WORKING CAPITAL MANAGEMENT

A PROJECT REPORT

Submitted by

<Your Name>

In partial fulfillment of the requirement for the award of the degree Of MBA In Finance

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CONTENTS
SL. NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Acknowledgement Preface Rationale of the study Review of literature Objective of the study Methodology About the company Certificate of the company Product Show case Clients List of project Financial structuring Conclusion Bibliography Site picture TOPIC PAGE. NO

Company Name Tag line

Acknowledgement:
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PREFACE: 3|Page

Working Capital is so much in use in common parlance and is so much misunderstood. Even among the professional managers the controversy and confusion persists. While an accountant will regard working capital as current asset minus current liabilities and call it as net working capital, a finance manager will consider gross current assets as the working capital. Both may be true but their concerns differ. The formers concern is arithmetical accuracy trained as he is to tally the two sides of the balance sheet. But the finance managers concern is to find fund for each item of current assets at such costs and risks that the evolving financial structure remains balanced between the two. Working capital, also known as net working capital or NWC, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

Working Capital = Current Assets Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

Rationale of the study:

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To effectively understand and analyze the different financial tactics of the company, this project will effectively help me to gain knowledge about the innovative ways project selection, project funding etc and how to stay well ahead of the competition.

Review of the literature:

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Working Capital - An Introduction:

Working capital management is significant in financial management due to the fact that it plays a vital role in keeping the wheel of the business running. Every business requires capital without which it cannot be promoted. Investment decision is concerned with investment in current assets and fixed assets. Working capital plays a key role in a business enterprise just as the role of heart in human body. It acts as grease to the wheels of fixed assets. Working capital represents firms total investment in current assets.

Working Capital A brief concept:

Working Capital differs from fixed capital in terms of time required to recover the investment in a given asset. FIXED CAPITAL required for establishment of business, where as WORKING CAPITAL is required to utilize There are two concepts of working capital: 1. Gross Working Capital 2. Net Working Capital

1. Gross Working Capital:

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Gross working capital emphasizes on the USE of current assets. So it means the total current assets are termed as Gross working capital.

Current Assets: 1. Cash in Hand 2. Cash at Bank 3. Marketable Securities 4. Account Receivables a. Debtors b. Bills Receivables 5. Inventory / stock 6. Prepaid Expenses 7. Advance Payment of Tax etc. So, gross working capital is also known as Quantitative or Border Approach.

Focuses of this Concept: a. Optimum investment in current assets. b. Financing of current assets.

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2. Net Working Capital: According to this concept, the excess of current assets over current liabilities represents Net Working Capital. It is the concept indicates the liquidity and also suggests the extent to which working capital needs may be financed by the permanent sources of funds.

Focuses of this Concept: a. Maintaining liquidity position b. To decide upon the extent of long term capital in financing current assets.

Representation of Net Working Capital:

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Current Assets:
1. Cash 2. Bank 3. Debtors 4. B/R 5. Stock

Total Current Assets Gross Working Capital

MINUS
Current Liabilities:
1. Creditors 2. B/P 3. Bank overdraft 4. Outstanding exp. 5. Income in adv.

Total Current Liabilities

Net Working capital

EQUALS TO

KINDS OF WORKING CAPITAL:

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WORKING CAPITAL

CONCEPT BASE

TIME BASE

GROSS WORKING CAPITAL

NET WORKING CAPITAL

REGULAR WORKING CAPITAL

VARIABLE WORKING CAPITAL

REGULAR WORKING CAPITAL :

Regular working capital which is also known as permanent working capital is the minimum investment kept in the form of inventory of raw-material , work-in-progress, finished goods, stores and spares, and book dept to facilitate unintereptued operation in a firm.

VARIABLE WORKING CAPITAL :

A firm is required to maintain an additional current asset temporarily over and above permanent working capital is known as Temporary or Variable working capital.

Distinction between Permanent & Temporary Working capital:

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i.

In case of no development or seasonal fluctuations :

Temporary working capital Wo rkin g Cap ital

Permanent Working capital

Time

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ii.

In case of development of firm with additional funds:

Temporary working capital Wor king capi tal

Permanent Working capital

Time

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Importance of Working capital:

Working capital is considered as central nervous system of a firm. The importance is reflected in the fact that financial managers spend most of their time in managing current assets and current liabilities. Adequate working capital needs to be maintained in order to discharge day to day liabilities and protect the business from adverse effects in times of calamities and emergencies.

Aspects of Working capital management:

i. ii.

Determine the total fund (current assets). To decide the structure of current assets.(proportion of long term and short term capital to finance current assets)

iii. iv.

To evolve suitable policy. Determine various sources of working capital.

Objectives of Working capital management:

a. To ensure optimum investment in current assets. b. To strike a balance between the twin objectives of liquidity and profitability in the use of funds. c. To ensure adequate flow of funds for current operations. d. To speed up the flow of funds or to minimize the stagnation of funds.

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OPERATING CYCLE:

1. For a Manufacturing company:

Debtor

Sales

Cash

Finished goods

Raw material

Work-in-progress

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2. For a Non-manufacturing Company:

Receivables

Cash

Inventory

3. For a service and financial firm:

Cash

Debtors

CASH CONVERSION CYCLE; 15 | P a g e

In simple words, Cash conversion cycle means the time taken from the sale of goods and receipt of cash from the customer /debtor. So, the amounts of time a firms resources are tied up calculate by subtracting the average payment period from the operating cycle. This will be clearly depicted by the following: Purchase of raw material on credit

Sales of goods on credit

Collection of accounts receivable

Average age of inventory

Accounts receivable period

Accounts payable period

Receipt of invoice

Payment to supplier

Operating cycle

Cash conversion cycle

Calculation of Cash conversion cycle: 16 | P a g e

CCC = OC ARP APP = AAI + ARP And, AAI = Average inventory Cost of goods sold

ARP = Average accounts receivable Annual sales/365

APP = Average accounts payable Cost of goods sold / 365

CCC = cash conversion cycle OC = operating cycle APP = average payable period AAI = average age of inventory ARP = average receivable period

Absence of Balance Working capital:

Danger when excessive working capital : Unnecessary accumulation of inventories(wastage, theft) 17 | P a g e

Defensive credit policy(bad dept, reduce profit

Working capital investment:

The size and nature of investment in current assets is a function of different factors such as type of products manufactured, the length of operating cycle, the sales level, inventory policies, unexpected demand and unanticipated delays in obtaining new inventories, credit policies and current assets. Three alternative working capital investment policies; Policy C represents conservative approach Policy A represents aggressive approach Policy B represents a moderate approach A Conservative Policy

Level of current assets

Average Policy

C Aggressive Policy

Fixed Asset Level Output

Factors Influencing WORKING CAPITAL: 1. Nature of business 2. Size of business

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3. Production cycle process 4. Production policy 5. Credit policy 6. Business cycle 7. Growth & expansion 8. Profit level 9. Level of taxes 10. Dividend & Depreciation policy 11. Price level changes 12. Operating efficiency 13. Availability of credit 14. Management attitudes 15. Government policy

WORKING CAPITAL Ratio:

Working capital ratio otherwise known as current ratio. This is most widely used ratio. It is the ratio of current assets to current liabilities. 19 | P a g e

So, Working capital ratio = Current Assets Current Liabilities Generally, 2:1 is considered as ideal for a concern, i.e. current assets should be twice of current liabilities. If the current assets are two times of the current liabilities, there will be no adverse effect on business operations when the payment of current liabilities is made, otherwise difficulty arises in the payment of current liabilities.

Objective of the study:

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The main objective of the study is to understand and analysis of the working capital of the company. Working capital is simply the difference between total current assets and total current liabilities. Total Working capital = Total Current assets Total current liabilities There is two parts of working capital. Current Assets Current Liabilities

The difference between total current assets and total current liabilities is Working capital.

Methodology:
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The data used in this report are collected from the secondary sources. For the collection of data various methods are applied like- direct interaction, mailing system, self study etc. these are the instrument used for the collection of data- laptop, telephone etc. I have learnt a lot in between these 2 months. The organizational is really suitable to learn. These two months will help me a lot to get success in my professional carrier. Why focus group interviews was the most suited tool for the investigationFocus groups have been a mainstay in private sector marketing research for the past three decades. More recently, public sector organizations are beginning to discover the potential of these procedures. Educational and nonprofit organizations have traditionally used face-to-face interviews and questionnaires to get information. Unfortunately, these popular techniques are sometimes inadequate in meeting information needs of decision makers. The focus group is unique from these other procedures; it allows for group interaction and greater insight into why certain opinions are held. Focus groups can improve the planning and design of new programs, provide means of evaluating existing programs, and produce insights for developing marketing strategies.

Characteristics:
Involve people. It must be small enough for everyone to have opportunity to share insights and yet large enough to provide diversity of perceptions. Focus groups are typically composed of 6 to 10 people, but the size can range from as few as 4 to as many as 12. Conducted in series. Multiple groups with similar participants are needed to detect patterns and trends across groups. Possess certain characteristics. Participants are reasonably homogeneous and unfamiliar with each other. Provide data. Focus groups pay attention to the perceptions of the users and consumers of solutions, products, and service. They are not intended to develop consensus, to arrive at an agreeable plan, or to make decisions about which course of action to take.

About The Company:

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Brief History:

Mission Statement:

Quality policy:

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Quality Objective:
1. To adhere to established procedures and guidelines of Quality Systems in all aspect of our business. 2. To constantly looks for improvements in process and quality management systems so as to achive a cost-effective product. 3. To do better than our competitors on quality, cost and timely delivery. 4. To work towards zero waste and rework through training and team work. 5. To make quality a way of life for each team member.

CONCLUSION: The management of WORKING CAPITAL becomes a most important factor. By managing the working capitals it has not only strengthen the business but also reached in a star position among its competitors with continuous increase in the top line and bottom line.

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BIBILOGRAPHY:

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SITE PICTURE:

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