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ANANTHA P.V.C. PIPES.
CHAPTER-1
INTRODUTION
V.S.U.PG CENTRE, KAVALI
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INTRODUCTION
Working capital is considered as central nervous system. The importance of working capital
management 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 the day- to- day liabilities and protect the business from adverse effects in times of
calamities and emergencies. It aims at protecting the purchasing power of assets and maximizes
the return on investment. In other words, the goal of working capital management is to minimize
the cost of working capital while maximizing a firms profits. Management is required to be
vigilant in maintaining appropriate levels in the various working capital accounts. The working
capital management is considered with determination of relevant levels of current assets and their
efficient use as well as the choice the financing mix The efficiency of firm to earn profits depends
largely on its ability to manage working capital. Working capital management as acquired
paramount importance in the recent past, especially in view of tight money conditions prevailing in
the economy. Working capital management policies have a crucial effect on firms liquidity and
profitability. Thus, working capital plays a crucial role in earning a reasonable rate of return.
Hence, working capital has to be effectively planned, systematically controlled and optimally
utilized.
Working capital plays a key role in a business
enterprise just as the role of heart in human body. It acts as grease to run the wheels of fixed assets.
Its effective provision can ensure the success of a business while its inefficient management can
lead not only to loss but also to the ultimate downfall of what otherwise might the considered as a
promising concern. In other words, efficiency of a business enterprise depends largely on its ability
to manage its working capital. Working capital management, therefore, is one of the important
facets of firms over all financial management.
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. There are two assets required to be
financed by fixed capital and working capital. In other words , the required capital can be divided
into two categories , such as fixed capital and working capital. Fixed capital required for
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establishment of a business, where as working capital required to utilize fixed assets. Fixed assets
cannot utilize without current assets. It is just like a blood in the human body, without which there
is no body.
MEANING AND DEFINITION OF WORKING CAPITAL

Working capital refers to short-term funds to
meet operating expenses. It refers to the funds, which a company must possess to finance its dayto- day operations are concerned with the management of the firms current assets and current
liabilities. It relates to the with the problems that arise in attempting to manage the current assets,
current liabilities and their inter- relationship that exists between them. If a firm cannot maintain a
satisfactory level of working capital, its is likely to become insolvent and may even be forced into
bankruptcy.
CONCEPTS OF WORKING CAPITAL

There is no universally accepted definition of working capital.
Broadly, there are two concepts of working capital commonly found in the existing literature of
finance such as :
Gross working capital(Quantitative concept) and

Net working capital(Qualitative concept)
Both these concepts of working capital have operational
significance. The two concepts are not to be regarded as mutually exclusive. Each has its relevance
in specific situations from the management point of view.
Each concept of working capital has its own significance the gross concept
emphasizing the use and the net concept the source an integration of both these concepts is
necessary order to understand working capital management in the context of risk, return and
uncertainty.
GROSS WORKING CAPITAL:

Gross working capital refers to firms investments in short term
securities, accounts receivables and inventories.
According to this concept, the total current assets are termed as the
gross working capital or circulating capital. Total current assets include; etc cash marketable
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securities, accounts receivables, inventory, prepaid expense, advance payment of tax; etc. This
concept also called as quantitative or broader approach.
Net working capital
Net working capital concept represents the amount of the current assets, which
would remain after all the current liabilities were paid. It may be either positive are negative. It
will be positive, if current assets exceed the current liabilities and negative, if the current liabilities
are in excess of current assets. Another alternative definition is the networking capital refers to that
portion of firms current assets, which financed with long term funds.
Net working capital concept indicates or measures the liquidity and also suggests the extent to
which working capital needs may be financed by the permanent source of funds. To quote Roy
Chowdary , net working capital indicates the liquidity of the business whilst gross working capital
denotes the quantum of working capital with which business has to operate.
KINDS OF WORKING CAPITAL:

The categorization of working capital can be made either based on its concepts or the need
maintain current assets either permanently and/or temporarily .As per conceptual view, it may be
classified into gross working capital or Net working capital , which were already explained in
details .
Gerstenberg has conveniently classified the working capital into regular or permanent working
capital and temporary or variable working capital. The variable working capital is again bifurcated
into seasonal and special working capital.
Kinds of working capital
Concept base
Gross
Networking
working
capital
capital
Time base
Permanent
working
capital
Temporary
working
capital
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Permanent working capital

Permanent working capital is the minimum investment kept in the form of inventory of raw
materials, work-in-process, finished goods, store& spares, and book debts to facilitate
uninterrupted operation in a firm. Though this investment is stable in short run, it certainly
varies in long run depending up on the expansion programmes undertaken by a firm. It
may increase or decrease over a period of time. The minimum level of current assets
maintain in a firm is usually known as permanent or regular working capital.
Temporary Working capital

A firm is required to maintain additional current assets temporarily over and above
permanent working capital required to support the changing production and sales
activities is referred to as temporary or variable working capital. In other words, an
amount over and above the permanent level of working capital is temporary, fluctuating or
variable working capital. At times, additional working capital is required to meet the
unforeseen events like floods, strikes, fire, and price hike tendencies and contingencies.
W
o
r
k
i
n
g
c
a
p
i
t
a
l
Temporary
Permanent
Time
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The above figure depicts the permanent or regular working capital that is stable over a period,
where as temporary or variable working capital is oscillating, or showing ups and down some
times working capital requirement has increased or decreased. The above figure 16.2 will hold
good to those firms, where there is no development and have seasonal or cyclic fluctuations.
But for the growing firms figure 16.3 will be suitable as follows:
Temporary or Variable
Working capital
Permanent or regular
Time
Over long a period, permanent working capital also changes with the additional
funds, required for expression programs.
Components of working capital

Efficient management of working capital involve effective control over the current assets and
current liabilities, which are the main components of working capital.
(a)
Components of Current Assets: current assets are those assets that in the ordinary
course of business can be or will be turned into cash within an accounting period (not
exceeding one year) without undergoing diminution in value and without disrupting the
operations. Total current assets consists of cash, marketable securities, inventories,
(b)
sundry debtors, one year fixed deposits with bank, and prepaid expenses.
Components of Current Liabilities: Current liabilities are those liabilities intended to
be paid in the ordinary course of business within a reasonable period (normally within a
year) out of the current assets or revenue of the business. The current liabilities consist
of sundry creditors, loans and advance, bank over-draft, short-term borrowing, taxes
and proposed dividend.
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Importance of working capital

Working capital is considered as central nervous system. The importance of working capital
management 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. It aims at protecting the purchasing power of assets and maximize the
return on investment. In other words, the goal of working capital management is to minimize the
cost of working capital while maximizing a firms profits. Management is required to be vigilant in
maintaining appropriate levels in the various working capital accounts. The working capital
management is considered with determination of relevant levels of current assets and their efficient
use as well as the choice the financing mix The efficiency of firm to earn profits depends largely
on its ability to manage working capital. Working capital management as acquired paramount
importance in the recent past, especially in view of tight money conditions prevailing in the
economy. Working capital management policies have a crucial effect on firms liquidity and
profitability. Thus, working capital plays a crucial role in earning a reasonable rate of return.
Hence, working capital has to be effectively planned, systematically controlled and optimally
utilized.
ASPECT OF WORKING CAPITAL MANAGEMENT

Management of working capital invoices the following four aspects:
(i)
Determining the total funds required to meet the current operation of the firm (i.e.,
(ii)
determination the level of current assets).

To decide the structure of current assets (i.e., the proportion of long-term and short-term capital to
finance current assets).
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(iii)
To evolve suitable policies, procedures and reporting systems for controlling the individual
(iv)
components of current assets (Mainly cash, receivables and inventory);and

To determine the various sources of working capital (short term and long-term) capital the net
concepts becomes useful. However, for determining the level and composition of working
capital it is the gross concept, which becomes more meaningful.
OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The objectives of working capital management could be stated as,
(i)
(ii)
(iii)
(iv)
To ensure option investment in current assets.

To strike a balance between the twin objectives of liquidity and profitability in the use of funds.
To ensure adequate flow of funds for current operation.
To speed up the flow of fund or to minimize the stagnation of funds.
FACTORS INFLUENCING WORKING CAPITAL

A business undertaking should plan its operation in such a way that it should have neither too
much nor too little working capital. There are no set of rules or formulae to determine the working
capital requirements of a firm. The total working capital requirement is determined by a wide
variety of factors. These factors, however, affect different firms differently. Also the relative
importance of these factors changes even in the same firm in course of time. Therefore, an analysis
of relevant factors should be made in order to determine the total investment in working capital. A
brief description of the general factors influencing the working capital needs of a firm or as
follows
NATURE OF BUSINESS:
The amount of working capital is basically related to the nature of
business. The proportion of current assets needed in some lines of business activity various from
other lines. The requirement of current assets in such concerns is usually less due to cash nature of
business and selling service. In the trading concerns, the amount of working capital required is less
than the manufacturing concern, since there is no production of goods and services involved, but in
service industry like banks the amount of working capital required is very high.
SIZE OF BUSINESS:
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Size may be measured in terms of a scale of operation. A firm having with large- scale operation
will need more working capital required than a small from having small scale operation. A small
firm may use extra current assets as a cushion against cash flows interruptions.
Bigger firms have many sources of funds, thereby it will require less amount of working capital as
compared to the smaller ones.
PRODUCTION CYCLE PROCESS:

The term production or manufacturing cycle refers to the time involved
in the manufacturing of goods. It covers the time span between the procurement of raw materials
and the completion of the manufacturing process- leading to the production of finished goods.
Longer the production cycle, the higher will be the working capital requirement and vice versa.
PRODUCTION POLICY:
Production policy means whether, it is continuous or seasonal demand for
product what kind of production policy should followed in above cases? There are two option to
such companies, either they confine their production only to periods when goods are purchased or
they follow a steady production policy throughout the year and produce goods at a level to meet
peak demand.
CREDIT POLICY OR TERMS OF PURCHASE AND SALES:

The credit policy relating to sales and purchases also affects the working
capital. If a company purchase raw materials cash and sells goods on credit, it will require larger
amount of working capital.
BUSINESS CYCLE:
The amount of working capital requirements of a firm various with every movement of
business cycle. The variations in business conditions may be into directions a
A. UPWARD PHASE:
When boom conditions prevail, in this case more working capital is required to cover the lag
between the increased sales and receipt of cash as well as to finance purchase of additional
material
B. DWONSWING PHASE:
In this case, the need for working capital will be very less,
since there is no growth in sales.
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GROWTH AND EXPANSION:

As company grows, it is logical to expect that a larger amount of
working capital in required. It is very difficult to determine the relationship between the growth
in the volume of business of a company and increase in its working capital required. Other
things being equal, growth industries require more working capital than those the static. The
critical fact, however is that the need for increased working capital funds does not follow the
growth in business activities but proceeds it.
SCARE AVAILABILITY OF RAW MATERIALS:

The availability of certain raw materials on a continuous basis without
interruption would sometimes affect the working capital requirement. There may be some
materials, which cannot be procured easily either because of either their sources are few or
they are irregular. Therefore, the firm might be compelled purchase more than required to
manage smooth production. In this case, the amount of working capital required is large. In
other case, the availability of raw materials are easy and there is no fluctuations thus the
amount of working capital required is less.
LEVEL OF TAXES:
The net profit is calculated after deduction of tax. The amount of taxes to be paid is
determined by the tax authorities. So the management has no discretion in this respect. Hence,
companies very often pay taxes in advance on the basis of the profit of the previous year.
Therefore tax is as important aspect of working capital planning. If tax liability increases, it
leads to and increase in the requirement of working capital and versa.
Dividend policy:
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Dividend has a bearing on working capital since it is appropriation profits. The

payment of dividend reduces cash resources and thereby, affects working capital to that.
Depreciation policy:
The affect of depreciation policy on working capital is indirect. More
depreciation provisions reduce the amount of required working capital.
Price level changes:
Increasing prices necessitate the use of more funds for managing an existing level of
activity. In the same level of current assets, higher cash outlays are required. The effect of
raising prices is that a higher the amount of working capital is required.
OPERATING EFFICIENCY:
The operating efficiency of the firm relates to the optimum utilization of resources
at minimum costs. Efficiency of operations accelerates the pace of cash cycle and involves the
working capital turnover.
Availability of Credit:
The need for working capital in a firm will be less if it avails liberal credit
facilities. Similarly the availability of credit from banks also influences the working capital
needs of the firm. A firm enjoying bank credit facilities can secure funds to finance its working
capital requirement very easily whenever it requires. It can therefore perform its business
activities with less working capital than a firm without such credit facility.
Other factors:
In addition to the above factors there are a number of other factors which affect the
requirement of working capital. Some of them are: close co-ordination between production and
distribution policies an absence of specialization in the distribution of products the means of
transportation and communication the hazards and contingencies inherented in a particular type
of business credit policy of RBI and so on.
The amount of working capital is also influenced by the inventory policies
depreciation policies management attitude and wages and government policies.
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NEED TO MAITAIN BALANED WORKING CAPITAL

For maximization profits or minimization of working capital cost or to maintain balance between
liquidity and profitability, there is a need to maintain a balance in working capital. It should not be
excessive or inadequate. In other words, it should manage adequate working capital to run its
business. Excessive or inadequate working capitals both are dangerous from firms point of view.
Excessive working capital means idle funds that can earn no profit but involves costs, and
inadequate working capital disturbs production and impairs the firms profitability.
THE DANGERS OF EXCESIVE WORKING CAPITAL

The dangers excessive working capitals are as follows:
1. It results in unnecessary accumulation of inventories, which leads to mishandling of
inventories, waste, theft and losses in increase.
2. It is indication of defective credit policy and slack in collection period. These lead to
higher bad debt losses that reduce profits.
3. It makes management complacent which degenerates in to managerial inefficiency.
4. Accumulation inventories tend to make speculative profits grow. This type of speculation
makes the firm to follow liberal dividend policy and difficult to cope with in future is
unable to make speculative profits.
DANGER OF INADEQUATE WORKING CAPITAL

The following are the dangers of inadequate working capital:
1. It stagnates growth. It becomes difficult for the firm to undertake profitable or the firm to
undertake profitable of the firm to understand profitable projects for non-availability of
working capital.
2. It becomes difficult to implement operating plans and achieve the firms target profit.
3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments.
4. It leads to inefficient utilization of fixed assets. Thus, firms profitability would deteriorate.
5. It renders the firm to avail attractive credit opportunities etc.
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6. Firm loses its reputation when it is not in a position to honor its short-term obligations.
Therefore, firm should maintain the right amount of working capital on a continuous basis.
SOURCES OF WORKING CAPITAL

Once the estimation or determination of the current assets is over then the next step in working
capital management is financing of the current assets.
There are three financing policies vis--vis to financing current assets. Adoption of the specific
policy is left out to the firm. The three financing policies are:
1. Short-term Financing: Generally current assets should be financed by only short-term
financial sources. Short-term finance is obtained for a period of less than one year. The
sources of short-term finance are loans from banks, public deposits, commercial papers,
factoring of receivables, bills discounting, retention of profits etc., a firm .which required
short-term finance, can go for any one of these sources, In other words, a firm that required
short term finance can raise through any one of the sources.
2. Long-term Financing: Net current assets or permanent current assets or working capital
are supposed to be financed by long-term sources of finance. Long-term finance is raised
for a period of more them five years. Long-term loans from bankers, and surpluses
(includes retained earnings).A firm that needs to finance net current assets can go for any of
these source, but it depends on companys attitude towards risk or control over the
company, companies earnings, capacity and period of loan reserved.
3. Spontaneous Financing: It refers to the automatic sources of short-term funds arising in
the normal course of a business. The source includes trade credit (suppliers) and
outstanding expenses. Spontaneous source of finance is available at no cost. A firm that
wishes to maximize owners wealth, it must and should utilize these sources to the fullest
extent. The real choice of financing current assets is between short-term and long term
sources. In other words, some extent of current assets can be financed with the use of
spontaneous source, and the requiring current assets should be financed with the
combination of long-term and short-term sources of finance.
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WORKING CAPITAL CYCLE (THE OPERATING CYCLE):

The working capital cycle refers to the length of time between the firms paying cash for
materials, etc., entering in to the production process/ stock and the inflow of cash from debtors.
Suppose a company has a 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 cost and incurs factory overheads. These three combined together will constitute workin-progress. After the production cycle is complete, work-in-progress will get converted into
sundry debtors. Sundry debtors will be realized in cash after the expiry of credit period. this cash
can again be used for financing of raw materials, work-in-progress, etc. thus there is a complete
cycle from cash to cash where in cash gets converted into raw materials, work-in-progress,
finished goods, debtors and finally into cash again. Short term funds are required to meet the
requirements of funds during this period. This time period is dependent upon the length of time
within which the original cash gets converted into cash again. This cycle is also known as
operating cycle or cash cycle.
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OPERATING CYCLE
Cash
Bills
Receivables
Or Debtors
Raw Materials
Working- in
-progress
Credit Sales
Finished goods
Working capital cycle indicates the length of time between companies paying for materials,
entering into stock and receiving the cash from sales of finished goods. It can be determined by
adding the number of days required for each stage in the cycle. For e.g., a company holds raw
materials on an average for 60 days, it gets credit from the supplier for 15 days, production process
needs 15 days, finished goods are held for 30 days and 30 days credit is extended to debtors. The
total of all these 120 days, i.e., 60-15+15+30+30 days is the total working capital cycle.
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The determination of working capital cycle helps in the forecast, control and management
of working capital. It indicates the total time lag and the relative significance of its constituting
parts. The duration of working capital cycle may vary depending on the nature of the business
The Operating Cycle consists of the following events which continues through the life of
business
conversion of cash into raw materials
conversion of raw materials into work in progress
conversion of WIP into finished stock
conversion sales
conversion of account receivable into cash
COMPONENTS OF WORKING CAPITAL MANAGEMENT:

Working Capital management involves different components such as
1. Management of cash
2. Management of Inventory
3. Management of Receivables
1.MANAGEMENT OF CASH:
Cash is the important current asset for the operation of the business. Cash is the basic input
needed to keep the business running on continuous basis; it is also the ultimate output expected to
be realized by selling the services of product manufactures by the firm. The firm should keep
sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing
operations while excessive cash will simply remain idle, with out contributing anything towards
the firms profitability. Thus, major functions of the financial manager to maintain a sound cash
position.
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Cash is the money, which a firm can disburse immediately with out any restriction. The
term cash includes coins, currency and cheques held by the firm, and balance in its bank accounts.
Some times near cash items, such as marketable securities or bank times deposits, are also includes
in cash. The basic characteristic of near cash assets is that they can readily be converted to cash.
Generally when a firm has excess of near cash, it invests it in marketable securities. This kind of
investment contributes some profit to the firm.
a. FACETS OF CASH MANAGEMENT :

Cash management is concerned with the managing of
1) Cash flows into and out of the firm
2) Cash flows with in the firm and
3) Cash balance held by the firm a points of time by financing deficit or
investing surplus cash. It can be represented by a cash management cycle as showing fig1.sales
generates cash, which has to be disbursed out. The surplus cash has to be invested while deficit has
to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same
time, it also seeks to achieve liquidity and control.
Cash management assumes more importance than other current assets because it is the most
significant and the least productive asset that a firm holds. It is a significant because it is used to
pay the firms obligations. However, cash is unproductive. Unlike fixed assets or inventories, it
does not produce goods for sales. Therefore, the aim of cash management is to maintain adequate
control over cash position to keep the firm sufficiently liquid and to be use excess cash in some
profitable way.
b. CASH PLANNING:
Cash inflows and outflows should be planned to project cash surplus or deficit for each
period of the planning period. Cash budget should be prepared for this purpose.
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C. MANAGING THE CASH FLOWS:

The flow of cash should be properly managed. The cash should be accelerated while, as far
as possible, the cash outflows should be decelerated.
d. OPTIMUM CASH LEVEL :

The firm should decide about the appropriate level of cash balances. The cost of excess
cash and danger of deficiency should be matched to determine the optimum level of cash balances.
e. INVESTING SURPLUS CASH:

The surplus balance should be properly invested to earn profits. The firm should decide
about the division of cash balances between alternative short-term investment opportunities such
as bank deposits, marketable securities, or inter corporation lending.
The ideal cash management system will depends on the firms products, organization
structure, competition, culture and option available. The task is complex, and decisions taken can
affect important areas of the firm. For example, to improve collection if the credit period is
reduced, it may affect sales. However, in certain cases, even without fundamental changes, it
possible to significantly reduce cost of cash management system by choosing a right bank and
controlling the collections properly.
f. MOTIVES FOR HOLDING CASH:

The firms needs for cash may be attributed to the following needs
i.
Transaction motive
ii.
Precautionary motive
iii.
Speculation motive
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iv.
Translation motive
i .TRANSACTION MOTIVE :
The transaction motive requires a firm to hold cash to conduct its business in the ordinary
cost. The firm needs cash primarily to make payments for purchases, wages and salaries, other
operating expenses, taxes, dividends etc. the need to hold cash would not arise if there were perfect
synchronization between cash receipts and cash payments, i.e., enough cash is received when the
payment has to be made. But cash receipts and payments are not perfectly synchronized. For those
periods, when cash payments exceed cash receipts, the firm should maintain some cash balance to
be able to make required payments. For transaction purpose, a firm may invest its cash in
marketable securities; usually the firm will purchase securities whose maturity corresponds with
some anticipated payments. Such as dividends, or taxes in the future. Notice that the transactions
motive mainly refers to holding cash to met anticipated payments whose timing is not perfectly
matched with receipts.
ii. PRECAUTIONARY MOTIVE :

A firm also keeps cash balances to meet unexpected cash needs arising out of unexpected
contingencies such as floods, strikes, presentment of bills for payment earlier than expected date,
sharp increase in raw materials price etc,. The more is the possibility of such contingencies, the
more is the amount of cash kept by the firm for meeting them.
iii. SPECULATIVE MOTIVE :

A firm also keeps cash balance to take advantage of unexpected opportunities typically
outside the normal course of business, such motive is therefore a purely speculative for example a
firm may like to take advantage of an opportunity to purchase raw material at reduced prices in
anticipation of decline prices, similarly, it may like to keep some c ash balance to make profit by
buying securities at ties when their prices fall due to tight money conditions etc,.
j. CASH PLANNING:
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Cash planning is a technique to plan and control the use of cash. It protects the financial condition
of the firm by developing a projected cash statement from a forecast of expected cash inflows and
outflows for a given period. The forecast may be used on the present operations or anticipated
future operations. Cash plans are very crucial in developing the overall operating plans of the firm.
k. CASH FORECASTING AND BUDGETING:

Cash budget is the most significant device to plan for and control cash receipts and
payments. A cash budget is a summary of the firms expected cash inflows over a projected period.
It gives information on the timing and magnitude of expected cash flows and cash balances over
the projected period. This information helps the financial manager to determine the future cash
needs of the firm, plan for the financing of these needs and exercise control over the cash and
liquidity of the firm.
The time horizon of a cash budget may differ from firm to firm. A firm whose business is
affected by seasonal variations may prepare monthly cash budgets. Daily or weekly budgets should
be prepared for determine cash requirements if cash flows extreme fluctuations. Cash budgets for a
longer interval may be prepared if cash flows are relatively stable.
2. MANAGEMENT OF INVENTORY:
The preceding two chapters basic strategies and consideration in managing current assets
namely, cash and receivables are stocks of product a company is manufacturing for sale and
components that make up a product. Inventories like receivables are also a significant portion of
most firms assets and accordingly require substantial investment. To keep these investments from
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becoming unnecessarily large, inventories must be managed efficiently. The various forms in
which inventories exist in a manufacturing company are
a)
RAW MATERIALS : Raw materials are those basic inputs that are converted
into finished products through the manufacturing process. Raw material inventories are those
units, which have been purchased and stored for future productions.
b) WORK-IN-PROGRESS : The work-in-progress is that stage of stock, which is in between raw

materials and finished goods. They are semi-finished products that need more work before
they become finished products for sale. The quantum of WIP depends on the time taken in
the manufacturing process. The greater the time taken in manufacturing, the more will be the
amount of work-in-progress.
c) FINISHED
GOODS :
Finished goods inventories are those completely manufactured products,
which are ready for sale. Stocks of raw material and work-in-process facilitate production
while stock of finished goods is required for smooth marketing operations.
The level of three kinds of inventories for a firm depends on the nature of its business. A
manufacturing firm will have substantially high level of all three kinds of inventories.
A fourth kind of inventory Firm also maintains suppliers. Suppliers include office and
plant cleaning material oil, fuel, light bulbs etc. these materials do not directly enter into
production, but are necessary for production process, usually these supplies are small part of
inventory and do not involve significant investment. Therefore a sophisticated system of inventory
control may not be maintained for them.
2 (a) NEED FOR HOLDING
INVENTORY :
There are generally three major motives for holding inventories.

There transactions motive which emphasis the need to maintain inventories to
facilitate smooth production and sale operations.
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The precautionary motive, which necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
The speculative motive which includes the decision to increase or reduce inventory levels
to take advantage of price fluctuations.
A company should maintain adequate stock of material, as it is not possible for a company
to procure raw material whenever it is needed and also for a continuous and smooth and
uninterrupted production process.
2(b) INVENTORY
MANAGEMENT TECHNIQUES :
In managing inventories the firm should determine the optimum level of inventory.
Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in
unbalanced inventory and inflexibility, the firm may be sometimes out of stock and sometimes
may pile up unnecessary stocks. This increases the level of investment and makes the firm
unprofitable.
To manage inventories efficiently and effectively answers should to the following two
questions? How much should be ordered? When should it be ordered?
The first question, how much to order, related in the problem of determining economic order
quantity (EOQ) and is answered with an analysis of costs of maintaining certain level of
inventories. The second question when to order arises because of uncertainty and is a problem of
determining the re-order point.
3. MANAGEMENT OF RECIEVABLES:
Accounts receivable or trade credit is the most prominent force of the modern business. It
is considered as an essential marketable tool, acting as a bridge for the movement of goods through
production and distribution stages to customers finally. A firm grants credit to protect its sales from
the competitor and to attract potential customers. Trade credit, thus credit receivable or book debts,
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which the firm is expected to, collect in future. It also involved an element of risk as the cash
payment has get to be received, hence they has to be carefully analyzed.
Receivables constitute a substantial portion of current assets of several firms. They form
about 1/3 part of current assets in India. As substantial amounts are tied up in trade debtors, it
needs careful analysis and proper management, for proper management of receivable a concern
must adopt an optimum credit policy.
CHAPTER -II
INDUSTRY
AND
Page 23
COMPANY PROFILE
Page 24
INDUSTRY PROFILE
INTRODUCTION :
Plastic have become synonymous with modern living. It is undoubtedly a product, which
has penetrated extensively into the common mans life. No wonder the industry has achieved in
terms of supply of raw material expansion and diversification of processing capabilities and
manufacturing of processing machinery and equipment.
This versatile material with its superior qualities such as light weight, easy process ability
corrosion resistance, energy conservation, no toxicity etc. many substitute to a large extent many
conventional and costly industrial materials like wood, metal, glass, jute, lather etc., in the future.
The manifold applications of plastics in the field of automobiles, electronics, electrical, packaging
and agriculture give enough evidence of the immense utility of plastics.
At 80 percent of total requirement for raw material and almost all types of plastic machines
required for the industry are indigenously available. The present investment in all the three
segments of the industry namely production of raw materials, expansion and diversification of
processing capacities, manufacturing of processing machinery and ancillary equipment is Rs.1250
crores and it provides employment to more than eight lakh people.
On account of their inherent advantage in properties and versatility in adoption and use,
plastics have come to play a vital role in a variety of applications, the world over. In our country,
plastics are used in making essential consumer goods of daily use for common man such as
baskets, shopping bags, water bags, water bottles, school bags, tiffen boxes, hair combs, tooth
brushes, spectacle frames and fountain pens, they also find applications in field like packaging,
automobiles, and transportation, engineering, electronics, telecommunications, defense, medicine,
Page 25
and building and construction. Plastics are growing in importance in agriculture and water
management.
The Govt. of India recognizing the importance of plastics in agriculture appointed on
march 7th, 1981 a National Committee on the use of plastics in agriculture under the chairmanship
of Dr.G.V.K.Rao. This committee has forecast a tremendous growth of drip irrigation through a net
work of plastic pipes and tubes. In its opinion large scale adoption of irrigation would lead to
sports in demand for PVC pipes, L.D.P.E tubes and polypropylene emitters. The committee made a
number of recommendations for promoting the use of plastics. The implementation of
recommendations would go along away in increasing the consumption of plastics, which at present
is very low. The rigid pipes, flexible pipes and sheeting, which are being used for agricultural
operations to carry out water place to place and also lining of ponds and reservoirs to reduce
seepage and most important in drip irrigation system.
EXPORT OF PLASTICS
GOODS :
Plastics have excellent potentialities. Our country is equipped with all kind of processing
machinery and skilled labor and undoable, and extra to boost export, finished plastics products will
yield rich divided.
Today India exports plastic products to as many as 80 countries all over the world. The
exports, which were stagnant at around rest 60-70 cores per annum double to 129 craters. The
Plastic industry has taken up the challenge of achieving an export target of Rs.17 cores.
Major export markets for plastic products and linoleum are Australia, Bangladesh, Canada,
Egypt, Hong Kong, Italy, Kuwait, Federal Republic of Germany, Sri Lanka, Sweden, Taiwan,
U.K., U.S.A., and Russia.
Page 26
With view to boosting the export, the plastics and linoleums export promotion council has
urged the government to reduce import duty of plastic raw material, supply indigenous raw
materials at international prices, fix duty, draw backs on weighted average basis and charge freight
rate on plastic products on weights basis instead of volume basis.
PROSPECTS :
The Production of various plastics a raw materials in the country is expected to double by
the end of seventh plan, the consumption of commodity plastics including LDPE, HDPE, PP, PS
AND PVC is immense scope for the use of plastics in agriculture, electronics, automobile,
telecommunications and irrigation and thus, the plastic industry is on the threshold of an explosive
growth.
ROLE OF PLASTICS
IN THE NATIONAL ECONOMY :
Plastics are got perceived as just simple colorful household products in the mind so
common person. A dominant part of the plastics of the percent and future find their utilization in
the areas.
Agriculture, forestry and water-management.
Automobile and transportation
Electronics and telecommunications, buildings, construction and.
Food processing and packaging
Power and gas distributor.
Page 27
IMPORTANCE OF PIPES INDUSTRY

We shall look at the basic data about plastics and particularly those properties, which are
so, fuse in practical working with plastics. Plastics are man-made materials. The oldest raw
material for producing plastics is carbonaceous material obtained from coal tar (benzene, phenol).
Today the majority of raw materials are obtained from petrol chemical source and they can
be economically produced in large quantities.
Plastics have changed our world and day-by-day they are becoming important. They own
their success to whole series of advantage, which they have over conventional materials such as:
Lightweight
Excellent mould ability
Attractive colors
Low energy requirements for convention
Low labor and cost of manufacture
Low maintenance & High strength weight ratio
ECONOMIC
ROLE:
Agriculture is the chief occupation in India. For the developing countries like India
modernization of the agriculture practices assumes pivotal places in improving the economic status
and the process of modernization. Includes usage of higher productive plastics supplement to
greater extent manufacturing of tools required for new agricultural practices.
The usage of poly vinyl chloride pipes in agricultural fields, lesser water seepage, which
was predominant in earlier practices, with services of P.V.C pipes, water can be transported
efficiently with lesser from the place of higher potential to the place of lower water potential.
Page 28
Presently the revolutionary tried in water management speaks much about drip irrigation,
which is developed in Israel and is practiced by all agricultural based nations in the world. Drip
irrigation greatly P.V.C pipes as core tools of implementation with the services of this sort, P.V.C
pipes one way or the other strengthening the hands of countrys economy.
A part with the referred P.V.C pipes supplemented with fitting is used in houses for
electrical connection and other domestic purposes. Apart from these two applications it has got
wide applications even in industrial sectors. P.V.C pipes with much unique heart, chemical and
physical characteristics serve many industrial purposes.
Even characteristics of weight and low price attract many more applications. Rigid PVC
pipes have been manufactured in India from the 60s on imported extrusion lines and there after
indigenous plan were few pipes manufactures upto 1979-83. When many extrusion lines were
imported from batten field, Cincinnati, kraaus-maffi etc. the Govt. allowed the imports of
sophisticated and high output plants, which were not available indigenously.
PVC PIPES
IN INDIA :
Pipes products have found wide acceptance in India and abroad. PVC is one of the more
versatile plastics. It can be extruded, moulded, calendared and thermoformed into a multitude of
furnished products. The PVC resin can be formulated to give a wide range of properties ranging
from hand, tough materials for load bearing application lime pipes, windows and doors to flexible
materials for products a due as wire and cable insulation and shooting and flooring.
PVC products cater to both interiors and exteriors. In interiors it can be used for flooring,
profile and cable tray, wall covering modular office systems, houses and furniture. For exteriors it
is used for doors and windows, fencing partitions and paneling, roofing and rain systems.
Page 29
The other external applications are in the field of irrigation, portable water supplies. In
the field of irrigation there are several methods to irrigate the fields. There are minor irrigation
projects and major irrigation projects apart from individual sources like wells, tube wells, bore
wells. Major irrigation sector small projects will have canals and lift irrigation schemes etc., will
have canals and lift irrigation schemes etc., will have pipelines. Cement and GI pipes were the
pipes used in conventional methods of irrigation. Now-a-days PVC pipes replaced the
conventional pipes and they constituted almost 90% in this respect.
Drip irrigation popular in the agricultural sector especially in the field of horticulture
commercial cropping and green ply houses. The drip irrigation concept is becoming more popular
with its advantages like highly yield, water conversion, less labour cost, less fertilizer, less past
management costs, less power costs and many more advantages. The demand for this concept is
increasing at a place of 30%-40% per annum.
Agriculture a sunrise industry in the Indian economy is mainly dependent on the PVC pipes
for the seawater sector and pumping to their aqua ponds. They are using pipelines of four to five
kilometers of 10-16 diameters pipes.
The state Govt. of A.P is using rigid PVC pipes for the irrigation water supplies for the past
few years. The state Govt. is producing PVC pipes through APSIDC (Andhra Pradesh State
Irrigation Development Corporation) for its lift irrigation schemes. The panchayatraj department is
producing pipes for public water supply schemes. These pipes can be used for the main
distributors, sub-distributors and individual connections.
Page 30
COMPANY PROFILE
INTRODUCTION :
A dynamic entrepreneur Sri S.P.Y.Reddy was established a black pipes manufacturing
company in 1977 and the name of the company is Nandi Pipes Pvt Ltd at Nandyal, Kurnool
district. Anantha PVC Pipes Pvt Ltd was incorporated in the year 2002. The factory is situated at
NH-7, Hampapuram village, Raptadu mandal, and Anantapur district and it was taken over by
Nandi Group Company. The company is managed by team of professionals under the guidance of
young, experienced, and well qualified dynamic managing director Mr.S.Sreedhar Reddy.
ORIGIN:
Rayalaseema is economically backward area in Andhra Pradesh, was rare field region for
industries. A dynamic entrepreneur sir S.P.Y.Reddy who is basically mechanical engineer started a
unit at Nandyal, which manufactures black pipes in 1977. The determination and hard work of Sri
S.P.Y.Reddy helped him to overcome the problems faced by the company in the initial years, and
with financial assistance from local commercial banks. The company could overcome the
problems of the merger and now it is running smoothly.
Later the company started manufacturing of PVC pipes which terminated the
manufacturing of black pipes. This resulted in the formation of a Pvt. Ltd. company called
SUJALA PIPES PVT.LTD. with Sri S.P.Y.Reddy as the Managing Director.
The only major competitors to the company are Sudhakar pipes, Maharaja Pipes. The only
backdrop to it is the competition from local brands. As the majority of the customers belong to
Page 31
farmers, they consider the quality. The company has to make aware of the companys quality
standards to them.
BOARD OF DIRECTORS :
S.P.Y.Reddy:
Sri S.P.Y.Reddy locally well known industrialist with the base at nandyal, Kurnool district
who has been successful entrepreneur, he is technically qualified person with B.E (MEC) from
R.E.C (Warangal) and with work experience at BAARC (Bombay). He has daringly ventured and
established industries in and around nandyal from 70s. As years went of he has established most
successfully the following nandi group of companies:
Nandi Milk
Maha Nandi Mineral Water
Nandi Infosys
Nandi Online Services
Anantha PVC Pipes Pvt Ltd.
Integrated Thermos Plastic Ltd.
Nandi PVC Projects.
PROMOTER:
Sri.S.Sreedhar Reddy, a computer engineer and a student of IIM, Ahemadabad has been
entrusted the management of Anantha PVC Pipes Pvt Ltd., Hampapuram and great assistance and
a great upcoming engineer and industrialist.
BRANCHES:
Pondicherry
Page 32
Bellary
Sangli
Vellore
Goa
Kerala
COVERAGE:
At present Andhra Pradesh, parts of southern states of Karnataka, Tamilnadu and Kerala are
ambit of Sujala Pipes Pvt Ltd.
The company extended their sales in the below regions are shown below:
1979
Nandyal Region(polypone pipes)
1984.85
Rayalaseema Region (PVC pipes)
1985.86
Telangana Region
1986.87
Karnataka and Andhra Pradesh
1988.91
Tamilnadu and Karnataka
1991.94
Kerala
SIZES :
Various sizes ranging from to 10 are offered to customers. Even pipes with different
gauges and sizes are manufactured to suit specified conditions.
PACKING:
Packing plays less important role into the products like PVC pipes because the hallow
space inside can be utilized. For the purpose of cubic space utilization in trucks while transport,
organization is adopting the technique like pipes in pipes.
Page 33
PAYMENT PERIOD:
For monarch brand the company adopts zero credit policy and goods are not delivered
unless cash remittances are made. For monarch and sagar brands credit is entitled up to a week.
The difference between these brands is due to brand image.
TECHNICAL DETAILS ABOUT PVC PIPES:

INGREDIEN TS
PVC resin
D.B.L.S
T.B.L.S
L.S
C.S
Stearic Acid
Hydro Carbon
Calcium Carbonate
MANUFACTURING
PROCESS :
The main raw materials are HDPE granules and PP granules. The manufacturing process
for pipes consists of mixing various reasons along with the coloring materials in a mixture and the
prepared material is fed to the extruder. In the extruder, the material is heated to the required
politicizing temperature (190deg. centigrade to 230deg. centigrade) the extruder through the die
hard to form the pipe. The hot pipe coming out of the extruder is cooled in a water bath to retain
the final shape.
The pipe coming out of the extruder is guided through the water bath suitable
transaction system. The temperature of the water is maintained by circulating through the cooling
towards and with the help of a chilling plant.
Page 34
The required length of the pipe is cut with a planetary saw. The cut lengths are titled by
titling units and get corrected in the pipe rack attached to the titling frames. Later they are stocked
separately. The company has entered into a technical with its own processing technology.
CHANNELS
OF DISTRIBUTION :
Anantha PVC Pipes Pvt Ltd. has got zero level and single level channel of distribution.
MANUFACTURER
MANUFACTURER
CONSUMER
DEALER
CONSUMER
Anantha PVC Pipes Pvt Ltd. has an extensive network of 350 dealers in Andhra Pradesh
and who are directly serviced by company sales force and 620 dealers in South India.
TRANSPORTATION :
Transportation vehicles of Anantha PVC Pipes Pvt Ltd. outnumber the fleet of the
competitors vehicle. This unique strength of the organization enables the delivery system to be
efficient. This event helps the dealers to reduce inventory levels to the minimum. The dealers are
also supplemented with the benefit of the lower paid up capital in the form of inventory.
MISSION STATEMENT :
Page 35
The mission statement of Anantha PVC Pipes Pvt Ltd. is as follows:
To be preferred supply chain partner to out customer.
To be recognised as the best in the world at we do.
To create new values in the quality for our customers and employees.
VISION STATEMENT :
The vision statement of Anantha PVC Pipes Pvt. Ltd. is as follows:
Creating new values in quality by working together for you
FUNCTIONAL DEPARTMENTS OF THE COMPANY:

FINANCIAL
DEPARTMENT :
Through initially the company approached the external source for financial aid, now the
financial status of the company is very sound and is being run only with self finance excepting for
loans taken for hypothecation of machinery and stock from SBI Nandyal.
The company follows cash and carry policy for monarch brand. The product is not
delivered until the cash is paid and financial department with the help of marketing department
looks after these transactions.
MARKETING DEPARTMENT :
Page 36
Marketing Department is headed by the Executive Director. Marketing Manager is in

charge of all operations who reports to the Executive Director. Marketing Manager and 35 Sales
Representatives are under the control of Executive Director. There are also 20 salesmen who have
to report to the sales representatives above them.
PERSONAL DEPARTMENT :
The Personal department consists the details of the executives and workers of the
organization. The organization is formed with Sri.S.P.Y.Reddy as the managing Director. Two
Marketing managers, financial managers, public relations officer and quality control officer who
all reports to executive director. Other than executives there are thousands workers in the
organization.
Panel consisting of managing director, executive director and managers of
concerned departments makes the recruitment and selections of persons. Apart from the attractive
salaries company provides health card facilities.
PURCHASING
DEPARTMENT :
The perplexing situation i.e. conformed by the manufactures of the PVC pipes is scarcity of
resin. Though the government of India has taken various steps to improve the supply conditions of
PVC resin, the Indian manufactures could meet only 50 percent of demand and remaining 50
percent is met from imports. The major petrochemical company is Reliance Petrochemical Ltd.
The lead time for the acquisition of raw materials is 4 days.
The following lines highlight the human resources policies and practices:
Effective utilization of manpower.
To provide good working condition.
To promote industrial development.
APPLICATION
OF PVC PIPES :
Page 37
Agriculture and irrigation schemes.
Rural and urban water supplies scheme.
Tube well casing.
Gas and oil supply lines.
Industrial effluent disposal.
Sewerage and drainage scheme.
Air-condition ducting.
Building installations.
Industrial ducting.
CHAPTER -III
Page 38
RESEARCH
METHODOLOGY
Page 39
DESIGN OF THE STUDY

STATEMENT OF THE PROBLEM:
Working capital is an important aspect of financial management. It plays an essential role
in organizations financial success. The nature of such working capital is very liquid. Valuation of
working capital elements like cash, debtors, stock and creditors itself is a difficult task for any
organization. So there arises a requirement for assessing working capital requirements, monitoring
and managing it, from time to time for greater efficiencies.
OBJECTIVES OF THE STUDY:
To study the statement of changes in working capital.
To know inventory turnover of Anantha PVC Pipes.
To know debtors turnover of Anantha PVC Pipes.
To examine and evaluate the cash, receivables and inventory management performances.
NEED FOR THE STUDY:

The pipes production serves as the index of the economic development of any country.
Thus PVC Pipes production is very vital from countrys agricultures point of view. The demand
would be growing with increasing technologies and is likely to reach a staggering level in the
decades to come.
A number of industries for the past few years have been finding it difficult to solve
the increasing problems of adopting seriously the management of working capital. Business
concerns intent on developing their business have to use to the utmost, their available resources for
the improvement and development of the business, there by enabling them profits.
Due to inflationary situation and restrictions imposed on borrowing facility, the commercial
institutions and manufacturing industrial units have been confronting innumerable difficulties in
Page 40
meeting day-to-day financial needs. Hence effective management of working capital has become a
problem for such organizations and industries. The purpose of study is to examine, analyze and
evaluate working capital management and its components in ANANTHA PVC PIPES PVT LTD.
SCOPE AND PERIOD OF THE STUDY:

The study management of working capital i.e. gross and net are used in measuring
liquidity, inventories, Receivable and also to arrive at various objectives of the study.
Secondly, the study is based on the annual reports of the company for a period of five
years from 2008-09 to 2011-12 ( 2008, 2009, 2010, 2011, 2012).
Sources of data
Page 41
Primary data:
The valuable information was collected by interaction with the finance manager and other
executives of the department during data collection and analysis.
Secondary data:
The secondary data is collected from the balance sheet, annual, reports, company profiles, and
internet.
The company information regarding to the theoretical aspects were collected by referring
standard text books and company profiles.
LIMITATIONS:
As most of the financial information was considered confidential, the access to the
information was restricted.
The results of the study are limited to the available information.
Page 42
CHAPTER IV
WORKING CAPITAL MANAGEMENT
IN
Anantha PVC PVT. LTD.
AT
ANANTAPUR
Page 43
COMPONENTS
Particulars
A) Current Assets
Inventory
Sundry Debtors
Cash & Bank
Other Current Assets
Total Current Assets(1)
OF WORKING CAPITAL DURING THE PERIOD
2007-08
2008-09
2007-08 TO 2011-12
2009-10
2010-11
2011-12
2,77,88,120
92,48,773
2,23,06,584
79,54,977
1,78,23,396
2,10,20,651.10 3,26,57,425.39 2,83,80,062.46 6,24,34,864.64 5,35,87,898.08
1,26,80,162.10
4,12,017.87
4,89,987.94
10,30,357.33
12,75,758.21
66,17,386.77 1,97,21,730.74
85,29,097
96,83,354
1,20,68,081
6,81,06,320
6,20,39,947
5 8,11,03,552.97
,97,05,731.40
84755137.4
B) Current Liabilities
Sundry Creditors
3,54,94,571.72
1,58,05,553
88,76,129.86 1,01,04,429.37
90,20,956.63
Total Current Liabilities(2)
3,54,94,571.72
1,58,05,553
88,76,129.86 1,01,04,429.37
90,20,956.63
Net Working Capital(1-2)
3,26,11,748.28
4,62,34,394 5,08,29,601.53 7,09,99,123.60 7,57,34,176.66
ANALYSIS :
From the above table it is clear that the net working capital has been increasing during the
above years of study period. In the year 2007-08 it is Rs.3,26,11,748.28 and it has increased to
Rs.7,57,34,176.66 in the year 2011-12.
Page 44
STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL FOR THE YEAR

2007-08 AND 2008-09.
Particulars
A) Current Assets
Inventory
Sundry Debtors
Cash & Bank
31/3/07
31/3/08
2,77,88,120
2,10,20,651.10
1,26,80,162.10
66,17,386.77
92,48,773
3,26,57,425.39
4,12,017.87
1,97,21,730.74
6,81,06,320
6,20,39,947
Sundry Creditors
3,54,94,571.72
1,58,05,553
3,54,94,571.72
1,58,05,553
Working Capital(1-2)
Increase in Working Capital
3,26,11,748.28
1,36,22,645.72
4,62,34,394
---------
4,62,34,394
4,62,34,394
Gross Working Capital(1)
Increase
------1,16,36,774.26
-------1,31,04,343.97
Decrease
1,85,39,347
------1,22,68,144.23
---------
Total
1,96,89,018.72
------------4,44,30,136.95
---------
1,36,22,645.72
4,44,30,136.95
ANALYSIS :
The above table shows that there is net increase in the working capital of Rs.1,36,22,645.72
during the year 2007-08 with compared to the year 2008-09. This is because of significant increase
in sundry debtors, other current assets but there is a downfall in the inventory, cash and bank
balances. On the other hand current liabilities are decreased. The net effect of the above changes
has brought an increase in net working capital.
Page 45
STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL FOR THE YEAR

2008-09 AND 2009-10
Particulars
A) Current Assets
Inventory
Sundry Debtors
Cash & Bank
31/3/08
31/3/09
92,48,773
3,26,57,425.39
4,12,017.87
1,97,21,730.74
2,23,06,584
2,83,80,062.46
4,89,987.94
85,29,097
6,20,39,947
5,97,05,731.40
Sundry Creditors
1,58,05,553
88,76,129.86
1,58,05,553
88,76,129.86
4,62,34,394
45,95,207.53
5,08,29,601.53
-------------
5,08,29,601.53
5,08,29,601.53
Total
Increase
1,30,57,811
---------77,970.07
----------
Decrease
---------42,77,362.93
----------1,11,92,633.74
69,29,423.14
-----------
-------------
45,95,207.53
2,00,65,204.21
2,00,65,204.21
ANALYSIS :
The above table shows that there is net increase in the working capital of Rs.45,95,207.53
in inventory, cash and bank balances. But there is a downfall in the sundry debtors and other
current assets On the other hand current liabilities are decreased. The net effect of the above
changes has brought an increase in net working capital.
Page 46
STATEMENT
WORKING CAPITAL
2009-10 AND 2010-11
SHOWING THE CHANGES IN
FOR THE YEAR
Particulars
A) Current Assets
Inventory
Sundry Debtors
Cash & Bank
31/3/09
31/3/10
2,23,06,584
2,83,80,062.46
4,89,987.94
85,29,097
79,54,977
6,24,34,864.64
10,30,357.33
96,83,354
5,97,05,731.40
8,11,03,552.97
Sundry Creditors
88,76,129.86
1,01,04,429.37
88,76,129.86
1,01,04,429.37
5,08,29,601.53
2,01,69,522.07
7,09,99,123.60
------------
Total
7,09,99,123.60
7,09,99,123.60
Increase
----------3,40,54,802.18
5,40,369.39
11,54,257
---------
----------3,57,49,428.57
Decrease
1,43,51,607
-----------------------------
12,28,299.51
2,01,69,522.07
3,57,49,428.57
ANALYSIS :
The above table shows that there is net increase in the working capital of Rs.2,01,69,522.07
in sundry debtors, other current assets, cash and bank balances. But there is a downfall in the
inventory. On the other hand current liabilities are increased. The net effect of the above changes
has brought an increase in net working capital.
Page 47
STATEMENT
WORKING CAPITAL
2010-11 AND 2011-12
SHOWING THE CHANGES IN
Particulars
A) Current Assets
Inventory
Sundry Debtors
Cash & Bank
31/3/10
31/3/11
79,54,977
6,24,34,864.64
10,30,357.33
96,83,354
8,11,03,552.97
Sundry Creditors
FOR THE YEAR
Increase
Decrease
1,78,23,396
5,35,87,898.08
12,75,758.21
1,20,68,081
98,68,419
----------2,45,400.88
23,84,727
---------88,46,966.56
-------------------
1,01,04,429.37
90,20,956.63
10,83,472.74
-----------
1,01,04,429.37
90,20,956.63
7,09,99,123.60
47,35,053.06
7,57,34,176.66
-----------
-------------
47,35,053.06
Total
7,57,34,176.66
7,57,34,176.66
1,35,82,019.62
1,35,82,019.62
ANALYSIS :
The above table shows that there is net increase in the working capital of Rs.47,35,053.06
in inventory, other current assets, cash and bank balances. But there is a downfall in the sundry
debtors. On the other hand current liabilities are decreased. The net effect of the above changes has
brought an increase in net working capital.
Page 48
RATIO ANALYSIS:
1. LIQUIDITY
RATIOS :
These ratios measure the firms ability to meet its current obligations as and when they
become due. Liquidity is a prerequisite for the survival of a firm. A firm should ensure that it
does not suffer from lack of liquidity. The failure of the company to use its obligations put in a
dangerous situation on the other named idle assets earns nothing. Therefore a proper balance
between the two contradictory requirements i.e., liquidity and profitability is required for
efficient financial management. The liquidity ratios measure the ability of a firm to meet its short
term obligations and reflect the short-term financial strength/solvency of a firm.
The ratios, which indicate liquidity of a firm, are
a) CURRENT
RATIO :
Current ratio is calculated by dividing total current assets to total liabilities. This ratio is
also known as working capital ratio.
Current assets
Current ratio =
Current Liabilities
Current assets include cash and those assets in marketable securities, debtors, stock,
prepaid expenses, which can be converted in to cash with in a year. Current liabilities defined
as liabilities, which are short term maturing obligation to be met, current liabilities include
creditors, Bills payable , Bank credit, and provision for taxation, dividend payable, outstanding
expenses.
Page 49
A ratio greater than one means that the firm has more current claims against them. Its
conventional rule that a current ratio of 2 to 1 or more to be considered as satisfactory.
However current ratio is a crude and quick measure of firms liquidity.
Table showing current ratio
Years
Current Assets
Current Liabilities
Current Ratio
2007-08
6,81,06,320
3,54,94,571.72
1.92
2008-09
6,20,39,947
1,58,05,553
3.93
2009-10
5,97,05,731.39
88,76,129.86
6.73
2010-11
8,11,03,552.97
1,01,04,429.37
8.03
2011-12
8,47,55,133.29
90,20,956.63
9.40
ANALYSIS :
The Current ratio is an index of firms financial ability. The ideal current ratio is 2:1.
Higher the ratios better the coverage. From the above table it is clear that the current ratio has been
showing increasing trend during the above years of study period. Even though in the year 2007-08
Page 50
companys current ratio is less than the ideal ratio it has been increased year by year. It is important
to note that the poor current ratio is a danger signal to the management and also higher current
ratio would indicate lack of utilizing various investment opportunities
b).QUICK RATIO :
Quick ratio or acid test ratio is more refined measure of firms liquidity. This ratio
establishes a relationship between quick or liquid assets and current liabilities. Stock and
prepaid expenses are considered to be less liquid.
Current assets Inventory
Quick Ratio =
Current Liabilities
Generally, a quick ratio of 1:1 is considered, representing a satisfactory current financial

condition. This ratio is of great important for banks and financial institutions.
Table showing Quick Ratio

Years
Quick Assets
Current Liabilities
Quick Ratio
2007-08
4,03,18,200
3,54,94,571.72
1.14
2008-09
5,27,91,174
1,58,05,553
3.34
2009-10
3,73,99,147.40
88,76,129.86
4.21
2010-11
7,31,48,575.97
1,01,04,429.37
7.24
2011-12
6,68,92,817.29
90,20,956.63
7.42
Page 51
ANALYSIS :
Generally Quick Ratio of 1:1 considered to be satisfactory. From the above table it is
observed that in 2007-08 the ratio is 1.92. It is continuously increasing and reached to 7.42 in
2011-12. This indicates that the company is in favorable position. That is the firm is liquid and it
has the ability to pay its current obligations.
c)CASH RATIO:
It is the ratio of absolute liquid assets to quick liabilities. However for calculation
purposes it is taken as ratio of absolute liquid assets to current liabilities. Absolute liquid assets
include cash in hand and short term investments.
Cash in hand and bank
Cash Ratio =
Current Liabilities
Page 52
TABLE SHOWING CASH RATIO
Years
Cash & Bank
Current Liabilities
Cash Ratio
2007-08
5,39,003.70
3,54,94,571.72
0.02
2008-09
4,12,017.87
1,58,05,553
0.03
2009-10
4,89,987.94
88,76,129.86
0.06
2010-11
10,30,357.33
1,01,04,429.37
0.10
2011-12
12,75,758.21
90,20,956.63
0.14
ANALYSIS :
The above table shows that cash ratio is showing increasing trend. But it is not reaching the
standard ratio 0.51:1 so it might have faced the difficulty of short liquidity in terms of cash. So it
has to maintain its cash resources effectively in order to cover its current liabilities.
Page 53
d)NET WORKING
CAPITAL RATIO :
Net working capital is sometimes used as a measure of firms liquidity. It is considered that
between two firms the one having the larger net working capital has the greater ability to meet
current obligations. NWC however measures firms potential of funds. It can be related to net
assets.
Net working capital
Net working capital ratio =
Net Assets
COMPUTATION
Years
OF
NET WORKING CAPITAL RATIO
Net working Capital
Net Assets
NWC Ratio
2007-08
3,26,11,748.28
5,66,67,463.28
0.58
2008-09
4,62,34,394
7,92,61,853
0.58
2009-10
5,08,29,601.53
7,12,40,478.48
0.71
2010-11
7,09,99,123.60
8,89,77,044.55
0.80
2011-12
7,57,34,176.66
9,22,27,498.61
0.82
Page 54
ANALYSIS :
From the above table it is clear that the net working capital ratio has been showing
increasing trend during the above years of study period. In the year 2007-08 the ratio is 0.58 and it
has increased to o.82 in the year 2011-12. The net working capital ratio is satisfied.
2. TURNOVER RATIOS :
Turnover ratios measure how efficiently the enterprise employs the resources or assets at its
command. They indicate the performance of the business. The performance of an enterprise is
judged with its sales (turnover). Turnover ratios are otherwise called as activity ratios.
The ratios, which indicate efficiency of the firm, are
a) DEBTORS TURNOVER RATIO :
Debtors turnover ratio expresses the relationship between average debtors and sales. It
is calculated as follows:
Sales
Debtors Turnover Ratio =
Average Debtors
Page 55
Average debtors are the simple average of debtors at the beginning and at the end of
year. The analysis of the debtors turnover ratio supplements the information regarding the
liquidity of one item of current assets of the firm. The ratio measures how rapidly
receivables are collected. A high ratio is indicative of shorter time-lag between credit sales
and cash collection. A low ratio shows that debts are not being collected rapidly.
COMPUTATION
Years
OF
Sales
DEBTORS TURNOVER RATIO
Average Debtors
Debtors Turnover Ratio
2007-08
38,10,13,523
3,26,43,229.68
11.67
2008-09
27,36,30,389
2,68,39,038.26
10.20
2009-10
35,65,74,550.48
3,05,18,743.92
11.68
2010-11
33,23,96,494.49
4,54,07,463.54
7.32
2011-12
35,92,77,141.83
5,80,11,381.36
6.19
Page 56
ANALYSIS :
Debtors turnover ratio has been showing the fluctuating trend. During the study period, it is
good sign that the company is following good collections and credit policies.
b)INVENTORY TURNOVER RATIO :
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its
product. It is calculated by dividing the cost of goods sold by the average inventory. The
average inventory is the average of operating and closing balances of inventory. In a
manufacturing company inventory of finished goods is used to calculate inventory turnover.
Sales
Inventory Turnover Ratio =
Average Inventory
Opening inventory + Closing inventory
Average Inventory =
2
Page 57
COMPUTATION
Years
OF INVENTORY
Sales
TURNOVER RATIO
Average Inventory
Ratio
2007-08
38,10,13,523
1,99,36,527
19.11
2008-09
27,36,30,389
1,85,18,446.50
14.78
2009-10
35,65,74,550.48
1,57,77,678.50
22.60
2010-11
33,23,96,494.49
1,51,30,780.50
21.97
2011-12
35,92,77,141.83
1,28,89,186.50
27.87
ANALYSIS :
From the above table it is observed that the inventory turnover ratio is showing fluctuating
trend. In the year 2007-08 the ratio is 19.11 that means the company is converting its inventory
into sales 19.11 times in a year and it has been increased to 27.87 in the year 2010-11. This shows
that company is making good use of its inventory.
Page 58
d)
WORKING CAPITAL TURNOVER RATIO :
This ratio measures the relationship between working capital and sales. The ratio shows the
number of times the working capital results. In sales working capital as usual is the excess of
current assets over the current liabilities.
Sales
Working Capital Turnover Ratio =
Working Capital
COMMENT:
Higher the ratio the greater are the profit, a low working capital over indicates that working
capital is not efficiently utilized.
COMPUTATION
Years
OF
WORKING CAPITAL TURNOVER RATIO
Sales
Working Capital
Ratio
2007-08
38,10,13,523
3,26,11,748.28
11.68
2008-09
27,36,30,389
4,62,34,394
5.92
2009-10
35,65,74,550.48
5,08,29,601.53
7.02
2010-11
33,23,96,494.49
7,09,99,123.60
4.68
2011-12
35,92,77,141.83
7,57,34,176.66
4.74
Page 59
ANALYSIS :
From the above table it shows that the higher working capital turnover ratio is 11.68 in
the year 2007-08 it indicates that greater are the profits. A low working capital turnover ratio is
4.74 in the year 2011-12 it indicates that working capital is not effectively utilize
STATEMENT
SHOWING
Years
2007-08
2008-09
2009-10
2010-11
2011-12
CASH
TO CURRENT ASSETS RATIO :
Cash & Bank

5,39,003.70
4,12,017.87
4,89,987.94
10,30,357.33
12,75,758.21
Current Assets
6,81,06,320
6,20,39,947
5,97,05,731.39
8,11,03,552.97
8,47,55,133.29
Average =
% of Cash to CA
0.79
0.66
0.82
1.27
1.51
1.01
Page 60
ANALYSIS :
The above table shows that the average value for cash to current assets ratio is 1.01%. This
ratio indicates that 1.01% of current assets are in the form of cash.
Cash and bank balances have been registered a fluctuating trend during the period of study.
It is suggestive of the fact that the company has to exercise better control over cash and bank
balances.
Page 61
II .STATEMENT
Years
2007-08
2008-09
2009-10
2010-11
2011-12
SHOWING
CASH
TO
Cash & Bank

5,39,003.70
4,12,017.87
4,89,987.94
10,30,357.33
12,75,758.21
SALES RATIO:
Sales
38,10,13,523
27,36,30,389
35,65,74,550.48
33,23,96,494.49
35,92,77,141.83
Average =
% of Cash to Sales
0.14
0.15
0.14
0.31
0.36
0.22
ANALYSIS :
The ratio of cash to sales provides a deep insight into cash balances hold by the company,
is pointer to the fact that, on an average, 0.22% of sales in the company has remained cash during
the period of study.
III. STATEMENT
SHOWING
CASH TO CURRENT LIABILITIES
RATIO :
Page 62
Years
2007-08
2008-09
2009-10
2010-11
2011-12
Cash & Bank

5,39,003.70
4,12,017.87
4,89,987.94
10,30,357.33
12,75,758.21
Current Liabilities
3,54,94,571.72
1,58,05,553
88,76,129.86
1,01,04,429.37
90,20,956.63
Average =
% of Cash to CL
1.52
2.61
5.52
10.20
14.14
6.80
ANALYSIS :
Another way of looking at the variations in cash balance is to compare with current
liabilities. The above table depicts that cash and bank balance on an average have constituted 6.8%
of current liabilities
I.STATEMENT SHOWING INVENTORY TO CURRENT ASSETS RATIO:

Years
Inventory
Current Assets
% of inventory to CA
Page 63
2007-08
2,77,88,120
6,81,06,320
40.8
2008-09
92,48,773
6,20,39,947
14.9
2009-10
2,23,06,584
5,97,05,731.39
37.4
2010-11
79,54,977
8,11,03,552.97
9.8
2011-12
1,78,23,396
8,47,55,133.29
21
Average = 24.78
ANALYSIS :
The average value of inventory to current assets amounts to 24.78%. It is a good sign that it
has been decreasing carrying cost which affects profitability of the firm.
II.STATEMENT SHOWING INVENTORY TO TOTAL ASSETS

Years
Inventory
RATIO :
Total Assets
% of inventory to TA
Page 64
2007-08
2008-09
2009-10
2010-11
2011-12
2,77,88,120
92,48,773
2,23,06,584
79,54,977
1,78,23,396
9,21,62,035
9,50,67,406
8,02,66,164.34
9,91,93,640.92
10,13,23,143.2
Average =
30.2
9.7
27.8
8.02
17.6
18.66
ANALYSIS :
The above table reveals that the inventory has constituted a very high proportion of total
investment in the company. The average value of inventory to total assets ratio amounts to 18.66%.
To conclude, it may be said that the size of inventory in the company has been adequate
and has constituted a adequate proportion of current assets and total assets.
Page 65
CHAPTER V
MAIN FINDINGS
AND
SUGGESTIONS
Page 66
5.1 FINDINGS:
1) Networking capital of Anantha PVC pipes pvt ltd is increasing year by year during the
period of i.e.. In the year 2007 2008 it was 3,26, 11,748, and increased to 7,57,34,177 in
the year 2011-2012.
2) The working capital is financed mostly by the long-term sources and marginally by shortterm sources. The company also used the retained earning to finance the working capital
needs. As per the annual reports, working capital demand loan is secured by the
hypothecation of raw materials, stores and spares, work in progress finished goods and
book debts both present and future.
3) Current ratio of the company for the years 2007-08, 2008-09, 2009-10, 2010-11 and 20112012 are 1.92,3.93,6.73,8.03,9.40 respectively. Higher the ratio better is coverage. Standard
ratio is 2:1, which shows that the companys current ratio is more than the standard ratio.
4) Quick ratio during the study period has been increasing that is for the year 2007-08 is 1.14,
2008-09 is 3.34, 2009-10 is 4.21, 2009-10 is 7.24, 2011-12 is 7.42, which shows these
ratios are above the standard ratio of 1:1
5) Cash ratio which shows the short-term solvency of the firm in terms of cash during the
study period are 0.02, 0.03, 0.06, 0.10, 0.14 which is not up to the standard ratio of 0.5:1.
6) The liquidity ratios indicate that Anantha PVC pipes pvt ltd liquidity position is
satisfactory.
7) Debtors turnover ratio has been showing the decreasing trend during the study period
except in the year 2007-08 which is not good for the company.
8) The inventory turnover ratio except in the years 2008-09 and 2010-11 is showing
increasing trend. The trend is 19.11, 14.78, 22.60, 21.97& 27.87.
Page 67
9) The components of working capital as well as sales are showing fluctuating trends.
10) The company carries a small amount of cash. There is nothing to be worried about the lack
of cash, if the company has reserve borrowing power. Since, the company position is
satisfactory and it is able to get the required funds with not much difficulty.
11) The company has a very strict credit policy and has been collecting debts promptly. The
credit policy is effective.
12) 24-25% of the current assets are in the form of inventories, which shows the company is
making good use of its inventories.
5.2 SUGGESTIONS :
The networking capital of Anantha PVC pipes increasing year by year but it was to excess
in the year of 2010-2012, so it would be decrease, in order to invest in other investments to
increase firms return.
The cash performance was very poor; hence the company can maintain sufficient cash in
order to meet the obligations.
The debtors turnover was fluctuated, hence it should be control.
The inventory turnover was increasing to it should be continue.
Page 68
CONCLUSION:
Under the light of the inferences drawn from the analysis, it is no exaggeration to conclude
with information that the overall working capital management of Anantha PVC Pipes pvt ltd is fair
and reasonably good and put some control on excess funds thus promising feature awaits the
company.
Page 69
BIBLIOGRAPHY
BOOKS REFERRED:
1. I.M.Pandey
Financial Management, 8th edition,

Vikas publishing (pvt), New Delhi.
2. M.Y.Khan & P.K.Jain
Financial management, 4th edition,

TATA MC Grawhill publishing co ltd, New Delhi.
3. Rajeswara Rao.K & Prasad.G
Accounting & Finance,

Jai Bharath Publishers.
SEARCH
ENGINES :
WWW.Wikipedia.com
WWW.google.com
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ANANTHA P.V.C. PIPES.

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

ANANTHA P.V.C. PIPES.

MEANING AND DEFINITION OF WORKING CAPITAL

CONCEPTS OF WORKING CAPITAL

Gross working capital(Quantitative concept) and

GROSS WORKING CAPITAL:

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

KINDS OF WORKING CAPITAL:

ANANTHA P.V.C. PIPES.

Permanent working capital

Temporary Working capital

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

Components of working capital

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

Importance of working capital

ASPECT OF WORKING CAPITAL MANAGEMENT

determination the level of current assets).

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

components of current assets (Mainly cash, receivables and inventory);and

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

To ensure option investment in current assets.

FACTORS INFLUENCING WORKING CAPITAL

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

PRODUCTION CYCLE PROCESS:

CREDIT POLICY OR TERMS OF PURCHASE AND SALES:

since there is no growth in sales.

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

GROWTH AND EXPANSION:

SCARE AVAILABILITY OF RAW MATERIALS:

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

Dividend has a bearing on working capital since it is appropriation profits. The

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

NEED TO MAITAIN BALANED WORKING CAPITAL

THE DANGERS OF EXCESIVE WORKING CAPITAL

DANGER OF INADEQUATE WORKING CAPITAL

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

SOURCES OF WORKING CAPITAL

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

WORKING CAPITAL CYCLE (THE OPERATING CYCLE):

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

conversion of cash into raw materials

conversion of raw materials into work in progress

conversion of WIP into finished stock

conversion of account receivable into cash

COMPONENTS OF WORKING CAPITAL MANAGEMENT:

V.S.U.PG CENTRE, KAVALI

ANANTHA P.V.C. PIPES.

a. FACETS OF CASH MANAGEMENT :