1) INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise.
Sales don’t convert into cash instantly. There is a time lag between the sales of goods and
receipt of cash. Therefore, there is a need for working capital in the form of current assets
to deal with the problem arising out of the lack of immediate realization of cash against
goods sold. Therefore sufficient working capital is necessary to sustain sales activity.

Management of Working Capital is one of the most important and key resource of an
organization for caring for its day to day operations. Working capital can be taken as
funding resource for routine activities of business. It may be needless to maintain that
without proper management of working capital, the business will start struggling for its
existence and solvency. Managing it is an art, which can only be excelled through proper
study and scenario analysis. It can also be generated by numerous short term funding
resources and short term credits and loans.

The major common sources contributed to working capital of an enterprise may be

categorized as trade credits extended by suppliers, advances by customers, by discounting
of bills, Bank overdrafts from state government reserves and reserves funds, subsidies
grants etc. As already stated, management of working capital is a vital dimension in
determining profit and growth of an enterprise. Determination of optimum capital may be
derived by budgeted performance of various business segments. After determination of
optimum capital requirement for the business, the next target of designing the working
capital structure is taken up which is designed with the objective of minimizing the cost of
working capital thus reducing the burden of cost of working capital of profit. The
optimally designed capital working capital structure not only guards solvency of the
company but also enriches its earning by protecting its cash outflow.

As already mentioned, it is extremely important that optimally designed working capital

should be adequate enough to steer the organizations to its target at minimum cost.
Designing adequate optimum working capital structure is not only the liability of
managers of the company but also an honest duty towards the holders of the company.
Adequate and optimum working capital add to economic value of the organization. This
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increase in the economic value of the company not only adds to economic value aided of
the organization. This increase in the economic value of the company not only adds to
earning per share of the company but also yields to increase in goodwill market value and
creditability of the company. The increase in creditability and goodwill of the company
can be further used for generating low cost funds from market and also for gaining better
credit turnover ratio. The above scenario clearly highlights the fact that optimum or
adequate capital not only improves profitability of the company but also develops its own
cycle of perpetual earning for the company.

One most important aspect to be considered in deciding the working capital is to arrive at
a reliable estimate of requirements of funds which can be made by systematic historic
study and futuristic projections and estimates. The references of bench moved scenario
across the industry should also be referred to verify the efficiency of working capital
requirements of the industry. Gathering excess funds than the requirements not only leads
to high cost of capital but also results in opportunity loss of growth by employing the
fund move economically. Similarly, insufficient working capital may result in scarcity of
funds in loss of opportunity of business, profit and value.

Working Capital is the life blood and nerve center of a business just like circulation of
blood is essential in the human body for survival. It is essential to maintain the smooth
running of a business. No business can run successful without an adequate amount of
working capital. However, it must also be noted that excess working capital and shortage
of working capital both are dangerous for the business. Keeping this in mind, the working
capital position of Lumax Industries Ltd. are analyzed by ratio analysis and working
capital analysis can be analyzed by three important techniques which are
(i) Ratio Analysis
(ii) Fund Flow Analysis
(iii) Working Capital Analysis Technique.
For this purpose, certain ratios are calculated and working capital statement is analyzed.

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1.1 EXECUTIVESUMMARY

Company being established as Lumax Industries Ltd founded in the year 1981 is a part of
the D.K. Jain Group of companies that has carved its strong position in automotive parts.

Our customers are served from six modern manufacturing plants in India. Of these,
three are located in Pane, Two plants in Aurangabad, and one plant in Kala Ambi in
Himachal Pradesh. All these facilities are strategically located in the automotive industrial
belt in the State of Maharashtra in West of India. Further, the Company has set up a new
facility in Himachal Pradesh.

Lumax Industries - an ISO certified company - focuses on customer satisfaction and

quality leadership and is committed to achieve excellence in quality of our products and
services. The dynamic management core at Lumax Industries, through their insightfully
crafted growth strategy is very keen on building a powerful bond with a wider client base
in India, & would be delighted to serve you in our journey towards excellence.

My Project is the study of working capital management. The study was conducted at
the head office of Lumax Industries Ltd, Pune. The project was of 2 months duration.
During the project I interviewed the executives & staff to collect the data, & also made use
of company records & annual reports. The data collected were then compiled, tabulated
and analyzed. Working Capital Management is a very important facet of financial
management due to:

 Investments in current assets represent a substantial portion of total investment.

 Investment in current assets & the level of current liabilities have tube geared
quickly to change sales.

The project on Working Capital Management has been a very good experience. Every
manufacturing company faces the problem of Working Capital Management in their day
to day process. An organization’s cost can be reduced and the profit can be increased only
if it is able to manage its working capital efficiently. At the same the company can provide
customer satisfaction and hence can improve their overall profitability.

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This project is a sincere effort to study and analyze the Working Capital Management of
LUMAX INDUSTRIES LTD. The project was focused on making financial overview of
the company by conducting a Working Capital analysis of LUMAX INDUSTIES LTD.
for the years 2009-10 to 2012-13 and Ratios & various components of working capital &
cash monitoring arrangement format emphasizing on Working Capital.

The internship is a bridge between the institute and the organization. This made me to be
involved in a project that helped me to employ my knowledge.

The experience that I gathered over the past two months has certainly provided the
orientation, which I believe will help Mein shouldering any responsibility in future.

There is a great need for effective management of working capital in any firm. There is no
precise way to determine the exact amount of gross or net working capital for any firm.
The data and problems of each company should be analyzed to determine the working
capital. There is no specific rule as to how current assets should be financed. It is not
feasible in practice to finance current assets by short- term sources only.

During my project work, I have studied the working capital management in Lumax
Industries Ltd, Chinchwad. On the basis of my study I am putting forward some
suggestions.
Implementation of which may improve the efficiency of working capital management in
the unit. Any change in the working capital will have an effect on business cash flows. A
positive change in working capital indicates that the business has paid out cash, for
example in purchasing or converting, paying creditor’s etc.Hence an increase in working
capital will have a negative effect on the business cash holding. However, a negative
change in working capital indicates lower funds to pay off short term liabilities, which
may have bad repercussions to the future of the company.

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1.2 NEED OF THE STUDY

A successful sales program is necessary for earning profits by any business enterprise.
Sales don’t convert into cash instantly. There is a time lag between the sales of goods and
receipt of cash.
Therefore, there is a need for working capital in the form of current assets to deal with the
problem arising out of the lack of immediate realization of cash against goods sold.
Therefore sufficient working capital is necessary to sustain sales activity.

1.3 OBJECTIVE OF THE STUDY

 To study the relationship between current assets and current liabilities of Lumax
Industries Ltd.

 To access the significance of Working Capital by selecting few important parameters

such as working capital ratio, acid test ratio, current ratio, current assets to total assets,
payable turnover ratio, receivables to sales.

 To make an item wise analysis of the element or components of working capital

 To identify the items responsible for changes in working capital.

 To know about financial strength and weakness and conclude the working capital
position of Lumax Industries Ltd.

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1.4 REFERANCE PERIOD FOR STUDY

I studied full 60 days of my internship in Lumax Industries Ltd, Chinchwad plant. First
week I got information about the company and their departments, and I have selected the
topic of working capital management after discussion with the Finance Manager of the
company.
Then I observed receivables and payables department. In the next week, I was introduced
to the inventory department and related department. In between I collected all related
information about working Capital, and then in the last two weeks with help of this data, I
have analyzed and conclude the working capital position of the company.

1.5 SCOPE OF THE STUDY

I have studied the financial performance of the Lumax Industries Ltd. by using ratio
analysis method. My project is limited to the following which I have studied

• Liquidity and Activity Ratios

• Inventory Management
• Cash Management
• Payables Management
• Receivables Management
• Working Capital Management.

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 2) COMPANY PROFILE

Company Name: - Lumax Industries Ltd.

Address: - D 2-43/2, MIDC, Industries Area, Chinchwad.

Pune, Maharashtra – 411019.
INDIA

As the most experienced automotive lighting solutions company in South Asia, LUMAX,
enjoys a history of more than half a century of innovation, Technology, Manufacturing
and Market Leadership. Today, Lumax Industries Limited is a full-capability provider of
high quality automotive lighting solutions for four wheelers and two wheeler
applications, serving automobile manufacturing in India as-well-as worldwide.
Lumax strives for continual improvement of manufacturing processes with emphasis on
consistent quality and cost effectiveness. Lumax signifies LUMINOSITY MAXIMA for
today's demanding automobile users.

Lumax has come a long way since its inception as a trading company in the year 1945,
under the aegis of its founder Late Sh. S.C. Jain. Today Lumax accounts for over 60%
market share in Indian Automobile Lighting Business, fueled in no small measure by
its more than two decade old technical and financial collaboration with , Japan, a
world leader in Vehicle Lighting and illumination products for Automobiles.

Lumax has six ultra modern manufacturing plants in India. Of these, two are located in
cities of Gurgaon , Dharuhera in the state of Haryana, near New Delhi and two plants in
Pune , near Mumbai in Maharashtra and two plants in Uttarakhand - Pantnagar, Haridwar.
There are three plants under construction, Bawal in the state of Haryana, Sanand in the
state of Gujrat and Bidadi in the state of Karnataka. These facilities have been laid out to
match world's best plant engineering standards and as you hear this; our plants are busy
producing automotive lighting products in large quantities to our customer's exacting
standards.

Lumax has a futuristic vision with an experienced and customer focused management
team. This is clearly evident from our financial growth which has seen a steady upward
trend right since our inception. Lumax posted a growth of 36% for the financial year
2010-11.

Lumax facilities are manned by over a 1507 (31-08-2011) highly skilled and specialized
personnel composed of associates, executives and managers. Lumax is listed on major
stock exchanges in India and depicts a shareholding of 35% by Indian Promoters, 35% is
held by and 30% by Public and Corporate Bodies. (As per the agreement and
understanding between Lumax Industries and Stanley)
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 PLANT LOCATION
Fig.1

Our customers are served from six modern manufacturing plants in India. Of these,
three are located in Pune, Two plants in Aurangabad, and one plant in Kala Ambi in
Himachal Pradesh. All these facilities are strategically located in the automotive industrial
belt in the State of Maharashtra in West of India. Further, the Company has set up a new

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facility in Himachal Pradesh. Our product line includes two wheeler chassis, Exhaust
systems & Mufflers, Fork & Handle Bar Assemblies, Petrol tanks, Adjustor Motors, Auto
lightings among numerous others.

Lumax Technologies has posted impressive financial growth of 50% in 2010-2011 and is
on a rapid growth spiral. Our advanced process engineering, manufacturing and testing
facilities include:
 A well-equipped tool development setup
 Robotic welding lines and SPMs
 Paint shops for internal heat resistance painting, powder coating and external
painting
 Excellent capability for maintenance of jigs & fixtures

We, at Lumax Technologies - an ISO certified company - focus on customer satisfaction

and quality leadership and are committed to achieve excellence in a well-equipped tool
development setup quality of our products and services. The dynamic management core at
Lumax Technologies, through their insightfully crafted growth strategy is very keen on
building a powerful bond with a wider client base in India, & would be delighted to serve
you in our journey towards excellence.

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2.1 HISTORY OF THE COMPANY

Late Sh. S.C. Jain, Chairman, establishes a trading concern.

Manufacturing Units set up for automotive lighting equipment and
other components.
Manufacturing unit set up for automotive filters.
Manufacturing units became functional at Faridabad-Haryana and
Pune-Maharashtra.
Private Ltd. Company to Public Limited Company. Technical
assistance agreement with M/s , Japan for lighting
equipment.
Dedicated manufacturing unit for M/s Maruti-Suzuki at Gurgaon -
Haryana.
Manufacturing unit for auto bulbs with assistance of , Japan.
Financial participation of collaborator M/s , Japan.
Manufacturing unit at Aurangabad-Maharashtra.
ISO 9002 Certification to Gurgaon unit by TUV Germany.
QS-9000 Certification to Gurgaon unit by DNV Netherlands.
Production begins at Lumax Dharuhera .
QS-9000 Certification to Dharuhera unit by DNV Netherlands .
ISO/TS 16949 : 2002 Certification for GURGAON and
DHARUHERA Plants by DNV, USA .
ISO 14001 Certification for Gurgaon, Dharuhera and Chennai
Plants by DNV . De-merger - Core Lighting Technology.
Manufacturing unit became functional at Chakan (Near Pune)
Plant setup in Pantnagar, Uttarakhand for Tata motors and Extension
of Dharuhera and Chakan Plant.
Setup a new Plant in Haridwar, Uttarakhand for Hero Honda.
Setup new Plants in Bawal, Sanand and Bidadi.

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2.2 LUMAX VISION

“We, the proud members of the lumax family, shall strive vigorously to delight our
customers and stakeholders who are our very purpose, by pursuing excellence and
innovation through committed team work. To this end we shall promote continuous
learning, achievement orientation and ethical business practices, which will make us shine
as a global player.”
“

LUMAX’s QUALITY POLICY

We, at LUMAX INDUSTRIES LTD….are committed to achieve a total customer

satisfaction by achieving excellence in Quality of our products and services through
adhering to our basics of Q.C.D :-

Q – At the core, excellence in QUALITY

C – Market Share Improvement through COST COMPETENCE
D – On time DELIVERY through improved Business Processes.

Further, we shall strive consistently to evolve our shop floor practices towards continual
improvement.

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CORPORATE SOCIAL RESPONSIBILITY

The management strongly believes in the concept of “Lumax ki Nanhi Chhaan” and is
committed to put all the efforts in making the first of its kind in the area of CSR within
the group.

This has led to the motivation of the employees and would lead them with a “Proud to be
parenting a girl child “feeling.

Objective of the campaign “Nanhi Chhaan “is:

 To promote girl child among general population, reinforcing the sentiment of

cherishing and being proud of parenting a girl child.

 To promote community’s involvement in forestations drive, thereby by impacting

the environment through extended green coverage with people participation.

“Save Girl Child, Save Environment

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LUMAX PRODUCT

Head Lamp-Four Wheeler

Fig.2

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Head Lamp-Two Wheeler

Fig.3

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Fig.4 Tail Lamps-Four Wheeler

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MAJOR CUSTOMERS

 Bajaj Auto Ltd; Chakan

 Bajaj Auto Ltd; Aurangabad
 Lumax Industries Ltd; Chakan
 BadveAutocomps Pvt. Ltd; Chakan
 VarrocEngg.
 Pricol Ltd.
Global Clients

Our customer base is highly diversified. Our market leadership has been attained and
preserved by successful utilization of our products by major global automotive
manufacturers for several decades.
Fig.5

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Domestic clients

Our customer base is highly diversified. Our market leadership has been attained and
preserved by successful utilization of our products by major global automotive
manufacturers for several decades.

Fig.6

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 3) LITERATUREREVIEW

Since the literature related to the relationship between working capital management and
profitability is wide in the nature and scope the most important found in the form of
popular write-up, published or unpublished research studies (Both analytical and
exploratory) and article of the research of the researchers are reviewed in this section. A
deeper look into the survey indicates that there are only a few studies availability aboard
and the plentiful of studies in India.

“Sarkar et.al., (1987) made an attempt to assess the relationship between profitability
crisis and working capital Management in Indian public sectors. Study concluded that the
profitability of the selected public enterprises of the suffered due to inefficient
management of working capital.”

S.P. GUPTA, 2002: Working capital is capital required for day to day working in the
business concern and managing this capital is called the working capital management
working capital has to concept namely Gross concept of working capital and net concept
of working capital distinguished authorities like Baker, Mead, mallet and field support
gross concept of working capital according o whom working capital refers to the firms
total investment in current assets. Current assets mean asset that can be converted into
cash within accounting year. This include short term securities, debtors, bills receivable,
stock etc following definition of gross concept of working capital.

Bonneville: “Any acquisitions of funds which increase the current assets increase the
working capital, for they are one and same”.

J.S. MILL: “The sum of the current assets is the working capital of business”
The gross working capital focus attention on two aspects of current assets management-
1. Optimum investment in current assets
2. Financing of current assets.

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M.Y. KHAN & P.K. JAIN (2003):
Working capital management is concerned with the problems that arise in attempting to
manage the current assets and current liabilities and interrelationship that exit between
them. The term current asset refer to those assets which in ordinary course of business can
be, or will be covered into cash within one year without under growing a diminution in
value and without disrupting the operation of the firm.

The major current assets are: - cash and bank balance, marketable securities, account
receivable, inventory.

The basic current liabilities are accounts payable, bills payable, bank overdraft,
outstanding expenses.

The goal of working capital management is to manage of firm’s current assets and
liabilities in such a way that a satisfactory level of working capital is maintained. This is
so because if the firm cannot maintain a satisfactory level of working capital, it is likely to
become insolvent and may even be forced bankruptcy. The current assets should be large
enough to and cover its current liabilities insure a reasonable margin of safety. Each of the
current assets must be manage in order to maintain the liquidity of firm. While not keeping
high a level of any one of them. Each of the short term sources of financing must be
continuously managed to insure that they are obtained and used in the best possible way.
The interaction between current assets and current liabilities is, therefore, they main theme
of working capital management.

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3.1 THEORETICAL BACKGROUND

A) MEANING OF WORKING CAPITAL

Working capital refers to the investment by the company in short terms assets such as
cash, marketable securities. Net current assets or net working capital refers to the current
assets less current liabilities.
Symbolically, it means,

Net Working Capital = Current Assets - Current Liabilities

B) DEFINITION OF WORKING CAPITAL:-

According to C.W.Gestenbergh –
“Working Capital is ordinary defined as the excess of the current assets over
current liabilities”.

According to Lawrence.J.Gitmen
“The most common definition of working capital is the difference of the firm’s
current assets and current liabilities.”

C) DEFINITION OF WORKING CAPITAL MANAGEMENT:-

“Working Capital Management involves the relationship between a firm’s short term
assets and its short term liabilities. The goal of working capital management is to ensure
that a firm is able to continue its operations and that it has sufficient ability to satisfy both
maturing short term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivables and payable, and
cash”

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The Goal of Capital Management is to manage the firm s current assets & liabilities, so
that the satisfactory level of working capital is maintained. If the firm cannot maintain the
satisfactory level of working capital, it is likely to become insolvent & may be forced into
bankruptcy. To maintain the margin of safety current asset should be large enough to
cover its current assets. Main theme of the theory of working capital management is
interaction between the current assets & current liabilities.

Fig.7

a) Gross working capital:

Gross working capital, which is also simply known as working capital, refers to the
firm’s investment in current assets: Another aspect of gross working capital points out the
need of arranging funds to finance the current assets. The gross working capital concept
focuses attention on two aspects of current assets management,, firstly optimum
investment in current assets and secondly in financing the current assets. These two
aspects will help in remaining away from the two danger points of excessive or inadequate
investment in current assets. Whenever a need of working capital funds arises due to
increase in level of business activity or for any other reason the arrangement should be
made quickly, and similarly if some surpluses are available, they should not be allowed to
lie ideal but should be put to some effective use.

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 b) Net Working Capital:
The term Net Working Capital refers to the difference between the current assets and
current liabilities. Net working capital can be positive as well as negative. Positive
working capital refers to the situation where current assets exceed current liabilities and
negative working capital refers to the situation where current liabilities exceed current
assets. The net working capital helps in comparing the liquidity of the same firm over
time. For purposes of the working capital management, therefore working capital can be
said to measure the liquidity of the firm. In other words, the goal of working capital
management is to manage the current assets and liabilities in such a way that an acceptable
level of net working capital is maintained

c) Permanent Working Capital:-

Permanent working capital is the minimum amount of current assets, which is needed to
conduct a business even during the dullest season of the year. The minimum level of
current assets is called permanent or fixed working capital as this part is permanently
blocked in current assets. This amount varies from year to year, depending upon the
growth of the company and the stage of the business cycle in which it operates.

d) Temporary Working Capital:

Temporary working capital represents a certain amount of fluctuations in the total current
assets during a short period. These fluctuations are increased or decreased and are
generally cyclical in nature. Additional current assets are required at different times during
the operating year. Variable working capital is the amount of additional current asset that
are required to meet the seasonal needs of a firm, so is also called as the seasonal working
capital. For Example: additional inventory will be required for meeting the demand during
the period of high sales when the peak period is over variable working capital starts
decreasing or very little during the normal period.

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 D) Measures to Improve Working Capital Management:

 Proper cash flow forecasting.

 Contingency plans to tide over unexpected events
 Optimal utilization of cash generated
 Identifying and implementing strategies to generate short-term cash.
 Effective dispute.
 Collaborating with your customers.

a) Changes in working capital will impact a business’ cash flow.

On the other hand a decrease in working capital translates into less money to settle short-
term debts.

Working capital is among the many important things that contribute to the success of a
business. Without it, a business may cease to function properly or at all.

In accounting terms this is a static balance sheet concept referring to the excess at a
particular moment in time of permanent capital plus long-term liabilities over the fixed
assets of the business.

If working capital thus defined exceeds net current operating assets the company has a
cash surplus otherwise it has a deficit. On this basis, therefore, the control of working
capital can be sub divided into areas dealing with stocks, debtors, creditors and cash.

E) A COMPANY’S WORKING CAPITAL POLICY IS A FUNCTION OF

TWO DECISIONS:
 The appropriate level of investment in and mix of current assets to be decided
upon, for a set level of activity – this is the investment decisions.
 The methods of financing this investment – the financing decisions.

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 a) Sources of Additional Working Capital:

Sources of additional working capital include the following:

 Existing cash reserves

 Profits (when you secure it as cash)
 Payables (credit from suppliers)
 New equity or loans from shareholders
 Bank overdrafts or lines of credit
 Long-term loans

F) PLANNING OF WORKING CAPITAL:

Working capital is required to run day to day business operations. Firms differ in their
requirement of working capital (WC). Firm s aim is to maximize the wealth of share
holders and to earn sufficient return from its operations. WCM is a significant facet of
financial management. Its importance stems from two reasons:
1. Investment in current asset represents a substantial portion of total investment.
2. Investment in current assets and level of current liability has to be geared quickly
to change in sales.

Business undertaking required funds for two purposes:

 To create productive capacity through purchase of fixed assets.
 To finance current assets required for running of the business.
The importance of WCM is reflected in the fact that financial managers spend a great deal
of time in managing current assets and current liabilities. The extent to which profit can be
earned is dependent upon the magnitude of sales. Sales are necessary for earning profits.
However, sales do not convert into cash instantly; there is invariably a time lag between
sale of goods and the receipt of cash. WC management affect the profitability and liquidity
of the firm which are inversely proportional to each other, hence proper balance should be
maintained between two. To convert the sale of goods into cash, there is need for WC in
the form of current asset to deal with the problem arising out of immediate realization of
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cash against good sold. Sufficient WC is necessary to sustain sales activity. This is
referred to as the operating or cash cycle.

G) WORKING CAPITAL CYCLE:

A firm requires many years to recover initial investment in fixed assets. On contrary the
investment in current asset is turned over many times a year. Investment in such current
assets is realized during the operating cycle of the firm.

Each component of working capital (namely inventory, receivables and payables) has two
dimensions ... TIME ......... and MONEY. When it is comes to managing working capital
TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues
from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory
levels relative to sales), the business will generate more cash or it will need to borrow less
money to fund working capital. As a consequence, you could reduce the cost of bank
interest or you'll have additional free money available to support additional sales growth
or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get
longer credit or an increased credit limit; you effectively create free finance to help fund
future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers,
plant, vehicles etc. If you do pay cash, remember that this is now longer available for
working capital. Therefore, if cash is tight, consider other ways of financing capital
investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase
drawings, these are cash outflows and, like water flowing downs plughole, they remove
liquidity from the business

a) Operating cycle:

The working capital cycle refers to the length of time between the firms paying the cash
for materials, etc., entering into production process/stock & the inflow of cash from
debtors (sales), suppose a company has certain amount of cash it will need raw materials.
Some raw materials will be available on credit but, cash will be paid out for the other part
immediately. Then it has to pay labour costs & incurs factory overheads. These three
combined together will constitute work in progress. After the production cycle is
complete, work in progress will get converted into sundry debtors. Sundry debtors will be

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realized in cash after the expiry of the credit period. This cash can be again used for
financing raw material, work in progress etc. thus there is complete cycle from cash to
cash wherein cash gets converted into raw material, work in progress, finished goods and
finally into cash again. Short term funds are required to meet the requirements of funds
during this time period. This time period is dependent upon the length of time within
which the original cash gets converted into cash again. The cycle is also known as
operating cycle or cash cycle.

Working capital cycle can be determined by adding the number of days required for each
stage in the cycle. For example, company holds raw material on average for 60 days, it
gets credit from the supplier for 15 days, finished goods are held for 30 days & 30 days
credit is extended to debtors. The total days are 120, i.e., 60+ 15 + 15 + 15 + 30 + 30 days
is the total of working capital.
Thus the working capital cycle helps in the forecast, control & management of working
capital. It indicates the total time lag & the relative significance of its constituent parts.
The duration may vary depending upon the business policies. In light of the facts discusses
above we can broadly classify the operating cycle of a firm into three phases viz.
1. Acquisition of resources.
2. Manufacture of the product and
3. Sales of the product (cash / credit).
First and second phase of the operating cycle result in cash outflows, and be predicted
with reliability once the production targets and cost of inputs are known. However, the
third phase results in cash inflows which are not certain because sales and collection
which give rise to cash inflows are difficult to forecast accurately.

Operating cycle consists of the following:

 Conversion of cash into raw-materials;
 Conversion of raw-material into work-in-progress;
 Conversion of work-in-progress into finished stock;
 Conversion of finished stock into accounts receivable through sales;
 Conversion of accounts receivable into cash.

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In the form of an equation, the operating cycle process can be expressed as follows

Fig.8

Operating cycle = R + W + F + D + C

R = Raw material conversion period

W = Work in progress conversion period
F = Finished goods conversion period
D = Debtors collection period
C = Credit payment period

b) Operating cycle for manufacturing firm:

The firm is therefore, required to invest in current assets for smooth and uninterrupted
functioning.

RMCP - Raw Material Conversion Period

WIPCP - Work in Progress Conversion Period
FGCP - Finished Goods Conversion Period
ICP - Inventory Conversion Period
RCP - Receivables Conversion Period
CPP- Creditors Payment Period
GOC - Gross Operating Cycle
NOC - Net Operating Cycle
NOC = GOC– CPP
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Here, the length of GOC is the sum of ICP and RCP.
ICP is the total time needed for producing and selling the products. Hence it is the sum
total of RMCP, WIPCP and FGCP. On the other hand, RCP is the total time required to
collect the outstanding amount from customers.

Net Operating Cycle and if Depreciation is excluded from the expenses in computation of
operating cycle, the NOC also represents the cash collection from sale and cash payments
for resources acquired by the firm and during such time interval between cash collection
from sale and cash payments for resources acquired by the firm and during such time
interval over which additional funds called working capital should be obtained in order to
carry out the firms operations. In short, the working capital position is directly
proportional to the Net Operating Cycle.

A firm needs working capital because the production sales and cash flows are not
instantaneous. A firm needs cash to purchase raw material and pay expenses. As there may
not be perfect matching between cash inflows and cash outflows. Cash may also be held to
meet the future exigencies. The stocks of raw materials are kept in order to ensure smooth
production and to protect against the risk of non-availability of raw materials. Similarly
stock of finished goods has to be carried to meet the demands of customers on continuous
basis and sudden demands from some customers. Goods are sold on credit for competitive
reasons. Thus, an adequate amount of fund has to be invested in current assets for smooth
and uninterrupted production and sales process. Because of the circulating nature of
current assets working capital is sometimes called circulating capital.

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Fig.9
Payment Credit Sales Collection

RMCP + WIPCP + FGCP

Inventory Conversion Period Receivables Conversion Period

Gross Operating Cycle

Payables Net Operating Cycle

c) Methods of Analysis of Working Capital

Analysis of working capital is significant for both management and short-term creditors.
Managements can assess the efficiency of the working capital employed in the business.

Such an analysis helps management

(1) To detect trends and initiate corrective measures.
(2) Helps the shareholders and creditors to determine the prospects for payment of
dividend and interest.
(3) Helps in determining the ability of the company to repay its current debt promptly.
(4) Assess the effectiveness of management of working capital.
(5) Adequacy of working capital and to undertake credit ratings.
Analysis of working capital relates to an examination of circulation, liquidity,
level and structural aspects of working capital

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In analysis of working capital the tools used are:
 Ratio Analysis
 Fund Flow Analysis
 Budgeting
1) RATIO ANALYSIS:
A ratio is a simple arithmetical expression one number to another. The technique
of ratio analysis can be employed for measuring short-term liquidity or working
capital position of a firm the following ratios can be calculated for these purposes:

1. Current ratio
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover ratio
5. Receivable turnover ratio
6. Payable turnover ratio
7. Working capital turnover ratio
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth

1. FUND FLOW ANALYSIS:

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

a. Preparing schedule of changes of working capital

b. Statement of sources and application of fund
It is an effective management tool to study the changes in financial position (working
capital) business enterprise between beginning and ending of the financial dates.

2. WORKING CAPITAL BUDGET:

A budget is a financial and/or quantitative expression of business plan polices to be

pursued in the future period time. Working capital budget as a part of the total budgeting

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process of a business is prepared estimating future long term and short term working
capital need and sources to finance them, and them comparing the budgeted figures with
actual performance for calculating the variances, if any, so that corrective action may be
taken in future. He objective working capital budget is to ensure availability of fund as and
needed, and to ensure effective utilization of these resources. The successful
implementation of working capital budget involves the preparing of separating for each
element of working capital, such as, cash, inventories and receivables etc

3. CASH MANAGEMENT:

Cash management is one of the key areas of WCM. Apart from the fact that it is the most
liquid asset, cash is the common denominator to which all current assets, that is,
receivables & inventory get eventually converted into cash.

Cash is oil of lubricate the ever-turning wheels of business: without it the process grinds to
a shop. Motives for holding cash:

Cash with reference to cash management is used in two senses: It is used broadly to cover
currency and generally accepted equivalents of cash, such as cheques, drafts and demand
deposits in banks. It includes near-cash assets, such as marketable securities & time
deposits in banks.

The main characteristic of these is that they can be readily sold & converted into cash.
They serve as a reserve pool of liquidity that provides cash quickly when needed. They
provide short term investment outlet to excess cash and are also useful for meeting
planned outflow of funds.

a) CASH IS MAINTAINED FOR FOUR MOTIVES:

A. Transaction motive
B. Precautionary motive
C. Speculative motive

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 b) OBJECTIVES OF CASH MANAGEMENT:

I. To meet the cash disbursement needs in the normal course of business firms have
to make payment of cash on a continuous and regular basis to the supplier of
goods, employees and so son. Also the collection is done from the de4btorw.
Basic objective is to meet payment schedule that is to have sufficient cash to
meet the cash disbursement needs of the firm.
II. To minimize the funds committed to cash balance First of all if we keep high cash
balance, it will ensure prompt payment together with all the advantages. But it
also implied that the large funds will remain idle, as cash is the non-earning
asset and firm will have to forego profits. On the other hand, low cash balance
mean failure to meet payment schedule. Therefore we should have optimum
level of cash balance.

4. DEBTORS MANAGEMENT

A) Assessing the credit worthiness of customers

Before extending credit to a customer, a supplier should analyze the following worthiness,
which will provoke a series of questions. These are:

a) Capacity: will the customer be able to pay the amount agreed within the allowable
credit period? What is their past payment record? How large is the customer's business
capital. What is the financial health of the customer? Is it a liquid and profitable concern,
able to make payments on time?

b) Character: does the customer’s management appear to be committed to prompt

payment? Are they of high integrity? What are their personalities like?

c) Collateral: what is the scope for including appropriate security in return for extending
credit to the customer?

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d) Conditions: what are the prevailing economic conditions? How are these likely to
impact on the customer’s ability to pay promptly? Whilst the materiality of the amount
will dictate the degree of analysis involved, the major sources of information available to
companies in assessing customer’s credit worthiness are:

 Bank references.
 Trade references.
 Financial accounts.
 Personal contact
 Credit agencies.
 Past experience.
 General sources of information.
 Credit terms granted to customers

5. MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position. Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems. Consider the following:

 Who authorizes purchasing in your company - is it tightly managed or spread

among a number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities, which take account of stock holding and purchasing
costs?
 Do you know the cost to the company of carrying stock?
 Do you have alternative sources of supply? If not, get quotes from major suppliers
and shop round for the best discounts, credit terms, and reduce dependence on a
single supplier.
 How many of your suppliers have a returns policy?

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 6. INVENTORY MANAGEMENT

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the
cash resources of a business. Insufficient stocks can result in lost sales, delays for
customers etc. The key is to know how quickly your overall stock is moving or, put
another way, how long each item of stock sit on shelves before being sold. Obviously,
average stock-holding periods will be influenced by the nature of the business. For
example, a fresh vegetable shop might turn over its entire stock every few days while a
motor factor would be much slower as it may carry a wide range of rarely-used spare parts
in case somebody needs them.

Nowadays, many large manufacturers operate on a Just-In-Time (JIT) basis whereby all
the components to be assembled on a particular today, arrive at the factory early that
morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks
take up little space, minimize stockholding and virtually eliminate the risks of obsolete or
damaged stock. Because JIT manufacturers hold stock for a very short time, they are able
to conserve substantial cash. JIT is a good model to strive for as it embraces all the
principles of prudent stock management. The key issue for a business is to identify the fast
and slow stock movers with the objectives of establishing optimum stock levels for each
category and, thereby, minimize the cash tied up in stocks.

a) Factors to be considered when determining optimum stock levels include:

What are the projected sales of each product?
How widely available are raw materials, components etc.?
How long does it take for delivery by suppliers?
A) OPERATING CYCLE
The duration of time required to complete the following sequence of events, in the
manufacturing firm, is called the operating cycle:
1. Conversion of cash into raw materials.
2. Conversion of raw materials into work-in-progress.
3. Conversion of work in process into finished goods.
4. Conversion of finished goods into debtors and bills receivables through sales.
5. Conversion of debtors and bills receivables into cash.

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Operating Cycle of Manufacturing Concerns
a) Duration of the Operating Cycle
The duration of the operating cycle is equal to the sum of the duration of each of these
stages less the credit period allowed by the suppliers of the firm. In symbols,

O=R+W+F+D–C

O = duration of operating cycle.

R = raw material storage period.
W= work-in-process period.
F= finished goods storage period.
D=debtors collection period, and
C = creditors payment period.

i. CURRENT RATIO

Current ratio may be defined as the relationship between current

assets and current liabilities. This ratio also known as Working capital ratio is a measure
of general liquidity and is most widely used to make the analysis of a short-term financial
position (or) liquidity of a firm.

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Outstanding or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Inventories Short-term advances
Work-in-progress Sundry creditors
Sundry debtors
Prepaid expenses

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 ii. QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term liquidity
refers to the ability of a firm to pay its short-term obligations as & when they become due.
Quick ratio may be defined as the relationship between quick or liquid assets and current
liabilities. An asset is said to be liquid if it is converted into cash within a short period
without loss of value.

iii. CURRENT ASSETS TO TOTAL ASSETS

This ratio expresses the relationship between the amount of current assets and the amount
of investment in total assets. It helps to assess the importance of current assets of a
concern.

iv. WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales. It indicates the velocity of the
utilization of net working capital. This indicates the no. of times the working capital is
turned over in the course of a year. A higher ratio indicates efficient utilization of working
capital and a lower ratio indicates inefficient utilization.

Working capital turnover ratio=cost of goods sold/working capital.

v. DEBTORS TURNOVER RATIO (DTR)

DTR is calculated by dividing the net credit sales by average debtors outstanding during
the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit
sales minus returns, if any, from customers. Average debtors are the average of debtors at
the beginning and at the end of the year. This ratio shows how rapidly debts are collected.
The higher the DTO, the better it is for the organization.

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vi. STOCK TURNOVER RATIO

STR refers to the number of times the inventory is sold and replaced during the accounting
period. ITR reflects the efficiency of Inventory management. The higher the ratio, the
more efficient is the management of inventories, and vice versa. However, a high
inventory Turnover may also result from a low level of inventory, which may lead to
frequent stock outs and loss of sales and customer goodwill.

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 4) RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problems. It may be

understood a science of studying how research is done scientifically. In it we study the
various steps that are generally adopted by a researcher in studying his research problems
along with the logic behind them. It is necessary for researcher to know not only the
research methods/techniques but also the methodology. A research design is simply a plan
for the study in collecting and analyzing the data. It helps the researcher to conduct the
study. The research process will clearly defined to meet the objective of the study; the
research process shall include the following steps of the research process-

 Defining the problem

 Statement of research objective
 Planning the research design
 Planning the sample
 Collecting of data
 Analysis the data
 Formulation of conclusion.

REASON FOR SELECTION:-

I have selected the topic because the Working Capital Management through which we get
to know how the company’s financial performance is evaluated by the cash flows,
liquidity, leverage, turnover ratios. Comparisons between the different years data shows
the relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future. This project fully based on
secondary data. The secondary data for this study was obtained from the related literature
of LUMAX INDUSTRIES LTD.

 Profit & Loss A/c (2008-09 to 2012-13)

 Balance Sheet A/c (2008-09 to 2012-13)

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Research Methodology refers to the systematic method consisting of enunciating the
problems, collecting of data and analyzing it and reaching certain solutions towards the
certain problem or in certain generalization for some theoretical formulations.

The study at LUMAX INDUSTRIES LTD was an analytical type of research, which
includes using facts and information available and analyzing these to make a critical
evaluation of material.

The data of LUMAX INDUSTRIES LTD for the year (2009 to 2013) used in this study
have been taken from secondary sources e.g. published annual reports of the company.
Editing, classification an tabulation of the financial data, which have been collected from
the above mentioned sources, have been done as per the requirements of the study. For
assessing the performances of the working capital position in this study,

1. Most of the calculations are made on the financial statements of the company
provided statements.

2. Referring standard texts and referred books collected some of the information
regarding theoretical aspects.

3. Method- to assess the performance of the company method of observation of the

work in finance department is followed.

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4.1 METHODS OF SAMPLING
Convenience sampling

4.2 RESEARCH DESIGN

“Explorative Research Design”

4.3 DATA COLLECTION

The task of data collection and selection of type of research methodology is very
important while deciding about the method of data collection is to be used for study, the
researcher kept in mind two types of data.

a) Primary data:

Primary data are those data which are collected fresh and for the first time and happens to
be original in character.

The information is collected through the primary sources like:

 Talking with the employees of the department.

 Getting information by observations e.g. in manufacturing processes.
 Discussion with the head of the department.

b) Secondary data:

The data is collected through the secondary sources like:

 Annual Reports of the company.

 Office manuals of the department.
 Magazines, Reports in the company.
 Policy documents of various departments

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4.4 DATA ANALYSIS TOOLS

A) OPERATING CYCLE

O=R+W+F+D–C

The components of the operating cycle may be calculated as follows:

1. Raw Material Conversion Period

RMCP = Average stock of raw materials and stores

Material Consumption per year

2. Work-In-Progress Conversion Period

WIPCP = Average work-in-process inventory
Average cost of production per Year
F

3. Finished Goods Conversion Period

FGCP = Average finished goods inventory x 365

Average cost of goods sold per year

4. Debtors collection Period

DPP = Average book debts / Average credit sales per year x 365
1. C

5. Creditors Payment Period

CDP = Average trade creditors x 365

Average credit Sales per year

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RATIOS:-

1. CURRENT RATIO

Current assets

Current ratio =
Current liabilities

2. QUICK RATIO.

Quick or liquid assets

Quick ratio =
Current liabilities

Quick assets = Current asset – stock

3. CURRENT ASSETS TO TOTAL ASSETS

Current assets
Current assets to total assets =
Total assets

4. CURRENT ASSETS TURNOVER RATIO

Cost of Sales
Current assets turnover ratio =
Net current assets

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5. WORKING CAPITAL TURNOVER RATIO

Working capital = Current assets - Current liabilities

Net sales
Working capital turnover ratio =
Working capital

6. STOCK TURNOVER RATIO

Cost of goods sold

Stock turnover ratio =
Average stock

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 5) DATA ANALYSIS & INTERPRETATION

A) OPERATING CYCLE

O=R+W+F+D–C

1. Raw Material Conversion Period

RMCP = Average stock of raw materials and stores *365

Material Consumption per year

Table.1
Average Stock of Raw Material
Year RMCP
Raw material Consumption Per Year
2009 736014678 3281029700 81.87days
2010 6509876055 4158759314 57.13 days
2011 680223471 5968464266 41.59 days
2012 861095372 7326201426 42.90 days
2013 990158001 7574895456 47.71 days

2. Work-In-Progress Conversion Period

WIPCP = Average work-in-process inventory * 365

Average cost of production per Year
Table.2

Year Average work-in- Average cost of WIPCP

process inventory production per Year
2009 59689412 763125970 28.54 days
2010 50808209 538849241 34.44 days
2011 44770107 821597701 19.88 days
2012 55356894 900593043 22.43 days
2013 63620947 1079722959 21.50 days

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 3) Finished Goods Conversion Period

FGCP = Average finished goods inventory x 365

Average cost of goods sold per year

Table.3
Average finished goods Average cost of goods
Year inventory sold per year FGCP
2009 199232515 5908940109 12.30 days
2010 158778583 6912485225 8.38 days
2011 156870895 9493072816 6.03 days
2012 143201773 9851581672 5.30 days
2013 1645177365 10702059125 5.61 days

4) Debtors collection Period

DCP = Average Trade debtors / Net sales per year x 365

Table.4
YEAR DAYS IN A YEAR DEBTORS TUROVER NO. OF
RATIO DAYS
2008-2009 365 0.11 40.15 days
2009-2010 365 0.10 36.50 days
2010-2011 365 0.07 25.55 days
2011-2012 365 0.13 47.45 days
2012-2013 365 0.09 32.85 days

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 5) Creditors Payment Period

CPP = Average trade creditors x 365

credit Sales per year

Table.5
YEAR DAYS IN A YEAR CREDITOR/PAYABLES NO. OF
TUROVER RATIO DAYS
2008-2009 365 0.21 76.65 days
2009-2010 365 0.20 73.00 days
2010-2011 365 0.07 25.55 days
2011-2012 365 0.26 94.90 days
2012-2013 365 0.27 98.55 days

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 OPERATING CYCLE

O=R+W+F+D–C
Table.6
2009 2010 2011 2012 2013
R 81.87 57.13 41.59 42.90 47.71
W 28.54 34.44 19.88 22.43 21.50
F 12.30 8.38 6.03 5.30 5.61
D 40.15 36.50 25.55 47.45 32.85
GOC 162.86 136.45 93.05 118.08 107.67
C 76.65 73.00 25.55 94.90 98.55
NOC 86.21 63.45 67.50 23.18 9.12

Fig.10 GROSS OPERATING CYCAL

GOC
GOC

162.86
136.45
118.08 107.67
93.05

2009 2010 2011 2012 2013

Interpretation:

The above calculation shows the gross operating cycle has been fluctuated year by year. It
means each process of operating cycle taken different period in different years. The GOC
is decreasing in year of 2011compares other years.

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 Fig. 11 NET OPERATING CYCLE

NOC
NOC

86.21
63.45 67.5
23.18
9.12
2009 2010 2011 2012 2013

Interpretation:

The Net operating cycle means the gross operating cycle minus creditors collection period.
The net operating cycle has been reduces greasily year by year because of increasing
credited payment periods.

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RATIOS:-

1) CURRENT RATIO

Current assets
Current ratio =
Current liabilities
Table.7
Particular 2009 2010 2011 2012 2013
CA 1915603055 1813667010 2794767590 2875240790 2835430465

CL 1698617831 1948680878 3090147023 3833177887 4105676598

C.R. 1.13 0.93 0.90 0.75 0.69

Fig.12

Current Ratio
2009 2010 2011 2012 2013

1.13
0.93 0.9
0.75 0.69

Interpretation

Current ratio indicates that the liquidities position of the company is not satisfactory in the
comparisons industry norms. The current ratio is 2:1 indicating. Here the current ratio is
decreased from 1.13 to 0.69 in 2009-13.

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 2) QUICK RATIO

Quick or liquid assets

Quick ratio =
Current liabilities

Quick assets=Current asset – stock

Liquid Liability= current liabilities- BOD

Table.8
Particular 2009 2010 2011 2012 2013
Liquid assets 912708142 1152477085 1274817769 1973169889 1974647747
Liquid liability 1422850804 1698371831 1948680878 3090147023 3833177887
Liquidity ratio 0.64 0.68 0.65 0.64 0.52

Fig.13

Liquidity Ratio
2009 2010 2011 2012 2013

0.64 0.68 0.65 0.64

0.52

Liquidity ratio

Interpretation:-
A quick ratio of 1:1 or more is considered as satisfactory or of sound liquidity position.
The calculated liquidity ratio implies that the liquidity position of company is not adequate
because non-of the years meet the standard of 1:1.

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 3) CURRENT ASSETS TO TOTAL ASSETS

Current assets
Current assets to total assets =
Total assets

Table.9
Particular 2009 2010 2011 2012 2013
Current Assets 1621611527 1915603055 1813667010 2794767590 2875240790
Total assets 39089800489 4550291552 4544233527 5837891334 7139172291
CA to total assets 0.04 0.42 0.40 0.48 0.40

Fig.14

Curren Asset to Total Asset

2009 2010 2011 2012 2013

0.48
0.42 0.4 0.4

0.04

CA to total assets

Interpretation:-

This ratio expresses the relationship between the amount of current assets and the
amount of investment in total assets. It helps to assess the importance of current assets
of a concern. The above ratio varied from 0.04 to 0.47. The highest ratio was in the
year 2011-2012and the lowest was in the year 2008-200

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 4) WORKING CAPITAL TURNOVER RATIO

Net sales
Working capital turnover ratio =
Working capita
Table.10
Particular 2009 2010 2011 2012 2013
Net sales 5908940109 6912485225 8609253400 9888099015 10749006619
Working Capital 217231224 -134941868 -295379433 -1012443712 -1270246133

WTR 27.20 -51.22 -2.91 -9.76 -8.46

Fig.15

40 27.2

20

0
-2.91
WTR -9.76 -8.46
-20

-40
-51.22
-60

2009 2010 2011 2012 2013

Interpretation:-
The current assets are changing with increase or decrease in sales. A higher ratio indicates
efficient utilization of working capital and a low ratio indicates otherwise. The working
capital turnover ratio is calculated above for the year under consideration is not up to the
mark because the current liability is more than current asset.
The working capital turnover ratio of Lumax shows a good position. In the year 2008-09
the working capital turnover ratio are satisfactory neither high nor low.

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 5) STOCK TURNOVER RATIO
Cost of goods sold
Stock turnover ratio =
Average stock

Table.11
Particular 2009 2010 2011 2012 2013
COGS 5194386222 6277714269 8371919913 9752777979 10593381498
Average stock 736014678 650987605 680223471 86109572 990158001
Inventory turnover 7.05 9.64 12.30 11.32 10.70
ratio
Inventory 51.77 37.86 29.67 32.24 34.11
conversion period

Fig.17

Inventory turnover ratio

2009 2010 2011 2012 2013
12.3 11.32
9.64 10.7
7.05

Inventory turnover ratio

Interpretation:-
The inventory turnover shows how rapidly inventory turning into receivable through
sales. Generally, a high inventory turnover is indicates of good inventory management.
The above calculation is increasing ITR of year by year in 2009-2011 and decreasing in
2012&2013
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 INVENTORY CONVERSION PERIOD
365 days
ICP = Stock turnover ratio

INVENTORY CONVERSION PERIOD

2009 2010 2011 2012 2013

51.77

37.86
32.24 34.11
29.67

Inventory conversion period

Interpretation:-
The stock turnover ratio and Inventory conversion period calculated above show that
the Inventory conversion period are reasonable good. The company able to convert
finished goods into sales with average period of month

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 8) STATEMENT SHOWING CHANGES IN WORKING
CAPITAL
I. Year 2009-2010
Table.12
Particulars 2009 2010 Increase Decrease
A)Current assets
Inventories 763125970 538849241 224276729
Sundry Debtors 624176511 780498201 156321690
Cash And Bank Balances 190028711 194067577 4038866
Other current assets 50735386 23174262 27561124
loans Advances 287536477 277077729 10458748
Total 1915603055 1813667010

B)Current Liabilities
(a) Other current liabilities 169032905 1857129341 1688096436
(b) Short-term provisions 69338926 91551537 22212611
Total Current Liabilities 1698371831 1948680878

Working Capital(A-B) 217231224 -135013868

Decrease in working capital 1812245092
Total 217231224 217231224 1972605648 1972605648

Interpretation:

The statement shows the decrease in Working Capital in the year 2009-10 by decrease in
cash & Bank balances, loans & advances and sundry debtors. Such happen due to
increasing current liabilities in campers’ current asset.

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 II. Year 2010-2011
Table.13
Particulars 2010 2011 Increase Decrease
A)Current assets
Inventories 538849241 821597701 282748460
Sundry Debtors 780498201 1318610623 538112413
Cash And Bank Balances 194067577 323755903 129688326
Other current assets 23174262 10552939 12621323
loans Advances 277077729 320250424 43172695
Total 1813667010 2794767590

B)Current Liabilities
(a) current liabilities 1857129341 2942412577 1085283236
(b) Short-term provisions 91551537 147734446 56182909
Total Current Liabilities 1948680878 3090147023
Working Capital(A-B) -135013868 -295379433
Decrease in working capital 160365574 160365574
Total -135013868 -135013868 1154087468 1154087468

Interpretation:

The statement shows the decrease in Working Capital in the year 2010-11 by increase in
current liabilities and short term provisions and also decreasing inventories & loans &
advances and by increase in current liabilities. Such happen due to increasing current
liabilities in campers’ current asset.

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 III. Year 2011-2012
Table.14
Particulars 2011 2012 Increase Decrease
A)Current assets
Inventories 821597701 900593043 78995342
Sundry Debtors 1318610623 1267437062 51173561
Cash And Bank Balances 323755903 308208213 15547690
Other current assets 10552939 62210118 51657179
loans Advances 320250424 335953404 15702980
Current investments - 838950 838950
Total 2794767590 2875240790
B)Current Liabilities
(a) current liabilities 2942412577 666452136 2275960441
( b) Provisions 147734446 93602159 54132287
(c) Trade payables - 2772615684 2772615684
(d) short term borrowings - 300507908 300507908
Total Current Liabilities 3090147023 3833177887
Working Capital(A-B) -295379433 -957937097
Decrease in working capital 662557664 662557664
Total -295379433 -295379433 3139844843 3139844843

Interpretation:
The statement shows that there is a decrease in working capital because the current as
liabilities of the company have increased that is increase in Provisions, Trade payable,
short term borrowing and also decreasing current Asset.

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 IV. Year 2012-2013
Table.15

Particulars 2012 2013 Increase Decrease

A)Current assets
Current investment 838950 814275 24675
Inventories 900593043 1079722959 179129916
Cash And Bank Balances 308208213 282530615 25677598
Other current assets 62210118 127601437 65391319
loans & Advances 335953404 246212309 89741095
Trade receivable 1267437062 1098548870 168888192
Total Current Asset 2875240790 2835430465
B)Current Liabilities
(a) Trade payables 2772615684 2881951763 109336079
(b) Other current liabilities 666452136 874830993 208378857
(c) Short-term provisions 93602159 77355611 16246548
Short –term borrowings 300507908 271538231 28969677
Total current Liabilities 3883177887 4105676598
Working Capital(A-B) -957937097 -1270246133
Decrease in working capital 312309036 312309036
Total -957937097 -957937097 602046496 602046496

Interpretation:
The statement above shows the decrease in working capital due to increase in current
liabilities that are Trade payables, other current liabilities, short term borrowings. The
Trade payables have increased so more funds are blocked in credits and Increase CL.

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 6) FINDINGS OR OBSERVATIONS
7)
During my project period, I have studied the working capital management in Lumax
Industries Ltd, chinchwad on the basis of study, my findings and observations are as
follows:-
 Estimation of working capital requirement is done on the basis of length of
operating cycle of different products.

 Net working capital is decreasing from last 4 years.

 The Current and Quick ratio are around 1.23 and 1.01 respectively
indicating that the firm’s liquidity position is not too sufficient as per the
industry standards and wouldn’t be able to meet its short liabilities
effectively.

 Working capital requirement showing a decreasing trend from last 4 years

which indicates that the requirement of working capital has been
decreased.

 Inventory turnover ratio is improving from 2009 to 2013, which means

inventory is used in better way so it is good for the company to realize
cash quickly.

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 8) SUGGESTIONS

There is a great need for effective management of working capital in any firm. There is no
precise way to determine the exact amount of gross or net working capital for any firm.

During my project work, I have studied the working capital management in Lumax
Industries Ltd Chinchwad. On the basis of my study I am putting forward some
suggestions.
Implementation of which may improve the efficiency of working capital management in
the unit.

1) It can be said that overall financial position of the company is normal but it is
required to be improved from the point of view of profitability.
2) Company should try to increase Volume based sales so as to standing the
competition.
3) Keeping in view the constraints of the company, a judicious mix of short and long
term finances should be invested in current assets. Since current assets involve cost
of funds, they should be put to productive use.
4) The data and problems of each company should be analyzed to determine the
working capital. There is no specific rule as to how current assets should be
financed. It is not feasible in practice to finance current assets by short- term
sources only.
5) The increasing current liability form year to year the prime concern for working
capital management of the company, the company shoulled improved liquidity
position to reduce the current liability.

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 9) LIMITATIONS

The study conducted and done is analytical, subject to the following

limitations:
1) The study is mainly carried out based on secondary data provided in the financial
statements.
2) This study is based on the historical data information provided in the annual
reports therefore it may not be a future indicator.
3) There may be some fractional differences in the calculated ratios.
4) Due to veracity of data the generalization of conclusion about working capital
management of Lumax Industries Ltd.

As the study was for short span of 8 weeks and due to lack of time, other areas could not
be well focused.

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 10) CONCLUSION

Any change in the working capital will have an effect on business cash flows. A
positive change in working capital indicates that the business has paid out cash, for
example in purchasing or converting, paying creditor’s etc. Hence, an increase in working
capital will have a negative effect on the business cash holding. However, a negative
change in working capital indicates lower funds to pay off short term liabilities, which
may have bad repercussions to the future to the future of the company.
The Company is focusing strict eye watch on cash management now days. The WC
is also showing a decreasing trend last four year .i.e. all current liabilities are increasing.
Increase in Other Current liabilities and trade payables and bank borrowing. However,
increase in Current Liabilities and Provisions has off sets the decrease in Current Assets.
The Current and Quick ratio are around 1.23 and 1.01 respectively indicating that the
firm’s liquidity position’s not too sufficient as per the industry standards and wouldn’t be
able to meet its short liabilities effectively.

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BIBLIOGRAPHY

 KHAN M.Y. AND P.K.JAIN, Financial Management [Sixth Edition-2011]

TATA MCGRAW-HILL, Publishing Company Limited, New Delhi.

 BHALLA V. K. Financial Management & Policy, 2nd Edition, Anmol Publication

Pvt. Ltd, New Delhi, 1998.

 BRIGHAM EUGENE F., GAPENSKI LOUIS C., EHRHARDT MICHAEL

C., Financial Management Theory and Practice. 9th Edition, Harcourt College
Publishers, Delhi, 2001.

 BAREALY RICHARD A., MYERS STEWART C., Principles of Corporate

Finance, 4th Edition Tata Mc Graw Hill, New Delhi, 1996.

 I M PANDEY, Financial Management, VIKAS Publishing House Pvt.Ltd.

WEBSITES
 www.lumaxindustries.com

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 PROFIT AND LOSS A/C
Table.16

PARTICULARS 2009 2010 2011 2012 2013

INCOME
Gross Sales 5906440109 6912485225 9546305670 10764931488 11936296472
Less: Excise Duty 675618715 570947081 883819416 913349816 1234237347
Net Sales 5230821394 6341538144 8662486254 9851581672 10702059125
Other Income 61798842 76610359 35767290 36517343 46947494
Total 5229620236 6418148503 8698253544 9888099015 10749006619
EXPENDITURE
Purchase Raw Material 93852555 65359162 37361207 30002955 19203878
Material Consumed 3281029700 4158759314 6286147354 7326201426 7574895456
Cost of sale of moulds,Tool&Dies 293422006 330787060 - - -
Personnel Exp. 543491246 590620079 671702886 791487047 970311646
Operating and Other Exp’ 716715774 739675265 1132935052 1277523682 1543362046
Decrease / (Increase) In Inventory 84988154 13701098 2190483 31255102 16398403
Depreciation 222255014 340539854 240449046 236680485 316274004
Financial Exp. 92463454 113196982 90134049 122137486 185732871
TOTAL 5328217903 6352638814 - - -
Profit/loss Before Tax 35597667 65509689 - - -
Prior Period items 837505 1685875 - - -
PROFIT BEFORE TAX 36435172 63823014 237333487 135321036 155625121
Less: Provision for taxation
For minimum alternate Tax 23012333 4938455 47000000 27000000 30000000
For Current Years 1733612 379650 - - 11863
Differed Tax 23012333 4938455 48597360 7183911 19762127
Firing Benefit Tax 4500000 - - -
Wealth Tax - - - -
PROFIT AFTER TAX 16189227 59265009 179736127 128137125 135851131

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 BALANCE SHEET
Table.17
PARTICULARS 2009 2010 2011 2012 2013
SOURCES OF FUNDS
(A)Shareholders' Funds
Share Capital 93477320 93477320 93477320 93477320 93477320
Reserves & Surplus 1311897281 1337395387 1451982751 1514594122 1600909935
Total 1405374601 1431395387 1545460071 1608071442 1694387255
(B) Non-Current
Liabilities
Long term borrowing 1293303573 1005977259 995506877 1135372102 1010181586
Deferred tax liabilities
(net) 153241547 158180003 206777363 213961274 233723401
Trade Payables - - - 36680842 -
Other Long Term
liabilities - - - 256664500 254411130
Long term Provisions - - - 55244244 72400040
Total 2851919721 2595552649 2747744311 1697922962 1570746157
(C) Current liabilities
Short term borrowings - - - 300507908 271538231
Trade payables - - - 2772615684 2881951763
Other current liabilities 1629032905 1857129341 2942412577 666452136 874830993
Short-term provisions 69338926 91551537 147734446 93602159 77355611
Total Current Liabilities 1698371831 1948680878 3090147023 3833177887 4105676598
Total (A+B+C) 5955666153 5975628914 7383351405 7139172291 7370810010

Assets
a) Fixed Assets
Tangible Assets - - - 3463213697 4007332665

Intangible - - - 51640369 48474400

Gross Block 3714859503 4103769964 4555063472 - -
Less: Accumulated
Depreciation 1509467789 1705199069 1904762794 - -
Net Block 2205391714 2398570895 2650300678 - -
Capital Work In Progress 392607639 295130463 355971067 498607348 189584675
b) Non-Current
Investments 36689144 36865159 36851999 45677204 45677204

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 c) Long term loan
and advances - - 141496415 163261163
d) Other Non-
Current Assets - - 63296468 81049438
Total 2634688497 2730566517 3043123744 4263931501 4535379545
Current Assets, Loans &
Advances (A)
Current Investment - - - 838950 814275
Inventories 763125970 538849241 821597701 900593043 1079722959
Sundry Debtors 624176511 780498201 1318610623 1267437062 1098548870
Cash and Bank balances 190028711 194067577 323755903 308208213 282530615
Other Current Assets 50735477 23174262 10552939 62210118 127601437
Loans & Advances 287536477 277077729 320250424 335953404 246212309
Total Current Assets 1915603055 1813667010 2794767590 2875240790 2835430465
Total 4550291552 4544233527 5837891334 7139172291 7370810010

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