Professional Documents
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ADAIKALAMATHA
INSTITUTE OF
MANAGEMENT
ADAIKALAMATHA
COLLEGE
VALLAM, THANJAVUR-6130403.
MARCH-2013
ADAIKALAMATHA INSTITUTE OF MANAGEMENT
ADAIKALAMATHA COLLEGE
Arun Nagar, Vallam,
Thanjavur- 613 403.
Fax : 04362-266265
Phone: 043632-266265 / 266201
Mr.R.VENKATESH
-03.2013
Date:
CERTIFICATE
This is to certify that the project report entitled A STUDY ON
WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE
TO SHAREKHAN LIMITED, CHENNAI is the bonafide research work done
and submitted by D.KALAIARASAN (Reg. No.11290201) under my guidance in
partial fulfillment of the requirements for the award of MASTER OF BUSINESS
ADMINISTRATION and the project has not previously formed the basis for the
award of any degree.
Signature of the
Guide
KALAIARASAN.D, II M.B.A.,
Reg.No.11290201,
Adikalamatha Institute of Management,
Adakalamathacollege,
Vallam, Thanjavur-613403
DECLARATION
original work and the project report has not formed the basis for award of any
other degree.
DATE: 03-2013
PLACE: VALLAM
(KALAIARASAN.D)
ACKNOWLEDGEMENT
3
I am deeply indebted to
Dr.A.ARUNACHALAM,MA.,M.L.,M.B.A.,Ph.D., Chairman of
Adaikalamatha College, Vallam, Thanjavur, for having given me an
opportunity to undergo M.B.A., Course in this institution.
Place: Vallam
Date: -03-2013
Signature of the student
INTRODUCTION
The working capital of a business enterprise, said to be that portion of its
total financial resources which is put to a valuable operative purpose.
Shubin defines working capital is the amount of funds necessary to cover the cost
of operating the enterprise.
The facilities that are necessary to carry out the productive activity and
represented by fixed asset investment are to be operated by working capital. This
working capital is otherwise called operating capital or trading capital.
Working capital is always at a more from one form to another [cash to
inventory, inventory to finished goods, finished goods to debtors and finally
debtors to cash]. Making a circle during the operating period. It is called
circulating capital or revolving capital or floating capital.
CLASSIFICATION OF WORKING CAPTITAL
Working capital can be classified on the basis of forms or investments and
the sources resorted for, into gross working capital and net working capital.
Another classification is made on the basis of period of investment a time
perspective as permanent and temporary working capital.
1. Gross working capital
In a going concern, in the investment point of view, the working capital
means gross working capital. Gross working capital a quantitative concept refers
called fixed or regular working capital. The quantum of the permanent working
capital will be increasing whenever the concern adopts growth and expansion.
Permanent working capital is entirely different from net working capital.
But it is the same as the core current asset specified by the Tandem committee.
Permanent working capital is purely investment aspect and it indicates the amount
permanent locked up in the business. Net working capital is purely financial aspect
and it denotes the use of long term capital for financing current assets.
4. Temporary working capital
Temporary working capital is the extra working capital needed to support
the changes in production and sales activities, and to satisfy the additional or
special or seasonal demand. It is otherwise called valuable or fluctuating working
capital.
5. Bankers concepts of working capital
For the purpose of Bank finance towards working capital, the total current assets
have been classified into chargeable current assets or core current assets [CCA]
and other current Assets [OCA]. And total current liabilities.
The total current assets minus other current liabilities have been termed as
the working capital Gap [WCG] of the borrower which needs to be bridged. Part
of the working capital gap is to be met from long term sources as per longstanding
convention and current policies and practice followed by the controller of capital
issues and financial institutions. Making borrowings from bank that is bank loan
fills the other part.
COMPONENTS OF WORKING CAPITAL
Working capital of current assets and current liabilities. This in other words
explains the pattern of investment and pattern of financing.
1. Current assets
Current Assets denotes cash and other assets or resources which are
reasonably expected to be realized in cash or sold or consumed during the normal
operating cycle of the business.
securities, short term investments, bills Receivables, sundry debtors, short term
loans and advances, inventories in the form of
(a) Raw materials;
(b) Work in Progress [WIP];
(c) Stores and spares;
(d) Finished goods;
(e) Prepaid Expenses &
(f) Accrued Income.
2. Current liabilities
Current liabilities are those liabilities which are payable within an
accounting period and out of current assets or by creating new current liabilities.
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RESEARCH METHODOLOGY
One of the goals of science is description (other goals include prediction
and explanation). Descriptive research methods are pretty much as they sound
they describe situations. They do not make accurate predictions, and they do not
determine cause and effect.
Case Study Method
Case study research involves an in-depth study of an individual or group of
individuals. Case studies often lead to testable hypotheses and allow us to study
rare phenomena. Case studies should not be used to determine cause and effect,
and they have limited use for making accurate predictions.
The study depends on both primary and secondary data.
Primary data:
Primary data is collected by interacting with the officials of the company.
Secondary data :
It is collected through company manuals , broachers , journals and
reference books and website etc.
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CHAPTERIZATION:
Chapter I deals with international and research methodology.
Chapter II deals with review of literature.
Chapter III deals with company profile.
Chapter IV deals with Analysis and interpretation.
Chapter V deals with findings, suggestions and conclusions
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the level of working capital and the rate of return to be negative. On the basis of
this observation, Walker formulated three following propositions management.
Walker studied the effect of the change in the level of working capital on the rate
of return in nine industries for the year 1961 and found the relationship between
the level of working capital and the rate of return to be negative. On the basis of
this observation, Walker formulated three following propositions:
PROPOSITION I
If the amount of working capital is to fixed capital, the amount of risk the firm
assumes is also varied and the opportunities for gain or loss are increased. Walker
further stated that if a firm wished to reduce its risk to the minimum, it should
employ only equity capital for financing of working capital; however by doing so,
the firm reduced its opportunities for higher gains on equity capital as it would not
be taking advantage of leverage. In fact, the problem is not whether to use debt
capital but how much debt capital to use, which would depend on management
attitude towards risk and return. On the basis of this, he developed his second
proposition.
PROPOSITION II
The type of capital (debt or equity) used to finance working capital directly affects
the amount of risk that a firm assumes as well as the opportunities for gain or loss.
Walker again suggested that not only the debt-equity ratio, but also the maturity
period of debt would affect the risk-return trade-off. The longer the period of debt,
the lower be the risk. For, management would have enough opportunity to acquire
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funds from operations to meet the debt obligations. But at the same time, longterm debt is costlier. On the basis of this, he developed his third proposition
PROPOSITION III
The greater the disparity between the maturities of a firms debt instruments
and its flow of internally generated funds, the greater the risk andvice-versa. Thus,
Walker tried to build-up a theory of working capital management by developing
three prepositions. However, Walker tested empirically the first proposition only.
WESTON AND BRIGHAM (1972)
Further extended the second proposition suggested by Walker by dividing
debt into long-term debt and short-term debt. They suggested that short-term debt
should Be used in place of long-term debt whenever their use would lower the
average cost of capital to the firm. They suggested that a business would hold
short-term marketable securities only if there were excess funds after meeting
short-term debt obligations. They further suggested that current assets holding
should be expanded to the point where marginal returns on increase In these assets
would just equal the cost of capital required to finance such increases.
VAN HORNE: in his study (1969) recognizing working capital
management as an area largely lacking in theoretical perspective, attempted to
develop a framework in terms of probabilistic cash budget for evaluating decisions
concerning the level of liquid assets and the maturity composition of debt
involving risk-return trade-off. He proposed calculation of different forecasted
liquid asset requirements along with their subjective probabilities under different
possible assumptions of sales, receivables, payables and other related receipts and
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moment when
payment were received for the sale of finished product. Delay center are located
throughout the production and marketing functions. The study requires specifying
the delay center and working capital tied up in each delay center with the help of
information regarding average delay and added value. He recognized that by more
rapid and precise information through computers and improved professional
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Among the financial factors, cost advantages associated with bulk buying and
higher procurement costs for speedy delivery are also mentioned. Uncertainties in
the market for raw materials and in the demand for final product also play a role in
influencing the speed of adjustment. Technically, firms like to make sure that
changes in demand are of a permanent character before making full adjustment.
The acceleration principle has great relevance in inventory analysis than in the
analysis of fixed investment, as there are limits to liquidate fixed capital in the face
of declining demand. Other variables influencing inventories have been introduced
in the literature in the context of accelerator model. Rate of interest is used as a
proxy for the opportunity cost of carrying stocks or as a measure of the cost of
funds needed to hold inventories.
It has been found significant in the studies of Hilton (1976) and Irwin
(1981). Time-trend is expected to be important because inventories generally
accumulate with the expansion of economic activities of
the company.
CASH MANAGEMENT :
Cash is the business enterprise may be compared to the blood of the human
body, blood gives life and strength to the human body, and cash imparts life and
strength profits and solvency to the business organization.
Cash is the important current asset for the operations of the business. Cash
is the basic input needed to keep the business running on a continuous basis; it is
also the ultimate output expected to be realized by selling the service or produce
manufactured by the firm. The firm should keep sufficient cash, neither more nor
less. Cash shortage will disrupt the firms manufacturing operation while
excessive cash will simply remain idle, without contributing anything towards the
firms profitability. Thus a major function of the financial manager is to maintain a
sound cash position.
Cash is the money, which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm,
and balances in its bank accounts. Cash is an important liquid assets.
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A. Cash may be set to be like the blood stream in the living body: for it is very
much life blood of business. It much lifeblood of business. It must be kept
circulating.
B. It helps to avoid uncertainty in the future.
C. Cash budget involves balance sheet changes and other cash flows. That
doesnt appear in the profit and loss account , such as capital expenditure.
D. It gives an inventory of the financial reserves , which are available in the
event of recession.
E. It yields a plan as integral part of the procedure.
F. It views problems in a dynamic context over a period of time.
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1. TRANSACTION MOTIVE:
Firms need cash to meet their transaction needs. The collection of cash
( from the sale of goods and services, sale of assets, and additional financing)
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2. PRECAUTIONARY MOTIVE:
Cash is also maintained by the firm and even by individuals to meet
unforeseen expenses at a future date. There are uncontrollable factors like
governments polices, competition, natural calamities and consumer
behavior that will have heavy impact on business operations. In such
situations, the firm may require cash to meet additional obligations. Hence ,
the firm should hold cash to meet such contingencies.
3. SPECULATIVE MOTIVE:
The speculative motive relates to the holding of cash for investing in
profit-making opportunities as and when they arise. To make profit may
arise when the security prices change. Thus, to make advantage of
unexpected opportunities, a firm holds cash for investing in profit-making
opportunities.
CASH MANAGEMENT IS CONCERNED WITH THE MANAGING OF:
Cash inflows into and out of the firm.
Cash flows within the firm and
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OPERATIONAL DEFINITIONS
CURRENT ASSETS:
Current assets are those which are generally converted into cash within one
year without disturbing the operation of the concern. Current assets include ; cash
and bank balances investments fixed deposits with banks ( maturing within one
year ).
CURRENT LIABILITIES:
Current liabilities are claims of out sides discharged within one year.
Current liabilities are : short term borrowings (including bills purchased and
discounted from the banks and others).
Unsecured loans maturing within one year.
Public deposits maturing within one year.
Interest and other charges due for payments.
WORKING CAPITAL:
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CASH:
Cash is the most important liquid asset, which is initial importance to the
daily operations of the business firms. cash is the basic input needed to keep the
business on continuous basis. It is the ultimate output expected to be realized by
the selling the service or product manufactured by the firm.
ACCOUNTS RECEIVABLES:
The term accounts receivables refers to the sundry debtors and bills
receivables. Receivables and debtors are arises on account of credit sales in the
organization. Firms grant trade credit to protect its sales from the competitors and
to attract the potential customers to buy its products or services. The basic
objective of receivables management is to maximize return of investment in this
asset.
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collections
Informat
ion and
control.
Borrow
Or
Invest
Payments
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INVENTORY MANAGEMENT
DEFINITION OF INVENTORIES:
Inventories are stock of materials of any kind of stored for future use,
mainly in the production process. Thus, todays inventory is tomorrows
production. However, semi-finished goods awaiting in the next process or finished
goods awaiting release for sale are also included in the broad categories of
inventories, which are nothing but idle resources. Therefore, inventories are
materials or resources of any kind having some economic value, either awaiting
conversation or use in future.
A part from these, there are also many indirect materials , such as,
maintenance materials, fuels and lubricants, etc, which are used in a
manufacturing organization. They are also classified as inventories of materials for
future use, buy they differ only in their use and classification from raw and other
direct materials. All of them earn nothing, yet they are broadly required to be used
as and when the needs arise.
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The other two motives are important here. The transaction motives results
from the desire to match inflow and outflow of materials under certain controlled
conditions. Precautionary motives arises out of the inability to predict future
demands precisely and getting the materials ready in time, with incurring some
extra costs. Thus, there also arises the need to maintain some safety or buffer stock
on order to maintain the smooth flow of materials without impairing production.
But, more and more stock of materials are held, this not only entails greater
investment, but carrying and other associated costs increase pair pass. On the other
hand, if minimum inventory is held, with the increase in the frequency of buying
the cost of ordering and processing increase. Also the cost of stock-out poses
economic problem.
TYPES OF INVENTORIES
Inventories are broadly classified into:
RAW MATERIALS AND PRODUCTION INVENTORIES :
These are raw materials and other supplies, parts and components which
enter into the product during the production process and generally from part of the
product.
IN-PROCESS INVENTORIES:
These are semi-finished, work in progress and partly finished products
formed at various stages of production.
MRO INVENTORIES:
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This a time bound system which requires periodic reviews of the stock
levels of all items. Here, period of review is fixed either, 3months,
6months or one year, when requirements of all items are worked out a
fresh and the quantity is varied. This system works well for production of
raw materials and components for which long lead times are necessary.
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Bank references
Trade references
2) It may consists to give names of such persons / firm with whom the
customers has current dealings.
3) Credit investigation and analysis : once the information is obtained the
next step is to investigation on the following factors.
Credit file of each customer
Financial relations
4) Credit limit: it refers maximum amount of credit, which the firm will
extend at a point of time. It refers the extent of risk taken by the firm by
supplying goods on credit to the customer. The credit limit must be
reviewed periodically. If the tendencies of slow pain are found, the
credit can be revised downward. If profits exceeds costs, the collection
period may be extended otherwise not.
5) Collection efforts: the collection procedure of the firm should be clearcut and well administered. The purpose of collection policy should be to
speed up the collection of dues. If collections are delayed, alternative
arrangement of finances to sustain production and sales will have to
make. The chances of bad debts also increase as the collection is
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delayed. The firm should developed collection policy, which will enable
it to collect in time.
The main purpose of receivables management is as follows :
To obtain best or most favorable volume of sales.
To control the cost of credit and keep it at minimum.
To maintain investment in debtors at a most favorable level.
To keep the track of risk of bad debts minimum.
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FINANCIAL MARKET
Financial markets are helpful to provide liquidity in the system and for
smooth functioning of the system. These markets are the centers that provide
facilities for buying and selling of financial claims and services. The financial
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markets match the demands of investment with the supply of capital from various
sources.
According to functional basis financial markets are classified into two types.
They are:
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CAPITAL MARKET:
Capital market is a place where we can raise long-term capital.
Again the capital market is classified in to two types and they are
Secondary market.
Function:
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The main services of the primary market are origination, underwriting, and
distribution. Origination deals with the origin of the new issue. Underwriting
contract make the shares predictable and remove the element of uncertainty in
the subscription. Distribution refers to the sale of securities to the investors.
The following are the market intermediaries associated with the market:
1. Merchant banker/book building lead manager
2. Registrar and transfer agent
3. Underwriter/broker to the issue
4. Adviser to the issue
5. Banker to the issue
6. Depository
7. Depository participant.
Investors protection in the primary market:
To ensure healthy growth of primary market, the investing public should be
protected. The term investor protection has a wider meaning in the primary
market. The principal ingredients of investors protection are:
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SECONDARY MARKET
The primary market deals with the new issues of securities. Outstanding
securities are traded in the secondary market, which is commonly known as stock
market or stock exchange. The secondary market is a market where scrips
are traded. It is a market place which provides liquidity to the scrips issued in
the primary market. Thus, the growth of secondary market depends on the
primary market. More the number of companies entering the primary market, the
greater are the volume of trade at the secondary market. Trading activities in the
secondary market are done through the recognized stock exchanges which are 23
in number including Over the Counter Exchange of India (OTCE), National
Stock Exchange of India and Interconnected Stock Exchange of India.
Secondary market operations involve buying and selling of securities
on the stock exchange through its members. The companies hitting the primary
market are mandatory to list their shares on one or more stock exchanges in
India. Listing of scrips provides liquidity and offers an opportunity to the
investors to buy or sell the scrips.
The following are the intermediaries in the secondary market:
1.
2.
Portfolio Manager
3.
Investment advisor
4.
5.
Depository
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Government securities.
Bonds
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state subject and the Bombay securities contracts (control) act of 1925 used to
regulate trading in securities. Under this act, the Mumbai stock exchange was
recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of
stock exchanges were organized. Soon after it became a central subject, central
legislation was proposed and a committee headed by A.D.Gorwala went into the
bill for securities regulation. On the basis of the committees recommendations
and public discussion, the securities contract (regulation) act became law in
1956.
Functions of Stock Exchanges:
Stock exchanges provide liquidity to the listed companies. By giving
quotations to the listed companies, they help trading and raise funds from the
market. Over the hundred and twenty years during which the stock exchanges
have existed in this country and through their medium, the central and state
government have raised crores of rupees by floating public loans. Municipal
corporations, trust and local bodies have obtained from the public their financial
requirements, and industry, trade and commerce- the backbone of the countrys
economy-have secured capital of crores or rupees through the issue of stocks,
shares and debentures for financing their day-to-day activities, organizing new
ventures
and
completing
projects
of
expansion,
diversification
and
modernization.. The quoted companies with wide public interest have enjoyed
some benefits and assets valuation has become easier for tax and other purposes.
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Enabling shorter settlement cycles and book entry settlements systems, and
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providing an efficient and transparent market for trading in securities, debt and
derivatives upholds the interests of the investors and ensures redresses of their
grievances whether against the companies or its own member-brokers. It also
strives to educate and enlighten the investors by conducting investor education
programmers and making available to them necessary informative inputs.
A Governing Board having 20 directors is the apex body, which decides the
policies and regulates the affairs of the Exchange. The Governing Board consists
of 9 elected directors, who are from the broking community (one third of them
retire ever year by rotation), three SEBI nominees, six public representatives and
an Executive Director & Chief Executive Officer and a Chief Operating Officer
The Executive Director as the Chief Executive Officer is responsible for the
day-to-day administration of the Exchange and the Chief Operating Officer and
other Heads of Department assist him.
The Exchange has inserted new Rule No.126 A in its Rules, Byelaws
pertaining to constitution of the Executive Committee of the Exchange.
Accordingly, an Executive Committee, consisting of three elected directors, three
SEBI nominees or public representatives, Executive Director & CEO and Chief
Operating Officer has been constituted. The Committee considers judicial &
quasi matters in which the Governing Board has powers as an Appellate
Authority, matters regarding annulment of transactions, admission, continuance
and suspension of member-brokers, declaration of a member-broker as defaulter,
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Ministry of finance
Governing body
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Discretionary order: The investor gives the range of price for purchase and sale.
The broker can use his discretion to buy within the specified limit. Generally the
approximation price is fixed. The order stands as this buy BRC 100 shares
around Rs.40.
Stop loss order: The orders are given to limit the loss due to unfavorable price
movement in the market. A particular limit is given for waiting. If the price falls
below the limit, the broker is authorized to sell the shares to prevent further loss.
E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.
Buying and selling shares:
To buy and sell the shares the investor has to locate register broker or sub
broker who render prompt and efficient service to him. The order to buy or sell
specifying the number of shares of the company of investors choice is placed
with the broker. The order may be of any type. After receiving the order the
broker tries to execute the order in his computer terminal. Once matching order is
found, the order is executed. The broker then delivers the contract note to the
investor. It gives the details regarding the name of the company, number of
shares bought, price, brokerage, and the date of delivery of share. In this physical
trading form, once the broker gets the share certificate through the clearing
houses he delivers the share certificate along with transfer deed to the investor.
The investor has to fill the transfer deed and stamp it. If it is bought in the
DEMAT form, the broker has to give a matching instruction to his depository
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participant to transfer shares bought to the investors account. The investor should
be account holder in any of the depository participant. In the case of sale of
shares on receiving payment from the purchasing broker, the broker effects the
payment to the investor.
Share groups:
The
scraps
traded
on
the
BSE
have
been
classified
into
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processes the pay in requests and transfers the consolidated pay in files to
clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearing
house/clearing corporation executes the pay-out of securities and funds latest by
1.30 p.m on T+2 to the depositories and clearing banks. In the demat mode net
basis settlement is allowed. The buy and sale positions in the same scrip can be
settled and net quantity has to be settled.
COMPANY PROFILE
Sharekhan is one of the top retail brokerage houses in India with a strong online
trading platform. The company provides equity based products (research, equities,
derivatives, depository, margin funding, etc.). It has one of the largest networks in
the country with 1200+ share shops in 400 cities and Indias premier online
trading portal www.sharekhan.com. With their research expertise, customer
commitment and superior technology, they provide investors with end-to-end
solutions in investments. They provide trade execution services through multiple
channels - an Internet platform, telephone and retail outlets.
Sharekhan was established by Morakhia family in 1999-2000 and Morakhia
family, continues to remain the largest shareholder. It is the retail broking arm of
the Mumbai-based SSKI [SHRIPAL SHEWANTILAL KANTILAL ISWARNATH
LIMITED] Group. SSKI which is established in 1930 is the parent company of
Sharekhan ltd. With a legacy of more than 80 years in the stock markets, the SSKI
group ventured into institutional broking and corporate finance over a decade ago.
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Presently SSKI is one of the leading players in institutional broking and corporate
finance activities. Sharekhan offers its customers a wide range of equity related
services including trade execution on BSE, NSE, and Derivatives. Depository
services, online trading, Investment advice, Commodities, etc.
Sharekhan Ltd. is a brokerage firm which is established on 8th February
2000 and now it is having all the rights of SSKI. The company was awarded the
2005 Most Preferred Stock Broking Brand by Awaaz Consumer Vote. It is first
brokerage Company to go online. The Company's online trading and investment
site - www.Sharekhan.com - was also launched on Feb 8, 2000. This site gives
access to superior content and transaction facility to retail customers across the
country. Known for its jargon-free, investor friendly language and high quality
research, the content-rich and research oriented portal has stood out among its
contemporaries because of its steadfast dedication to offering customers best-ofbreed technology and superior market information.
Sharekhan has one of the best states of art web portal providing
fundamental and statistical information across equity, mutual funds and IPOs. One
can surf across 5,500 companies for in-depth information, details about more than
1,500 mutual fund schemes and IPO data. One can also access other market
related details such as board meetings, result announcements, FII transactions,
buying/selling by mutual funds and much more.
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Sharekhan's management team is one of the strongest in the sector and has
positioned Sharekhan to take advantage of the growing consumer demand for
financial services products in India through investments in research, pan-Indian
branch network and an outstanding technology platform. Further, Sharekhan's
lineage and relationship with SSKI Group provide it a unique position to
understand and leverage the growth of the financial services sector. We look
forward to providing strategic counsel to Sharekhan's management as they
continue their expansion for the benefit of all shareholders.
SSKI Corporate Finance Private Limited (SSKI) is a leading India-based
investment bank with strong research-driven focus. Their team members are
widely respected for their commitment to transactions and their specialized
knowledge in their areas of strength. The team has completed over US$5 billion
worth of deals in the last 5 years - making it among the most significant players
raising equity in the Indian market. SSKI, a veteran equities solutions company
has over 8 decades of experience in the Indian stock markets.
If we experience their language, presentation style, content or for that
matter the online trading facility, we'll find a common thread; one that helps us
make informed decisions and simplifies investing in stocks. The common thread
of empowerment is what Sharekhan's all about.
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: Sharekhan ltd.
Year of Establishment
: 1925
Headquarter
: Sharekhan SSKI
A-206 Phoenix House
Phoenix Mills Compound
Lower Parel
Mumbai Maharashtra, INDIA 400013
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Nature of Business
: Service Provider
Services
Number of Employees
: Over 3500
Website
: www.sharekhan.com
Slogan
ACHIEVEMENTS OF SHAREKHAN :
A Rated among the top 20 wired companies along with Reliance, HUJI,
Infosys, etc by Business Today, January 2004 edition.
Awarded Top Domestic Brokerage House four times by Euro money and
Asia money.
Pioneers of online trading in India amongst the top 3 online trading
websites from India. Most preferred financial destination amongst online
broking customers.
Winners of Best Financial website award.
Indias most preferred brokers within 5 years. Awaaz customer Award
2005.
VISION
To be the best retail brokering Brand in the retail business of stock market.
MISSION
To educate and empower the individual investor to make better investment
decisions through quality advice and superior service.
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o All you have to do is walk into any of our 640 share shops across 280
cities in India to get a host of trading related services our friendly
customer service staff will also help you with any accounts related queries
you may have.
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Pathik Gandotra
: Head of Research
Rishi Kohli
Nikhil Vora
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Dial-n-trade
Portfolio management
Fundamental research
Technical research
DATA ANALYSIS AND INTERPRETATION
CLASSIFICATION OF RATIOS
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The uses of ratios analysis is not confined to financial manager only. There
are different parties interested in the ratio analysis for knowing the financial
position of the firm for different purpose. In view of various users of ratios, there
are many types of ratio that can be calculated from information given in the
financial statements. The particular purpose of the user determines the particular
ratio that might be used for financial analysis.
Ratio calculated from accounting data are grouped into various classes
according to financial activity or function to be evaluated. The parties interested in
financial analysis are short and long term creditor, owners and management. Short
term creditors interested is in the liquidity position or the short term solvency.
On the other hand, financial institution ( share holder ) and the management
also differ. The share holder are generally interested in the profitability or divided
position of the firm(financial condition), while management requires information
on almost all the financial aspects and performance of the to enable it to protect
the interest of all parties.
In view of the financial management or according to the test satisfied , various
ratios have been classified into following:
Liquidity ratios : measures the firms ability to meet current obligations.
Leverage ratios : show the proportions of debt and equity in financing the
firms assets. Suppliers of debt capital would like to equity as margin of
72
73
74
75
TABLE-1
CURRENT RATIO :
The current ratio is defined as the relationship between current assets and current
liabilities.
Current assets
Current Ratio = ------------------------Current Liabilities
YEAR
CURRENT
LIABILITIES
RATIO
2006-07
2007-08
2008-09
2009-10
2010-11
ASSETS
174416.1
165556.1
18607.5
180484.3
213328.2
135829.9
121722.7
140381.7
134466.3
167417.8
1.28
1.36
1.32
1.34
1.27
CHART-1
CURRENT RATIO
76
Interpretation :
The current Ratio in 2006-07 was 1.28 and in 07-08 was 1.36 & 08-09 1.32, 09-10
was in 1.34 and 10-11 is 1.27.
TABLE-2
QUICK RATIO :
77
YEAR
2006-07
2007-08
2008-09
2009-10
2010-11
QUICK ASSETS
145259.63
125094.18
140622.32
146592.59
169903.62
LIABILITIES
135829.88
121722.74
140381.7
134466.3
167417.8
CHART-2
QUICK RATIO
78
RATIO
1.07
1.03
1
1.09
1.01
Interpretation :
During the period of the study, it is observed that the Quick Ratio is increasing
from 1.07 to 1.09.
TABLE-3
WORKING CAPITAL RATIO:
Working Capital is difference between current assets and current liabilities,
working capital used for daily business operations in short term requirements of
cash.
79
It indicates what extent working funds have been employed in business towards
sales.
W.C = SALES / WORKING CAPITAL
YEAR
2006-07
2007-08
2008-09
2009-10
2010-11
SALES
WORKING
RATIO
524
449.19
531.53
433.51
454.38
CAPITAL
312.19
316.21
361.94
371.79
384.96
1.67
1.42
1.46
1.16
1.18
CHART-3
WORKING CAPITAL RATIO
80
Interpretation:
This ratio shows the no. of times working capital used in the firm is able to
generate the sales. This ratio measures the efficiency with which the working
capital is being used by the company.
The higher the ratio , the lower is the investment in working capital and greater is
the efficiency in working capital management. SHAREKHAN LTD is improving
its working ratio during the period of study.
TABLE-4
INVENTORY TURNOVER RATIO :
The inventory turnover / stock turnover ratio shows how rapidly the inventory is
into receivables through sales though sales. This ratio is an indicator of the
efficiency of the use of investment in stock. It is calculated as
81
Net Sales
Inventory turnover Ratio = -------------------------------Average inventory
YEAR
2006-07
2007-08
2008-09
2009-10
2010-11
SALES
5240.45
45097.71
53153.31
43351.31
45438.02
INVENTORY
35826.54
38461.9
45452.65
33891.7
43424.59
CHART-4
INVENTORY TURNOVER RATIO
82
RATIO
1.46
1.17
1.16
1.28
1.04
Interpretation:
This ratio reveals the no. of times finished stock is turned over during a
given accounting period.
Higher the ratio, the better it is because it shows the finished stock is rapidly
turned into sales. On the other hand, a low stock turnover not desirable because it
reveals accumulation of stock.
TABLE-5
DEBTORS TURNOVER RATIO :
83
Debtors turnover indicates the no of times debtors turnover each year / this
ratio measures the net credit sales of a firm to the recorded trade debtors there by
indicating the rate at which cash is generated by turnover of receivable ( or )
debtors. This is calculated as
Net Sales
Debtors turnover ratio = -------------------------Total Debtors
YEAR
2006-07
2007-08
2008-09
2009-10
2010-11
SALES
524
450.98
531.53
433.51
454.38
DEBTOR
1493.44
2417.04
1387.33
1951.41
2154.2
CHART-5
DEBTORS TURNOVER RATIO
84
RATIO
0.35
0.18
0.38
0.22
0.21
Interpretation:
During the year 2006-07 the debtors turnover ratio decreased from .35 to .21.
TABLE-6
DEBT COLLECTION PERIOD :
This indicates the extent tom which the debts have been collected in time. It
is calculated as
Debt collection period = months / days in a year
85
YEAR
2006-07
2007-08
2008-09
2009-10
2010-11
DTOR
NO.OF DAYS
COLLECTION
312
312
312
312
312
PERIOD
891.42
1733.33
821.05
1418.18
1485.71
0.35
0.18
0.38
0.22
0.21
CHART-6
DEBT COLLECTION PERIOD
86
INTERPRETATION:
The debt collection period has increased from 891.42 to 1485.71 there
implies that firm is not able to collect the receivables in time. High debit collection
on period is not a satisfactory sign.
TABLE-7
PARTICULARS
87
A) CURRENT ASSETS
Inventories
34292.49
35826.54
1534.05
Sundry Debtors
504.60
1493.44
988.84
136431.09
116738.78
19692.31
23493.61
20357.33
3136.28
194721.79
174416.09
Sundry Creditors
9621.53
8458.10
1163.43
143736.60
120541.16
23195.44
Other Advances
3022.75
2912.38
110.37
Deposits
87.26
199.10
111.84
Other liabilities
2557.09
3719.14
1162.05
159025.23
135829.88
35696.56
38586.21
2889.65
38586.21
38586.21
B) CURRENT LIABILITIES
-
2889.65
26992.13
26992.13
TABLE-8
Statement showing changes in working capital for the years
2003-2004 and 2004-2005
PARTICULARS
PREVIOUS
YEAR
(2003-2004)
CURRENT
YEAR
(2004-2005)
A) CURRENT ASSETS
88
INCREASE
DEGREASE
Inventories
35826.54
38461.90
2635.36
Sundry Debtors
1493.44
2417.04
923.60
116738.78
100127.94
16610.84
20357.33
22549.20
174416.09
163556.08
Sundry Creditors
8458.10
9122.54
Advances from
Government
120541.16
105490.57
15050.59
Other Advances
2912.38
2572.36
340.02
Deposits
199.10
255.32
56.22
Other liabilities
3719.14
4331.95
612.81
135829.88
121772.74
38586.21
41783.34
Increase in Working
Capital
3197.13
2191.87
B) CURRENT
LIABILITIES
41783.34
41783.34
664.44
-
21141.44
21141.44
TABLE-9
Statement showing changes in working capital for the years
2005-2006 and 2006-2007
PARTICULARS
PREVIOUS CURRENT
YEAR
YEAR
(2005-2006) (2006-2007)
A) CURRENT
89
INCREASE
DECREASE
ASSETS
Inventories
38461.90
45452.65
6990.75
Sundry debtors
2417.04
1387.33
100127.94
117623.44
17495.50
22549.20
21611.55
163556.80
186074.97
B) CURRENT
LIABILITIES
Sundry creditors
9122.54
8455.68
Advances from
government
Other advances
105490.57
123984.55
2572.36
1765.99
806.37
Deposits
255.32
119.11
136.21
136.21
Other liabilities
4331.95
6059.41
121772.74
140384.74
41783.34
45690.23
3906.89
45690.23
45690.23
1029.71
937.65
666.86
-
26095.69
18493.98
1727.46
3906.89
26095.69
TABLE-10
Statement showing changes in working capital for the years
2007-2008 and 2008-2009
PREVIOUS CURRENT
INCREASE
DEGREASE
YEAR
(2007-2008)
YEAR
(2008-2009)
A) CURRENT ASSETS
Inventories
45452.65
33891.70
Sundry Debtors
1387.33
1951.41
564.08
117623.44
121103.09
3479.65
90
11560.95
-
21611.55
2358.09
1926.54
186074.97
180484.29
Sundry Creditors
8455.68
6623.87
1831.81
Advances from
Government
123984.55
111939.10
12045.45
Other Advances
1765.99
1279.46
486.53
Deposits
119.11
155.66
36.55
Other liabilities
6059.41
14468.17
8408.76
140384.74
134466.26
45690.23
46018.03
Increase in Working
Capital
3270.80
B) CURRENT
LIABILITIES
46018.03
3270.80
20334.06
20334.06
46018.03
TABLE-11
Statement showing changes in working capital for the years
2009-2010 and 2010-2011
PARTICULARS
PREVIOUS CURRENT INCREASE
DECREASE
YEAR
YEAR
(2009-2010) (2010-2011)
A) CURRENT
ASSETS
Inventories
33891.70
43424.59
9532.89
Sundry Debtors
1951.41
2154.20
202.79
121103.09
146477.80
25374.71
2358.09
21271.62
18913.53
91
180484.29
213328.21
Sundry Creditors
6623.87
7109.21
485.34
Advances from
Government
111939.10
142435.30
30496.20
Other Advances
1279.46
1020.09
Deposits
155.66
185.57
29.91
Other liabilities
14468.17
16667.65
2199.48
Total Current
Liabilities
134499.26
167417.82
Net Working
Capital(A-B)
46018.03
45910.39
Increase in Working
Capital
21072.36
45910.39
259.37
21072.36
45910.39
54283.29
54283.29
TABLE-12
Statement of changes in Financial position for the year ended 31st March, 2011
(Rs. In lakhs)
PARTICULARS
CURRENT
PREVIOUS YEAR
YEAR(2010-2011)
(2009-2010)
92
Sources of funds
a) internal generation from operations
profit after tax
Capital profit on assets
Depreciation / amortization
Capital work in progress
Provisions
b) External generations
Equity
Loans
Deferred debt
Decrease in working capital
Application of funds
a) Addition to
Fixed assets
Special tools & equipments
Capital work in progress
Miscellaneous expenditure
Deferred tax assets
b) dividend
interim dividend
proposed dividend
c) Repayment of long terms loans
Deferred debts
Deferred credits
Increase in working capital
Working Capital Management
Increase / Decrease
Inventories
Sundry Debtors
Cash & Bank balances
Loans & Advances
Less: Sundry Creditors and other
Liabilities
Increase / Decrease in working capital
2883.42
930.05
(656.99)
(523.92)
-
473.22
-
2632.56
7878.80
901.60
244.69
(445.87)
138.79
183.69
534.04
36.73
238.99
139.12
175.75
2300.00
2300
(554.59)
500.52
3906.89
7878.80
327.80
2632.56
(11560.95)
564.08
3479.65
3926.54
-3590.68
-3918.48
327.80
FINDINGS
The following are the findings of the study :
93
7349.46
7.88
714.14
(665.90)
-
6990.75
(1029.71)
17495.50
(937.65)
22518.89
18612.00
3906.89
SUGGESTIONS
94
As the inventory is high the steps have to be taken to identify the nonmoving items in the inventory and action to be taken for disposing the
same.
As the company is having high level of Cash and Bank balances the
company may concentrate on better utilization of cash and bank balances
than the keeping them in banks.
As the company is almost maintaining 312 days of sales as inventory, the
company should look at the various means for reducing the inventory
levels.
Presently only 20% - 25% of Net Working Capital is financed through
Sundry Creditors, the company may focus on increasing the Sundry
Creditors to at least 50% of its purchases, by this we can reduce the Net
Working Capital.
The company is limiting itself to one year term deposits with banks, this
conservative policy is restricting the company to less than normal growth
despite having huge cash and bank balances and high liquidity levels.
The company is spending about 6 crores every year on power, the company
may effectively utilize its cash balances by partly diverting it to power
generation.
95
CONCLUSION
In view of the importance attached by varied groups to the financial
position of a company, it is necessary to evaluate the companys ability in utilizing
and managing the funds in the business. Thus, the Current Assets Management
involves the determination of companys liquidity position, its ability in utilizing
the assets in generating business and its profitability position.
Thus current assets management involves the determination of companys
ability in mobilizing the funds required for the business and utilizing the funds in
the business.
96
BIBLIOGRAPHY
Annual Repots of SHAREKHAN LIMITED
1) Financial Management, Vikas Publishing House Pvt.Ltd.New Delhi. Pandey,
I.M., (2000),
2) Financial Management, Sultan Chad & Sons, New Delhi. Maheswari, S.N.,
(2002),
3) Financial Management, Tata McGraw-Hill Publishing Ltd, New Delhi.
Khan, M.Y. & Jain, P.K., (2002)
4) Financial Management, Tata McGraw-Hill Publishing Company Ltd, New
Delhi. Chandra, p., (2001),
5) Financial Management, Lakshmi publications. Gnanasekaran, E (2009)
6) Management Accounting Margham publication Reddy .T.S,.(2005)
97
98