KCE Society’s

Institute of Management & Research, Jalgaon

“Working Capital”
In
Mahaveer Crockery, Pvt Ltd.

A project submitted in the partial fulfillment of requirement

for the award of degree of
Bachelor of business administration (BBA):2018-2019

Submitted by Under Guidance of

Subodh K. Dhongade Prof. Nishant Ghughe
 ACKNOWLEDGEMENT
It is me prove privilege to express gratitude to all that guidance, Co-operation had
enabled me to reach, this stage. I collectively thank the whole staff of Mahaveer Crockery. For their
kind help. I want to express special thanks for following persons.

I would like to thank Mr.., Jalgaon. I would also like to thank the staff of finance
department Mahaveer Crockery Ltd. Who Provided me with the detail requirement? Finally, I am
thankful to Prof. Nishant Ghughe for the guidance of the project.

Subodh K. Dhongade
 DECLARATION

I Subodh Dhongade, hereby declare that the project entitled "Working capital management Mahaveer
Crockery’’ Company. Limited is genuine work for the fulfillment of Business Management BBA of
Department of management Studies, Institute of Management & Research, Jalgaon [M.H.] and will be
solely for the academic purpose.

To the bet of my knowledge any part of this context has not submitted earlier for any degree,
diploma or certificate examination.

Place: Jalgaon Subodh K. Dhongade

Date:
CHAPTER 1

WORKING

CAPITAL
 INTRODUCTION
Every business whether big, medium or small, needs finance to carry on its operations
and to achieve its target. In fact, finance is so indispensable today that its rightly said to be
the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly
accomplish its objectives. So this chapter deals with studying various aspects of working
capital management that is necessary to carry out the day-to-day operations. The term
working capital refers to that part of firm’s capital which is required for financing short term
or current assets such as cash, marketable securities, debtors and inventories funds invested in
current assets keep revolving fast and are being constantly converted in to cash and this cash
flows out again in exchange for other current assets. Hence it is known as revolving or
circulating capital. On the whole, Working Capital Management performs a key function and
is of top priority for every finance manager. All managers must, however, keep in mind that n
their pursuit to liquidity, they should not lose sight of there basic goal of profitability. They
should be able to attain a judicious mix of liquidity and profitability while managing their
working capital.

Working capital management deals with the most dynamic fields in finance, which
needs constant interaction between finance and other functional managers. The finance
manager acting alone cannot improve the working capital situation. In recent times a few case
studies regarding Management of working capital in selected companies have been in order
to make in-depth analysis of the several experts of working capital management, The finding
of such studies not only throws new lights on the technical loopholes of management
activities of the concerned companies, but also helps the scholars and researchers to develop
new ideas techniques and methods for effective management of working capital.

Decisions relating to working capital and short term financing are referred to as
working capital management. These involve managing the relationship between a firm's
short-term assets and its short-term liabilities. The goal of working capital management is to
ensure that the firm can continue its operations and that it has sufficient cash flow to satisfy
both maturing short-term debt and upcoming operational e
 OPERATING CYCLE

The operating cycle is the average period of time required for a business to make an
initial outlay of cash to produce goods, sell the goods, and receive cash from customers in
exchange for the goods. If a company is a reseller, then the operating cycle does not include
any time for production - it is simply the date from the initial cash outlay to the date of cash
receipt from the customer.

The operating cycle is useful for estimating the amount of working capital that a
company will need in order to maintain or grow its business. A company with an extremely
short operating cycle requires less cash to maintain its operations, and so can still grow while
selling at relatively small margins. Conversely, a business may have fat margins and yet still
require additional financing to grow at even a modest pace, if its operating cycle is unusually
long.

In case of a manufacturing company, the operating cycle is the length of time

necessary to complete the following cycle of events –

 Conversion of cash into raw materials

 Conversion of raw materials into work-in-progress
 Conversion of work-in-progress into finished goods
 Conversion of finished goods into accounts receivables
 Conversion of accounts receivable into cash

The above operating cycle is repeated again and again over the period depending upon the
nature of the business and type of product etc. the duration of the operating cycle for the
purpose of estimating working capital is equal to the sum of duration allowed by the
suppliers.
OPERATING CYCLE OF MANUFACTURING BUSINESS

Realization Sales

Accounts Receivable

Finished Goods
Cash

Purchases Production

Production

Raw Materials Work-in-progress

 CONCEPT OF WORKING CAPITAL

Concept of Working
Capital

Gross Working Capital Net Working Capital

The concept of working capital includes current assets and current liabilities both.
There are two of working capital they are gross and net working capital.

1.Gross working capital: Gross working capital refers to the firm’s investment in current
assets. Current assets are the assets, which can be converted into cash within an accounting year
or operating cycle. It includes cash, short term securities debtors (account receivables or book
debts), bills receivables and stock (inventory).

2.Net working capital: Net working capital refers to the difference between current assets
and liabilities are those claims of outsiders, which are expected to mature for payment within an
accounting year. It includes creditor’s or accounts payables bills payable and outstanding expenses.
Net working copulate can be positive or negative. A positive working capital will arise when
current assets exceed current liabilities and vice versa.
 OBJECTIVES

The overall financial management objectives of an organization could be summarized in

terms of the following five objectives:
To ensure that the organization always has enough cash to meet its legal obligations
and avoid illiquidity- that is, to maintain adequate short-term financial flexibility.
To arrange to obtain whatever funds are required from external sources at the right
time, in the right form, and on the best possible terms.
To ensure that the organization’s assets and liabilities – current and long-term,
financial and operating are utilized as effectively as possible.
To forecast and plan for the financial requirements of future operations.
To make all decisions and recommendations on the basis of one primary criterion:
maximizing the long-term value of the organization. This objective is attained in a
publicly owned corporation through maximization of the wealth of the
owners(stockholders) by maximizing stock.
 WORKING CAPITAL ANALYSIS

CURRENT ASSETS:
Current assets are those which can be converted into cash as and when needed, i.e.,
those assets which can turn to cash as per the requirement of the business within the
accounting period.

SUNDRY DEBTORS
Debtors are those to who products are supplied on credit basis. These amounts are
collected within the accounting period. Therefore, they are converted into cash as per
requirement, hence they are considered under current assets.

INVENTORIES
Closing stocks or inventory includes raw materials, work in progress and finished
goods, which are needed for the smooth running of the organization. Generally inventory is
maintained by every organization, which is bound to meet its demand in the market. The
amount of inventory maintained by the firm represents its profitability position. The quality
must not be in excess or inadequate, it must be according to the requirement. The quality
stores must be able to meet the market demand.

CASH AND BANK

Every organization or firm maintains cash reserves in their accounts. This is the major
key on which working of the entire organization is dependent upon. This is required in every
aspect of production, marketing, financing etc. In other words, it can be said that it plays a
vital role in the functioning of any organization.

LOANS AND ADVANCES

Advances to staff are those advances, which are given to the employees as festival
advances. These advances are treated as current assets as they are given advance to the
employees and are collected with in the accounting year. It doesn’t result in any default
payment as the amount is deducted from their salaries directly during their payment. Their
advances are prepared and are collected in the accounting year. These are the loans and
advances amount that are given by the organization in procuring of raw materials. Amount is
given in advance to its supplier in supplying the raw materials required and this is adjusted
after receiving the raw material. The final settlements take place only after deducting the
advances amount from total amount.
CURRENT LIABILITIES:
Current liabilities are those which are payable during an accounting year. These are
paid out of current assets like cash. When current assets availability is present there exist the
current liabilities but current assets must always be in excess to current liabilities. This
provides the organization to be in a good position.

SUNDRY CREDITORS
Creditors are those from whom products are purchased on credit basis. These amounts
are paid within the accounting period. If the creditors number increase the amount payable
also increases which further increases the liquidity.

LINE OF CREDIT:
Banks to new business do not often give lines of credit. However, if your new
business is well capitalized by equity and you have good collateral, your business might
qualify for one. A line of credit allows you to borrow funds for short terms needs when they
arise. The funds are repaid once you collect the accounts receivables that resulted from the
short-term sales peak. Lines of credit typically are made for one year at a time and are
expected to be paid off for 30 to 60 consecutive days sometime during the year to ensure that
the funds are used for short-term needs only.

SHORT TERM LOAN:

While your new business may not qualify for a line of credit from a bank, you might
have success in obtaining a one-time short-term loan (less than a year) to finance your
temporary working capital needs. If you have established a good banking relationship with a
banker, he or she might be willing to provide a short-terms note for one order or for a
seasonal inventory and/or accounts receivable buildup. In addition to analyzing the average
number of days it takes to make a product (inventory days) and collect on an account
(account receivable days) Vs. the number of days financed by accounts payable, the operating
cycle analysis provides one other important analysis. From the operating cycle, a computation
can be made of the dollars required to support one day of accounts receivables and inventory
and the dollars provided by a day of accounts payable. Working capital has a different impact
on cash flow in a business.
.
 CHAPTER 2

RESEARCH METHODOLOGY
 TYPES OF RESEARCH

Types of research are very important to research something in the company or

somewhere else. There are many researches which suits for different areas to find out the
problems in an organization, for e.g. quantitative research at numerical area. I have been used
three types of researches for my project work that is Descriptive Research, Historical
Research and Quantitative Research.

Descriptive Research:
Descriptive research helped me to find out facts and details of the Mahaveer Crockery
Glass ltd. I have been enquired directly to senior executives and senior employees about what
has happened and what is happening in the company.

Historical Research:
Through historical research I have been found past details which is affecting current
situation of Mahaveer Crockery Glass. They sold their float glass manufacturing plant to
Saint Gobain ltd. Since that day they are spending a lot for raw materials and creditors are
more than debtors.

Quantitative Research:
This research has undertaken to measure the quantity or amount of the company. I
glanced at company’s balance sheet then I came to know since 3- 4 years they are in loss.
Company’s expenses and current liabilities are more than profit and current assets
respectively.
OBJECTIVES OF THE STUDY

To study the various components of working capital.

To analyze the liquidity trend of Mahaveer Crockery Glass Ltd.

To appraise the utilization of current asset and current liabilities and find out short-
comings if any.

To suggest measure for effective management of working capital.

To measure and evaluate the liquidity and profitability position of Mahaveer Crockery
Glass Ltd.
LIMITATIONS OF THE STDY

Time factor is the most crucial one. The study was conducted within a
short period of two months.

glass executives were hesitating to provide information.

I had to wait for a long time to make contact with the executives, because
they were busy with their work.

Due to busy work schedule, detailed discussions were not possible

It is also found that some of the executive’s lack interest, enthusiasm,

initiative and involvement, which was de-motivated me
DATA ANALYSIS & INTERPRETATION
ANALYSIS AND INTERPRETATITON OF DATA

Calculation of Working Capital

(figures in Lakhs)

Particular 2015-16 2016-17 2017-18

Current Asset, Loans

and Advances:
46680.37 49764.70 46467.03
-Inventories
-Sundry Debtors 20391.85 23497.97 23762.92
- Cash and Bank
Balances 2275.53 2421.75 18147.29
-Other Current
Assets 171.18 159.79 138.20
- Loans and
Advances 16782 20618 21943

Gross Working
86300.93 96462.51 110458.44
Capital (a)
Current Liabilities
and Provision
-Current Liabilities 62473 64093 65107
-Provision

Total (b) 74435 75315 81680

Net Working Capital 11865 21146.51 28778.44

(a-b)
 Net Working Capital
Analysis through Chart
All Figures in lakhs

Net Working Capital

2015-16
2016-17
2017-18
Statement Showing Changes in Working Capital

Particular 2015-16 2016-17

Current Asset, Loans and

Advances:

-Inventories 46680.37 49764.70

-Sundry Debtors 20391.85 23497.97

- Cash and Bank Balances 2275.53 2421.75

-Other Current Assets 171.18 159.79

- Loans and Advances 16782 20618

Total(a) 86300.93 96462.51

Net Current Liability

Sundry Debtors 62473 64093

Provision 11962 11222

Total(b) 74435 75315

Working capital(a-b) 11865.93 21146.51

Increase in working capital 9281.51 ------------

Statement Showing Changes in Working Capital

Particular 2016-17 2017-18

Current Asset, Loans and

Advances:

-Inventories 49764.70 46467.03

-Stock 23497.97 23762.92

- Cash and Bank Balances 2421.75 18147.29

-Other Current Assets 159.79 138.20

- Loans and Advances 20618 21943

Total(a) 96462.51 110458.44

Net Current Liability

Sundry Debtors 64093 65107

Provision 11222 16573

Total(b) 75315 81680

Working capital(a-b) 21146.51 28778.44

Increase in working capital 763.94 ------

Statement Showing Fund Flow
For year 2015-16
Sources Amt. Application Amt.
(Rs.) (Rs.)
Operative Profit 50922.53 Increase in
Sale Of Assets 484.99 working Capital 7631.94
Interest Received 296.07 Purchase of
Dividend Fixed Asset 8103.76
Received 813.86 Decrease in
Sale Of Short term 16317.63
Investment 80.30 Borrowings
Trade Dividend And 6643.51
Receivables 3543.97 Corporate Tax 5775.74
Interest Paid 11668.24
Direct Tax Paid
Total 56141.72 Total 56141.72
Statement Showing Fund Flow
For year 2016-17
Sources Amt. Application Amt.
Operative Profit 53940 Increase in
Sale on Asset 966.12 working Capital 9281.51
Sale of Purchase of
Investment 79.03 Fixed Asset 15746.08
Lease rent Repayment of
Received 0.21 Loans 6275.43
Interest 273.41 Decrease in
Received Short term 5745.45
Dividend 723.68 liabilities 7887.45
Received Interest paid
Corporate Tax 11146.13
Paid
Total 55982.45 Total 53940
 Statement Showing Fund Flow For Year 2017-18

Sources Amt. Application Amt.

Operative Profit 59903 Increase in
Sale on Asset 401.35 working Capital 7631.94
Sale of Purchase of Fixed
Investment 102.35 Asset 19758.39
Lease rent Repayment of
Received 0.42 Loans 14298.83
Interest Received 222.43 Decrease in Long
Dividend term Borrowings 1680.20
Received 434.09 Interest paid 6017.40
Corporate Tax
Paid 11657.40
Total 61063.64 Total 61063.64
ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF
LIQUIDITY

The short term creditors of a company such as suppliers of goods Of credit and
commercial banks short-term loans are primarily interested to know the ability of a
firm to meet its obligations in time. The short term obligations of a firm can be met in
time only when it is having sufficient liquid assets. So to with the confidence of
investors, creditors, the smooth functioning of the firm and the efficient use of fixed
assets the liquid position of the Firm must be strong. But a very high degree of
liquidity of the firm being tied up in current assets. Therefore, it is important proper
balance in regard to the liquidity of the firm. Two types Of ratios can be calculated for
measuring short-term financial position or short-term solvency position of the firm.
• Liquidity ratios.
• Current assets movements 'ratios,
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 had. To
measure the liquidity of a lit in, the following ratios can be calculated:
1. CURRENT RATIO
2. QUICK RA RATIO
 CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure or 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. Thus,

Current Ratio Current Assets/Current Liabilities

The two component of this ratio are

CURRENT ASSET

CURRENT LIABILITIES

Current Assets include cash, marketable securities, bills receivable, sundry debtors,
inventories and work-in-progress. Current Liabilities include outstanding expenses, bills
payable, dividend payable etc. A relative high current ratio is an indication that the firm is
liquid and has the ability to pay its current obligation in time. On the other hand a low current
ratio represents that the liquidity position of the firm is not good and the firm shall not be
able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e.
current assets double the liabilities is considered to be satisfactory

CALCULATION OF CURRENT RATIO:

Year 2015-16 2016-17 2017-18

Current Asset 86300.93 96462.51 110458.44

Current Liabilities 74435 75315 81680

Current Ratio 1.16:1 1.3:1 1.35:1

Analysis through Chart:-

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015-16 2016-17 2017-18

Interpretation:
A current ratio is an indication that the company's current asset is more than its
current liabilities. The ideal current ratio is 2:1. Company's current ratio is less
than the ideal ratio. This shows that the company may face problems in paying
off its liabilities.

Quick Ratio:
Quick ratio is more rigorous test of liquidity than current ratio. Quick ratio may
be defined as the relationship between quick/liquid asset and current or liquid
liabilities. An asset is said to be liquid if it can be converted into cash with short
period without loss of value. It measures the firms capacity to pay off current
obligations immediately.

QUICK RATIO QUICK ASSETS/CURRENT LIABILITIES-BANK

OVERDRAFT
Where Quick Asset are:

 Marketable Securities
 Cash in hand and Cash at bank
 Debtors
A high ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time and on the other hand a low quick ratio represents that the
firm's liquidity position is not good. As a rule of thumb ratio of 1:1 is considered
satisfactory. It is generally thought that if quick assets are equal to current
liabilities then the concern may be able to meet its short term obligations
However, a firm having high quick ratio may not have a satisfactory liquidity
position if it has low paying debtors. On the other hand, a firm having a low
liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO:-

(Amount in Lakhs)

Year 2015-16 2016-17 2017-18

Quick Asset 39449.38 46537.72 63853.21
Current Liabilities 62473 64093 65107
Quick Ratio 0.63:1 0.72:1 0.98:1

Analysis through chart:-

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015-16 2016-17 2017-18
INTERPRETATION:

A quick ratio is an indication that the firm is liquid and has the ability to meet
its current liabilities in time. The ideal ratio is 1:1. Company's quick ratio is
less than the ideal ratio. This shows that the company might have some liquidity
problems.
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
ratio 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. Debtors Turnover Ratio
3. Creditors Turnover Ratio
4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include
high amount of debtors due to slow credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore the movement of current assets,
it is important to calculate the turnover ratio.

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. 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 good situation for any firm.

Working Capital Turnover Ratio=Cost of Sales/Net Working Capital

OR
Working Capital Turnover-Sales/Net Working Capital
Years 2015-16 2016-17 2017-18
Cost of Goods Sold 28710.7 33819.45 36042.91
Net Working Capital 11865.93 21146.51 28778.44
Working Capital Turnover 2.41 times 1.59times 1.25 times

70000

60000

50000

40000

30000

20000

10000

0
2015-16 2016-17 2017-18

Interpretation:-

It is a relationship between turnover and working capital. It highlights how

effectively working capital is being used in terms of turnover it can help to
generate. It enables to find the structure of working capital cycle of organization.
No ideal values but higher the ratio stronger is the position of working capital.in
2015-16 it was 2.41 times and in 2016-17 it was 1.59 times a slight decrease
While in 2017-18 also it has decreased a bit. It is seen that the turnover in
increasing along with the working capital but the ratio of increase in turnover is
more than the ratio of increase in working capital and hence the working capital
ratio shows a downward movement.
CONCLUSION
 CONCLUSION

 From the project we can say that working capital is blood vessel of any organization.
 The factor like bills payable and receivables owe the power to manage whole working
capital of business.
 Every company is depends upon its working capital rather than its fixed assets or
fixed liability.
 Ratio analysis is further most important part of working capital which help one if
understand the status of current assets and current liability
 "Managing the working capital is Managing your Business.
SUGGESTION
SUGGESTIONS

 General Suggestions:
 The company has to take steps to counter the rising input cost and domestic
competition through cost reduction, rationalization of products and distribution
channels, judicious inventory management and research and development.
 It is seen that as the inventory carrying cost is reducing because of the falling interest
rates, the company may stock more if desired.

 Specific Suggestions

 Use Just in time method.

 Not to give all payment of Raw Material but payment should be equally
distribute among small suppliers also.
 Lack of advertisement.
BIBLIOGRAPHY
BIBLIOGRAPHY

 BOOKS

 Khan M.Y. and Jain P.K, 'Financial Management (Text and

Problems)', Tata McGraw-Hill Publishing Co. Ltd. New
Delhi, Third Edition
 Bodhanwala R J., Taxman's Learning Financial
Management using Financial Modelling, Taxmann Allied
Services Pvt. Ltd., New Delhi, July 2003 Edition
 Pandey LM., Financial Management". Vikas Publishing
Houses Pvt. Ltd., New Delhi, Eighth Edition.

 Journals

 Annual reports of Shree Krishna Engineering Works of financial year 2015-16, 2016-
17, 2017-18.

 Internet sites:

www.sreekrishnaengineering.com
ANNEXURE
 Balance Sheet As On 31 Mar 2017
Particular As At 31 Mar
2017
Equity And Liabilities
Shareholder’s funds

Share capital 2540.54

Reserves and surplus 93952.60 96493.14
Non-current Liabilities

Long-term borrowing 26464.58

Deferred tax liabilities 11675.13
Other Long term liabilities 279.75
Long term provisions 834.69 74791.03
Current Liabilities

Short-tern borrowing 12265.58

Trade Payables 27789.55
Other current Liabilities 24348.44
Short-tern Provisions 10387.16 74791.03
Total Equity And
Liabilities 210538.32
Assets
Non-current Asset
Fixed Assets

Tangible assets 108200.40

Intangible assets 589.91
Capital work –in-progress 1807.94
Non-current investment 3364.12
Long term loan and
Advances 6822.77
Other non-current asset 21.29 120806.43
Current Assets

Inventories 49764.70
Trade Receivables 23497.97
Cash and Bank Balance 2695.37
Short-term loans and
advances 13614.06
Other current Asset 159.79 89731.89
Total Assets 210538.32
 Balance Sheet as on 31 Mar 2018
Particular As At 31
Mar2018
Equity And Liabilities
Shareholder’s funds

Share capital 2540.54

Reserves and surplus 77709.62 80250.16
Non-current Liabilities

Long-term borrowing 23176.28

Deferred tax liabilities 9065.18
Other Long term liabilities 304.62
Long term provisions 994.77 33540.25
Current Liabilities

Short-tern borrowing 17710.93

Trade Payables 34875.44
Other current Liabilities 18699.79
Short-tern Provisions 10496.10 81782.26
Total Equity And
Liabilities 195573.27
Assets
Non-current Asset
Fixed Assets

Tangible assets 101998.42

Intangible assets 775.66
Capital work –in-progress 3304.56
Non-current investment 3364.12
Long term loan and
Advances 4751.76
Other non-current asset 19.21 114213.73
Current Assets

Inventories 46680.37
Trade Receivables 20391.85
Cash and Bank Balance 2275.53
Short-term loans and
advances
Other current Asset 171.18 81359.54
Total Assets 195573.27