inventory

2. To meet a demand for the product by efficiently organizing the firms

3. Production and sales operation.

This two conflicting objective of inventory management can also be expressed in

term of cost and benefits associated with inventory. That the firm should

minimize the investment in inventory implies that maintaining an inventory cost,

such that smaller the inventory, the better the view point .obviously, the financial

manager should aim at a level of inventory which will reconcile these conflicting

elements. Some objective as follow

1. To have stock available as and when they are required.

2. To utilize available storage space but prevents stock levels from

Exceeding space available.

3. To maintain adequate accountability of inventories assets.

4.To provide, on item by- item basis, for re-order point and order such quantity

as would ensure that the aggregate result confirm with the constraint and

objective of inventory control.

To keep low investment in inventories carrying cost an obsolesce losses to the

minimum.

Inventory components

The manufacturing firm s inventory consist following components

I) Raw material
ii) Work- in-progress

iii) Finished goods

To analyze the level of raw material inventory and work in progress inventory

held by the firm on an average it is necessary to examine the efficiency with

which the firm converts raw material inventory and work in progress into

finished goods

Inventory holding period

The reciprocal of inventory turnover gives average inventory holding in

percentage term. When the numbers of days in year are divided by inventory

turnover, we obtain days of inventory holding (DIH).

 CHAPTER 5

ANALYSIS AND
INTERPRETATION OF
DATA
Table for calculation of Working Capital (Composition)

Particulars 2005 2006 2007 2008 2009

Current Assets

Inventory XX XX XX XX XX

Debtors XX XX XX XX XX

Cash XX XX XX XX XX

Other Current Assets XX XX XX XX XX

Loans & Advances XX XX XX XX XX

XX XX XX XX XX
Total Current Assets

Current Liabilities
XX XX XX XX XX

Creditors
XX XX XX XX XX

Bank overdraft
XX XX XX XX XX

Bills Payable
XX XX XX XX XX

Provisions XX XX XX XX XX

XX XX XX XX XX
Total Current Liabilities

Net Working Capital (CA-CL)

Table of Components of
Working Capital (000's)

Particulars 2006 2007 2008 2009 2010

           
Current Assets:          
           
Inventory at cost 1,354 1,505 13,419 17,666 30,106
           
Debtors 19,710 21,901 36,209 59,467 53,902
           
Cash 412 399 2,569 628 547
           
Other Current Assets 2,410 1,339 2,401 5,246 7,092
           
Loans & Advances 678 713 673 1,424 1,702
           
Total Current Assets 24,564 25,857 55,271 84,431 93,349
           
Current Liabilities          
           
Creditors 15,077 18,682 39,601 68,699 76,648
           
Provisions 423 536 224 1,264 1,788
           
Other Current Liabilities 2,265 1,440 2,336 1,421 2,760
           
Total Current Liabilities 17,765 20,658 42,161 71,384 81,196
           
Net Working Capital (CA-CL) 6,799 5,199 13,110 13,047 12,153
 300000

250000

200000

150000

100000

50000

0
1 3 5 7 9 11

COMMENT

The Networking Position of the Sidhi Vinayaka Fab Engineering Pvt ltd has shown a varying
trued in the period of observation. It had touched the Highest peak in 2008 representing 1.31
Crores and Lowest in 2007 representing 51.99 Lakhs due to the Highest sales in 2008.
 Current Ratio of Sidhi Vinayaka Fab Engineering Pvt ltd (000's)

Particulars 2006 2007 2008 2009 2010

           
Current Assets 24,564 25,857 55,271 84,431 93,349
           
Current Liabilities 17,765 20,658 42,161 71,384 81,196
           
Current Ratio 1.38 1.25 1.31 1.18 1.15

Formul
a Current Ratio = Current Assets
Current Liabilities

100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1 2 3 4
COMMENT

The Model and most advisable current ratio are 1.38:1 . This can be relaxed upto 1.25:1

The firm had experienced a very high fluctuations in current ratio during the period of
study from 1.38 in 2006 the higher and lowest of 1.15 in 2010.

Quick Ratio of Sidhi Vinayaka Fab Engineering Pvt ltd (000's)

Particulars 2006 2007 2008 2009 2010

           
Quick Assets 23,210 24,352 41,852 66,765 63,243
           
Current Liabilities 17,765 20,658 42,161 71,384 81,196
           
Quick Ratio 1.31 1.18 0.99 0.94 0.78

Formul
a Quick Ratio= Current Assets - Stock
Current Liabilities
 90000

80000

70000

60000

50000

40000

30000

20000

10000

0
1 2 3 4

COMMENT

In Quick assets the major constituent is a debtor. The model are must advisable ratio is 1:1.

The Quick ration of the firm has shown a slight fluctuation during the period of study. It
was highest in 2006 and lowest in 2010.
 Net working Capital Ratio of Sidhi Vinayaka Fab Engineering Pvt ltd (000's)

Particulars 2006 2007 2008 2009 2010

           
Net working Capital 15,759 18,651 40,153 69,375
79,186
           
Capital Employed 36,101 41,254 61,383 94,558 108,811
           
Net working capital Ratio 0.44 0.45 0.65 0.73 0.73
           

Formul
a Net working capital Ratio Net working Capital
Capital Employed

120000

100000

80000

60000

40000

20000

0
1 2 3 4
COMMENT

This ratio represents the relationship between the capital employed and networking
capital. That is what portion of capital employed constitutes the working capital.

NWC ratio showed a fluctuating trend in respect of the firm, It went as high 0.73 in 2010
and fell to low 0.44 in 2006.
 Current Assets to Turnover Ratio of Sidhi Vinayaka Fab Engineering
Pvt ltd (000's)

Particulars 2006 2007 2008 2009 2010

           
Current Assets 24,564 25,857 55,271 84,431 93,349
           
1,85,97
Turnover/Sales 47,593 55,992 1,06,593 8 1,81,702
           
Current Assets turnover ratio 0.52 0.46 0.51 0.45 0.51
           

Formul
a Current Assets turnover ratio= Current Assets
Turnover/Sales

0.54

0.52

0.5

0.48

0.46

0.44

0.42

0.4
COMMENT

This ratio shows the efficiency of utilization of current assets generate sales. The current
assets turnover ratio of the firm has found efficiency 0.52 in 2006. This was only due to
high sales but as fell down to the lowest of 0.45 in 2009 showing inefficient convention of
current assets into sales.

Cash position of Sidhi Vinayaka Fab Engineering Pvt ltd

000s)

Year Cash in hand & Bank Balances

2010 412
2009 399
2008 2,569
2007 628
2006 547
 3000

2500

2000

Year
1500
Cash in hand & Bank
Balances
1000

500

0
1 2 3 4 5

COMMENT

The cash position and bank balance position totally consist of cash. This components have
varied year by year. The highest cash position in the year 2008 with 25.69 lakhs. When
compare to lowest in 2009 with 3.99 lakhs. The cash position is showing a very high
fluctuation.

Debtors Turnover Ratio of Sidhi Vinayaka Fab Engineering Pvt ltd

 Particulars 2006 2007 2008 2009 2010
           
Total Debtors 19,710 21,901 36,209
59,467 53,902
           
Sales/Turnover 47,593 55,992 1,06,593 1,85,978 1,81,702
           
Debtors Turnover Ratio 0.41 0.39 0.33 0.31 0.29
           
Debt Collection Period/Days 151 143 120 113 106
           

Formul
a Debtors Turnover Ratio= Total Debtors
Sales/Turnover

Collection period= Debtors turnover ratio X 365 days

160

140

120

100

80

60

40

20

COMMENT
The Debtor’s turnover ratio shows the efficiency through which collection is made from
debtors. The firm has experienced up’s and down’s in this period with highest of 151 days
and low 106 days. This is a good trend.

Inventory Turnover Ratio of Sidhi Vinayaka Fab Engineering Pvt ltd

Particulars 2006 2007 2008 2009 2010

           
Cost of Goods Sold 39,472 45,370 88,719 161,734 1,47,908
           
Opening Stock 797 1,354 1,505 13,419 17,666
           
Closing Stock 1,354 1,505 13,419 17,666 30,106
           
Average Stock 1474 2107 8215 22252 32719
           
Inventory Turnover Ratio 26.78 21.54 10.80 7.27 4.52
           
Days 14 17 34 50 81
           

Formul
a Inventory Turnover Ratio= Cost of Goods sold
Average Stock
 Holding period = 365Days
Inventory Turnover ratio
35000

30000

25000

2006 39,472
20000
2007 45,370
2008 88,719
15000
2009 161,734
2010 1,47,908
10000

5000

0
1 2 3 4 5

COMMENT

Inventory turnover indicates the efficiency of the company in selling the product that is the
relationship or the rate at which inventory is been converted into sales in a year or days.

The Inventory turnover ratio has been influenced by fluctuation only in 2007 and 2010
where 17 days and 18 Days respectively.
 Creditors Turnover Ratio of Sidhi Vinayaka Fab Engineering Pvt ltd

Particulars 2006 2007 2008 2009 2010

           
1,34,62
Total Purchases 8,292 33,599 77,562 2 1,19,489
           
Sundry Creditors 15,077 18,682 39,601 68,699 76,648
           
Creditors Turnover Ratio 0.55 1.80 1.96 1.95 1.56
           
Days 664 203 186 187 234
           

Formul
a Creditors Turnover Ratio= Total Purchases
Sundry Creditors

Payment period= 365

Creditors Turnover Ratio

90000

80000

70000

60000
2006 8,292
50000 2007 33,599
40000 2008 77,562
2009 1,34,622
30000 2010 1,19,489

20000

10000

0
1 2 3
COMMENT

The Creditor turnover ratio shows how prompt is the company it current and shows its
credit worthiness. The firm until 2008 from 2006 had maintained an average of 234 days.
However, Due to reduced sales and under utilization of inventory the CTR raised to an
increasing rate of 664 days in 2006.

Statement of Changes in Working Capital

Decreas
Particulars 2009 2010 Increase e
         
Current Assets:        
         
Inventory at cost 17,666 30,106 12,440 -
         
Debtors 59,467 53,902 - 5,565
         
Cash 628 547 - 81
         
Other Current Assets 5,246 7,092 1,846 -
         
Loans & Advances 1,424 1,702 278 -
         
Total Current Assets 84,431 93,349    
         
Current Liabilities        
         
Creditors 68,699 76,648 - 7,949
         
Provisions 1,264 1,788 - 524
         
Other Current Liabilities 1,421 2,760 - 1,339
         
Total Current Liabilities 71,384 81,196    
         
Net Working Capital (CA-CL) 13,047 12,153 14,564 15,458
         
Decrease in Working Capital   894 894  
         
  13,047 12,153 15,458 15,458
 100000
90000
80000
70000
2009 17,666 59,467 628
60000 5,246 1,424
2010 30,106 53,902 547
50000 7,092 1,702
40000 Increase 12,440 - - 1,846
278
30000 Decrease - 5,565 81 - -
20000
10000
0
1 2 3 4 5 6 7

COMMENT

The Statement of changes in working capital has been calculated by keeping 2009 at the base
year. The working capital decrease trend was found only in 2009 at 8.94 lakhs but then this trend
did not carry on and the net working capital went on falling from them. It was lower then the
base year. Between the five year networking capital has violating fluctuating in case of the firm
showing that decrease in current assets and also increase in liabilities this is not a good
development.
 CHAPTER 6

FINDINGS AND
CONCLUSION’S

LIQUIDTY POISTION:

The liquidity position of the firm of the company as well as the corporate is
not satisfactory. Only the division in study during 2006 reached the most
advisable ratio being 2:1 2006 and 2010. However, the corporate during the
period of study has never reached the advisable limit. This must be considered
seriously, both by the electronics division and corporate.

The Quick ratio is also averaging 1.48 in firm at 1.23. This shows that the
inventories are the main components of current assets, which is causing a
slight amount of liquidity problem.

The overall average current ratio of firm being 2:1 for five years. This
was possible only due to high current ratio in the first 3 years but the
performance was dully in 2006 and 2010 at 1.61 and 1.64 it is still possible to
improve the performance.

The firm has maintained an average of 1.65 which is the representation

of a group of divisions all over the country which needs to be geared up to
improve the liquidity of the company.

INVENTORY POSITION:-

The inventory turnover position of the company on a whole is

satisfactory. However, the inventory turnover of the electronics division was
the lowest of 185 days that is alarming. This ratio was 113 days in 2006 but it
was 185 in 2010 this is not a healthy development.

The investment on scrap should be reduced to a considerable extent as

their may influence the inventory to a wide extent.

DEBTORS (ACCOUNTS RECEIVABLE) POSITION:-

 The major component of current assets is debtors in firm. The average
collection period being 239 days for the division and 263 days for the
corporate shows a good sign of collection of debts. But a point should be born
that the debtors should be constantly supervised to as to assure prompt
repayment. As many of the company’s customers are stage there is a slight
slack new, which should be considered seriously.

CREDITORS POSITION (ACCOUNTAS PAYABLE):-

The company based on its good-will maintained an average of 240 days

payment period for 2006 to 2010 but due to fall in states and materials
purchased by credit the payment period was the highest in 2006 being 846
days that is more than 2 years this is not a good sign for the electronics
division. There for it should gear up its sales so as to keep a good position in
front of its creditors.

The corporate on the other hand has managed a decent payment period
of 467 days on an average during the period of observation. This position is
only due to good will of the company.

TURNOVER (SALES) POSITION:-

The sales of electronics division have met the lowest in the period of
study in 2005. This is not also a good sign and the division should take up
sufficient publicity and quality measures to boost up the sales, which
automatically brings up the liquidity position.

The corporate has maintained a reasonably good turnover and had met
the highest in previous year of 2007-08. This to be kept intact and raising.

NETWORKING CAPITAL-TO-CAPITAL EMPLOYED POSITION:-

The proposition of networking capital to overall capital employed in

regards to the firm was 0.613, 0.747, 0.713 to 1 in 2006 to 2010 but this came
drastically to 0.342 and lowest of 0.261 suggesting the increasing expenditure
of capital towards fixed assets. The step is welcome only if fixed assets are
productive but this has not shown the desired results and investment in
inventory especially scrap and loose should be supervised carefully.

The corporate sector has maintained and average of 0.661 this is due to
the overall performance of firm.

The networking capital of firm experienced a highest raise of 31.4% in

2000 and an extreme of a fall of 44.49% in 2003 when compared to base year
if 1999 but the corporate has always shown a raising trend of 15.5% to
70.93% from 1999 to 2003.

RECOMMENDATIONS:-
 The unit can outsource some of its non-core activities to specialize
outside agencies.

 The cost position should be centralized as it is currently maintained

more effectively.

 The unit should develop alternative source of supply of materials like

other units which will in turn, reduce the cost of inventory. The
sourcing of materials should be at competitive rates.

 The unit can have better inventory control by focusing on slow and
non-moving items. Less control should be on fast moving items and
least control on fast moving items.

 The unit should tie-up with financial institutions for providing a

suitable financial package to its customers.

 The company must follow a rigors system of credit evaluation and set
credit standards for its customers.

 The company can obtain contingent commitment from the buyers as

part of sales terms.

 A meaningful sales may be concluded by demanding the customers to

establish differed payments through irrevocable letter of credit.

 The company should get bank guarantee while entering into contracts
with its customers.
  Effective follow-up by commercial departments should be made to
accelerate the collection process.

CONCLUSION:-

It can be concluded that the overall performance of the company is

reasonably satisfactory. The electronics division must work harder to raise its
sales in certain areas the company has to focus more. The firm should try to
overcome hurdles, especially in the area of debtors and inventory
management.

Finally the firm being one of the outstanding public sector undertaking
in the country has performed considerably to withstand the high level
competition of international markets.

BIBLIOGRAPHY:-

Prasanna Chandra : Financial Management Theory & Practice

Khan and Jain : Financial Management

I.M. Pandey : Elements of Financial Management

S.N. Maheshwari : Financial Management

Annual Reports : Sidhi Vinayaka Fab Engineering Pvt ltd.