A

PROJECT REPORT
ON
WORKING CAPITAL MANAGEMENT
AT
FLAMINGO WINES CO. PVT.LTD.
CU-4, Wine Park, MIDC Vinchur,
Tal:Niphad, Dist: Nashik, Maharashtra - 422305

By
Mr. SUBHAM KUMAR
(BBA- Finance)
Project Guide
Prof. Tanmay Mehta
Submitted To
SAVITRIBAI PHULE PUNE UNIVERSITY
(IN PARTIAL FULLIMENT OF BBA)
ISB&M COLLEGE OF COMMERCE, Nande, Pune.
Academic Year 2015-2016

ACKNOWLEDGEMENT
It is a great pleasure to me in acknowledging my deep sense of gratitude to all those
who have helped me in completing this project successfully.
First of all I would like to thank University of Pune for providing me an opportunity
to undertake a project.

Special thanks to Mr. Jagdish Holkar (Chairman) & (M.D), Mr. Anant Bothare
(Manager), Mr. Dnyaneshwar Ghode (Accountant) for providing me an opportunity to work
with Flamingo, and providing me necessary information about their organization, their
operations and providing guidance in developing my project.
I greatly appreciate the staff of the surveyed business unit, who responded promptly
and enthusiastically to my requests for frank comments despite their congested schedules. I
am indebted to all of them, who did their best to bring improvements through their
suggestions.
I would like to thank our Finance Sir and Project Guide Prof. Tanmay mehta whose
valuable guidance and encouragement at every phase of the project has helped to prepare
this project successfully.
Finally, I would like to express my sincere thanks to Flamingo Winery, my family ,all
the faculties, office staff, and library staff of and friends who helped me in some or other way
in making this project.

DECLARATION
This is to declare that I, Mr. Subham Kumar, student of Bachelor in Business
Administration (Course Period 2015-2016), Flamingo Winery have given original data and
information to the best of my knowledge in the project report titled WORKING CAPITAL
MANAGEMENT under the guidance of our Prof. Tanmay Mehta and that, no part of this
information has been used for any other assignment but for the partial fulfillment of the
requirement towards the completion of the said course.
I have prepared this report independently and I have gathered all the relevant
information personally. I have prepared this project for partial fulfillment of

B.B.A.

(Finance) Graduate Course.

I also agree in principle not to share the vital information with any other person
outside the organization and will not submit the project report to any other university.

Place: Pune
Date:

Subham Kumar

/ /

B.B.A. (Finance)

INDEX
Sr No.

Topic

01

Inroduction
1.1 Topic
1.2 Orgnsation
1.3 Objective of Poject

02

Page No.
07
10
11

Concepts related to study

2.1
2.2
2.3
2.4

Ratio Analysis
Working Capital
working capital ratio
Objectives of working capital

13
14
16
17
3

2.5 Gross and net working capital

2.6 Classification of Working Capital
2.7 Factor affecting on working capital
2.8 Importance of ratio analysis
2.9 Factor affecting on ratio analysis
2.10 Cash Management
2.11 Inventory Management

18
20
21
22
23
24
25

03
Organisation
3.1
3.2
3.3
3.4
3.5
3.6
04
4.1
4.2
4.3
4.4
05

History
Production Process
Products in Flemingos Portfolio
Operationg Cycle concept
Management team of Flemindo Wines
Sources of working capital of
Flemingos wine
Research Methodology

27
28
29
30
31

Collection of Data
Rationalisation of Study
Limitations
Estimation Process

34
35
36
37

Analysis of Interpretation of Data

5.1 Statements showing changes in
Working Capital
5.2 Calculation of Ratio
5.3 Estimation of Working Capital

06

32

39
43
46

6.1 Observation and Findings

51

6.2 Conclusion and Suggestions

52
4

07

Bibliography
Anexture

CHAPTER -1

Introduction

1.1 Topic
One of the most important areas in the day to day management of the firm is the management
of the working capital.
The management of working capital is necessary for all the organization because if an
organization maintains a large holding of current assets especially cash, the risk is reduced
but it also reduces the profitability.
The importance of working capital management is reflected in the fact that financial
managers spend a great deal of time in managing current assets and current liabilities.
Arranging short term financing, negotiating favorable credit terms, controlling cash
movement, managing accounts receivables and monitoring investments in inventories
consume a great deal of time of financial managers.As the study of working capital can find
out the drawbacks of working capital management of the company by analyzing the previous
years working capital
Working capital management is a significant in financial management due the fact that it
plays a pivotal in keeping the wheels of a business enterprise running. Working capital
management is concerned with short-term financial decisions. Lack of efficient and effective
utilization of working capital leads to earn low rate of return on capital employed or even
compels to sustain losses.
A firm invests a part of its permanent capital in fixed assets and keeps a part of it for working
capital i.e. for meeting day to day requirements. We will hardly find a firm which does not
require any amount of working capital for its normal operations. The requirement of working
capital varies from firm to firm depending upon the nature of business, production policy,
market conditions, seasonality of operations, conditions of supply etc.

Working capital to a company is like the blood to human body. It is the most vital ingredient
of a business. Working capital management if carried out effectively, efficiently and
consistently, will assure the health of an organization.

Working capital is defined as the excess of current assets over current liabilities. Current
assets are those assets which will be converted into cash within the current accounting period
or within the next year as a result of the ordinary operations of the business. They cash or
near cash resources. These include:
Cash and Bank balances.
Receivables.
Inventory

Raw materials, stores and spares.

Work in process.

Finished goods.

Prepaid expenses.
Short term advances.
Temporary investments.
The value represented by these circulates among several times. Cash is used to buy
raw-materials, to pay wages and to meet other manufacturing expenses. Finished goods are
produced. These are held as inventories. When these are sold, accounts receivables are
created. The collection of accounts receivable brings cash into the firm. Current liabilities are
the debts of the firm that have to be paid during the current accounting period or within a
year. These include:
Creditors for goods purchased
Outstanding expenses. i.e., expenses due but not paid.
Short term borrowings.
Advances received against sales.

 Taxes and dividends payable.

Other liabilities maturing within a year.

Current Assets Current Liabilities = Working Capital

1.2 Organisation

We are a respected Indian wine making company in business from last tenyears. With a
humble beginning with a farming background, the promoters of FLAMINGO were able to
come up with the world class wine made from some exotic wine grape varieties. It is said that
80% of the wine is produced in the vineyards and if we go by this norm one can notice that
the best wines can only be made by the farmers worldwide and India is no exception.Today
FLAMINGO is already popular with wine connoisseurs and is also present in large parts of
India. This success belongs to the quality product and dynamic leadership of JagdishHolkar,
Chairman, and FLAMINGO group.

1.3 Objective of project study

Every study emerges to achieve certain objectives. The main objective of carrying out this
project is to know and gain practical knowledge and to know the organization working
culture.
Following are the important objective of the project:
1

To have comprehensive understanding of Flamingo Wines.

To know the present financial position of Flamingo Wines.

To know the working capital performance of Flamingo Wines.

To examine the financial performance of Flamingo Wines through ratios and

statements of changes in working capital.

10

CHAPTER -2

CONCEPTS RELATED TO
STUDY

11

2.1 RATIO ANALYSIS

The ratio analysis has emerged as the principal technique of the analysis of financial
statements. A ratio is a relationship expressed in mathematical terms between two individual
or group of figures connected with each other in some logical manner. The ratio analysis is
based on the premise that a single accounting figure by itself may not communicate any
meaningful information but when expressed as a relative to some other figure, it may
definitely give some significant information. The relationship between two or more
accounting figures/groups is called a financial ratio. A financial ratio helps to summarize a
large mass of financial data into a concise form and to make meaningful interpretations and
conclusions about the performance and positions of a firm.

12

2.2

WORKING CAPITAL

Working capital management is a significant in financial management due the fact that it
plays a pivotal in keeping the wheels of a business enterprise running. Working capital
management is concerned with short-term financial decisions. Lack of efficient and effective
utilization of working capital leads to earn low rate of return on capital employed or even
compels to sustain losses.
A firm invests a part of its permanent capital in fixed assets and keeps a part of it for working
capital i.e. for meeting day to day requirements. We will hardly find a firm which does not
require any amount of working capital for its normal operations. The requirement of working
capital varies from firm to firm depending upon the nature of business, production policy,
market conditions, seasonality of operations, conditions of supply etc.
Working capital to a company is like the blood to human body. It is the most vital ingredient
of a business. Working capital management if carried out effectively, efficiently and
consistently, will assure the health of an organization.

13

MEANING
Working capital is defined as the excess of current assets over current liabilities. Current
assets are those assets which will be converted into cash within the current accounting period
or within the next year as a result of the ordinary operations of the business. They cash or
near cash resources. These include:
Cash and Bank balances.
Receivables.
Inventory

Raw materials, stores and spares.

Work in process.

Finished goods.

Prepaid expenses.
Short term advances.
Temporary investments.
The value represented by these circulates among several times. Cash is used to buy
raw-materials, to pay wages and to meet other manufacturing expenses. Finished goods are

14

produced. These are held as inventories. When these are sold, accounts receivables are
created. The collection of accounts receivable brings cash into the firm.
Current liabilities are the debts of the firm that have to be paid during the current
2.4accounting period or within a year. These include:
Creditors for goods purchased
Outstanding expenses. i.e., expenses due but not paid.
Short term borrowings.

2.3 WORKING CAPITAL RATIOS

Working capital ratios indicate the ability of a business concern in meeting its current
obligations as well as its efficiency in managing the current assets for generation of sales.
These ratios are applied to evaluate the efficiency with which the firm manages and utilizes
its current assets. The following three categories of ratios are used for efficient management
of working capital
(1) Efficiency ratios
(2) Liquidity ratios
(3) Structural health ratios

15

2.4 OBJECTIVE OF WORKING CAPITALMANAGEMENT.

The basic objectives of working capital are as follows:

By optimizing the investment in current assets and by reducing the level of current
liabilities, the company can reduce the locking-up of funds in working capital thereby;
it can improve the return on capital employed in the business.

The company should always be in a positing to meet its current obligations which
should properly be supported by the current assets available with the firm. But
maintaining excess funds in working capital means locking of funds without returns.

The firm should manage its current assets in such a way that the marginal return on
investment in these assets in not less than the cost of capital employed to finance the
current assets.

The firm should maintain properly balance between current assets and current
liabilities to enable the firm to meet its day to day financial obligations.

16

2.5 GROSS AND NETWORKING CAPITAL

Generally the working capital has its significance in two perspectives. These are gross
working capital and net working capitals are called balance sheet approach of working
capital.
Gross Working Capital:
The term gross working capital refers to the firms investment in current assets. The amount
of current liabilities is not deducted from the total of current assets. The concept of gross
working capital is advocated for the following reasons:

Profits of the firm are earned by making investment of its funds in fixed and current
assets. This suggests the part of the earning relate to investment in current assets.
Therefore, aggregate of current assets should be taken to mean the working capital.

The management is more concerned with the total current assets as they constitute
the total funds available for operating purposes than from the sources from which
the funds come.

An increase in the overall investment in the enterprise also brings an increase in the
working capital.

Net Working Capital:

17

The term Net working capital refers to the excess of current assets over current liabilities. It
refers to the difference between current assets and current liabilities. The net working capital
is a qualitative concept which indicates the liquidity position of the firm and the extent to
which working capital need may be financed by permanent source of funds. The concept
looks into the angle of judicious mix of long-term and short-term funds for financing current
assets. A position of net working capital should be financed with permanent sources of funds.

Permanent Working Capital:

The magnitude of investment in working capital may increase or decrease over a period of
time according to the level of production. But, there is a need for minimum level of working
capital to carry its business irrespective of change in level of sales or production. Such
minimum level of working capital is called permanent working capital or fixed working
capital.
Temporary Working Capital:
It is also called as fluctuating working capital. It depends upon the changes in production
and sales, over and above the permanent working capital. It is the extra working capital
needed to support the changing business activities. It represents additional assets required at
different items during the operation of the year. A firm will finance its seasonal and current
fluctuations in business operations through short-term debt financing.
For example, in peak seasons, more row materials to be purchased, more
manufacturing expenses to be incurred, more funds will be locked in debtors balances etc.

18

2.6 CLASSIFICATION OF WORKING CAPITAL

19

Working Capital

On the basis of concept

Gross

On the basis of periodic requirement

Net

Positive

Negative

Permanent/Fixed Working Capital

Regular Working Capital

Reserve Margin

Variable Working Capital

Seasonal

Special

2.7 FACTORS AFFECTING ON WORKING CAPITAL

20

a) Nature of Business:
In some business organizations, the sales are monthly on cash basis and the operating cycle is
also very short. In these concerns, the working capital requirement is comparatively less.
Mostly service giving companies come in the category. In manufacturing concerns, usually
the operating cycle is very long and a firm has to give credit to customers for improving
sales. In such cases, the working capital requirement is more.
b) Production Policy:
Working capital requirement also fluctuate according to the production policy. Some
productions have seasonal demand but in order to eliminate the fluctuations in working
capital, the manufacturer plans the production in a steady flow throughout the year. This
policy will even out the fluctuation in working capital.
c) Market Conditions:
Due to competition in the market, the demands for working capital fluctuate. In a competitive
environment, a business firm has to give liberal credit to customers. Similarly, it has to
maintain a large inventory of finished goods to service the customers promptly. In this
situation, larger amount of working capital will be required.
d) Seasonal Fluctuations:
A firm which is producing production with seasonal demands requires more working capital
during peak seasons while the demand for working capital will go down during slack seasons.

2.8 IMPORTANCE OF RATIO ANALYSIS

21

The major benefits arising from ratio analysis are as follows:

Ratio analysis is a very powerful tool useful for measuring performance of an
organization.
Ratio analysis concentrates on the inter-relationship among the figure appearing in the
financial statements.
Ratio analysis helps the management to analyze the past performance of the firm and
to make further projections.
Ratio analysis allow interested parties to make evaluation of certain aspects of the
firms performance as given below:

Shareholders and prospective investors will analyze ratios for taking investments
and disinvestment decisions.

Bankers who provide working capital will analyze ratios for appraising the
creditworthiness of the firm.

The financial institutions who provide long-term debt will analyze ratios for
project appraisal and debt servicing capacity of the firm.

Government agencies will analyze ratio of a firm for review of its performance.

The companys management will analyze ratios for determining the financial
health and its profitability. The ratio will also be used for inter-firm and intra-firm
comparison and will also be used in financial planning and decision making.

2.9

FACTOR AFFECTING ON RATIO ANALYSIS

22

Ratios by themselves mean nothing. Caution has to be exercised in using ratios. They must
always be compared with.
a) A norm or a target,
b) Previous ratios in order to assess trends, and
c) The ratios achieved in other comparable companies.
The following limitations must be taken into account:

Ratios are calculated from financial statements which are affected by the
financial bases and policies adopted on such matters as depreciation and the valuation
of stocks.

Financial statements do not represent a complete picture of the business, but

merely a collection of facts which can be expressed in monetary terms. These may not
refer to other factors which affect performance.

Over use of ratios as controls on managers could be dangerous, in that

management might concentrate more on simply improving then on dealing with the
significant issues.

A ratio is a comparison of two figures, a numerator and a denominator. In

comparing ratios it may be difficult to determine whether differences are due to
changes in the numerator or in both.

Since ratios are calculated from past records, there are no indicators of future.

Proper care should be exercised to study only such figures as have a cause and
effect relationship, otherwise ratios will only be meaningless or misleading.

2.10 CASH MANAGEMENT

23

Cash is the most liquid asset in any business. It is a very crucial asset in the day-to-day
operations of a business firm. Cash is the basic input required to run the business
continuously and at the same time it is also the ultimate output expected to be realized by
selling the service or product manufactured by the firm. A firm has to strike a balance
between maintaining a very high cash balance and a very small amount of cash balance. If
excessive cash balance is maintained, the excess cash will remain idle affecting the
profitability of the business adversely. On the other hand, if too small amount of cash balance
is maintained, it will lead to shortage of cash resulting into disruption of manufacturing
operations of a business firm. Therefore, the major aspect of cash management is to keep
proper cash balance.
The term cash with reference to cash management is used in two senses. In a narrow sense, it
is used broadly to cover cash (currency) and generally accepted equivalent of cash such as
cheques, bank drafts and demand deposits in bank. The broader view of cash also includes
near cash assets such a marketable securities and time deposits in bank. The main
characteristic of these assets is that they can be readily sold and converted into cash. They
also provide a short-term investment outlet for excess cash and are also useful for meeting
planned outflow of funds.
Cash management thus is concerned with, the managing of,
1)

Cash flows into and out of the firm.

2)

Cash flows within the firm.

3)

Cash balance held by the firm at a point of time by financing deficit or

investing surplus cash.

2.11 INVENTORY MANAGEMENT

The total current assets of a firm consist of 1) Debtors, 2) Bills Receivables, 3) Inventory, 4)
Cash and Bank balances, 5) Expenses paid in advance and 6) Short-term Investments. The
inventories which include inventories of raw materials, finished goods, and work-in-process

24

constitute quite a significant part of the total current assets. It has been observed that in many
cases inventories are more than 60-65% of the total current assets of a firm. This naturally
means that a large amount is blocked in inventories and, therefore, management of inventory
has assumed a great importance. If properly managed, the profitability is definitely affected
adversely.
Classification of Inventories:
1.Raw Materials: A manufacturing concern converts the raw material into the
finished products. The raw materials are the basic inputs which are required for the
conversion into finished products.
2. Work-in-process: Between the raw materials and the finished goods, there is an
intermediate stage which is known as work-in-process or work in progress. These
units are, therefore, neither totally raw nor totally finished.
3. Finished Goods: These are completed units awaiting the sales in the market. As the
production in the modern days is in anticipation of the demand, some amount of
finished goods inventory is inevitable. This inventory should be in sufficient quantity
so that marketing operations of the firm can be smooth

CHAPTER - 3

25

ORGANISATION

3.1 History

We are a respected Indian wine making company in business from last tenyears. With a
humble beginning with a farming background, the promoters of FLAMINGO were able to
come up with the world class wine made from some exotic wine grape varieties. It is said that

26

80% of the wine is produced in the vineyards and if we go by this norm one can notice that
the best wines can only be made by the farmers worldwide and India is no exception.Today
FLAMINGO is already popular with wine connoisseurs and is also present in large parts of
India. This success belongs to the quality product and dynamic leadership of JagdishHolkar,
Chairman, and FLAMINGO group. Nashik Valley has been known for growing quality
grapes, fruits and flowers for the last ten decades. It is during the last decade that some local
enterprising farmers took initiative to reorganize and rearrange their vineyards to produce
wine grapes, as this region provided the right environment for growing quality wine grapes.
The soil type ranges from well-drained gravely loams to moisture retaining salty clay. The
climate is typically Mediterranean with warm, but not excessively hot, days and cool nights.
The entire grape growing area in this wine district is very well irrigated with excellent
network of dams and canals. At present there are more than 30,000 hectares of land under
grape cultivation in Nashik and another 30,000 hectares in the surrounding regions.

3.2 Production process

27

Flow chart of Wine Making Process

28

29

3.3 PRODUCTS IN FLEMINGOS PORTFOLIO

FLAMINGOBRUT METHOD CHAMPENOISE (SPARKLING WINE)

CHENIN BLANC (WHITE WINE)

ZINFANDEL (RED WINE)

DESSERT (SWEET WINE)

30

3.4 OPERATING CYCLE CONCEPT

Working capital is the life blood of any business, without which the fixed assets are
inoperative. Working capital circulates in the business, and the current assets change from
one form to the other. Cash is used for procurement of raw materials and stores items and for
payment of operating expenses, and then converted into work-in-progress, then to finished
goods. When the finished goods are sold on credit terms receivables balances will be formed.
When the receivables are collected, it is again converted into cash. The need for working
capital arises because of the time gap between production of goods and their actual
realization after sales. The time gap is called technically called as operating cycle or
working capital cycle. The operating cycle of a company consists of time period betweethe

31

procurement

of

inventory

and

the

collection

of

cash

from

receivables.

OPERATIING CYCLE

3.5

MANAGEMENT TEAM OF FLEMINGO WINES

The promoters and management team of Flamingo Wines consist of the most eminent
Industrialist, Agriculturist in the State of Maharashtra.
32

The Flamingo team comprises of:

1.

Mr. JagdishHolkar- Chairman

2.

Mr. AnanthBothare - Manager

Some details about the premiers of this group:

1. Mr. Jagdish Holkar Chairman:

Specializes in Chemistry, one of the foremost agriculturists in initiating export of farm
produce from the Nashik Valley. Successfully runs a Biotech Company which is reaping rich
dividends under his critical supervision. A visionary as a whole and willing to take all the
necessary steps to make the company the best wine making company in the country.

2. Mr.Ananth Bothare-Manager :
The management expert in the team of "FLAMINGO". He brings in the most
innovative ideas for the promotion, sale and brand establishment. He has interest in Drip
Irrigation and has developed his skills in this sector over the last 15 years.

3.6 SOURCES OF WORKING CAPITAL OF FLEMINGO WINES

33

CHAPTER 4

34

RESEARCH METHODOLOGY

4.1 Collection of data

Methodology is the process of collecting the information and helps to find out the solution to
the topic selected by the researcher. Where as research helps to study and find out the
techniques with the proper process. It is a systematic way of presenting information.

35

In order to collect the required information for the project the following methods were
adopted:

Primary data
The concern staff of Flamingo Wines was interviewed personally. The data was collected
with the purpose of evaluation.

Discussion with the finance manager regarding the figure of balance sheet.

Collection of information related to working capital from other members of the

accounts department of the organization.

Secondery data
Secondary data is provided by the organization. The needed information is collected from:

Balance sheet of Flamingo Wines 2013-15

Books of accounts of Flamingo Wines 2013-15

Annual reports of Flamingo Wines 2013-15

4.2 RATIONAL OF THE STUDY

Education is only a mean to The ultimate objective of making this project is to develop self
reliance, learning habit, creating awareness of the special and culture environment developing
appropriate communication skills, application of knowledge of project and surveys of these
programs.
The project also helps to build the skills of analysis. The contribution of the project is to
accept as a great opportunity as one can apply the knowledge through project surveys etc.

36

4.3

LIMITATIONS

This project focuses only on certain factors, which are important to discuss. But tool of
ratio analysis has certain fundamental and conceptual limitations, this project as well.
The study is only made on one organization so it does not provide any scope of
comparison with other organization.

The study is based only on last 2-year records.

The study is restricted to financial position of the company with on attention given
to loans and advances and deposit mobilization.
37

While computing ratios, average, percentage, the figures are appropriated to two
decimal places.

(a) Raw Material Holding Period

Average raw material stock
Average consumption of raw material/365
(b) Work-In-Process Period
Average work-in-(e) Creditors Payment Period
Average creditors
Average purchase of raw material/365

4.4 ESTIMATION PROCESS

A firm must estimate in advance as to how much net working capital will be required for the
smooth operations f the business. Only then, it can bifurcate this requirement into permanent
working capital and temporary working capital. This bifurcation will help in deciding the
financing pattern i.e. how much working capital should be financed from long-term sources
and how much to be financed from short-term sources. There are different approaches
available to estimate the working capital requirements of a firm as follows:

38

A) Working Capital as a Percentage of Net Sales

This approach to estimate the working capital requirement is based on the fact that the
working capital for any firm is directly related to the sales volume of that firm. So, the
working capital requirement is expressed as a percentage of expected sales for a particular
period.
B) Working Capital as a Percentage of Total Assets or Fixed Assets
This approach of estimation of working capital requirement is base on the fact that the total
assets of a firm are consisting of fixed assets and current assets. On the bases of the past
experience, a relationship between (i) total current assets i.e. gross working capital ; or net
working capital i.e. Current assets Current liabilities, and (ii) total fixed assets or total
assets of the firm is established.
C) Working Capital based on Operating Cycle
The concept of operating cycle, as discussed in the preceding chapter, helps determining the
time scale over which the current assets are maintained. The operating cycle for different
components of working capital gives the time for which an asset is maintained, once it is
acquired. However, the concept of operating cycle does not talk of the fund invested in
maintaining these current assets. The concept of operating cycle can definitely be used to
estimate the working capital requirements for any firm.

CHAPTER -5

39

ANALYSIS AND INTEPRETATION OF

DATA

5.1 STATEMENT SHOWING CHANGES INWORKING CAPITAL

40

2013-14
Particulars
A) Current Assets
a) Cash & Bank Bal.
b) Inventories
c) Loans & Advances
d) Sundry Debtors

B) Current Liabilities
a) Sundry Creditors
b) Advances to Staff
c) Profession Tax Payable
d) Provision for Taxation
e) Sales Tax Payable
f) Elect. Charges Payable
g) Audit Fee Payable
h) Telephone Exp. Payable
i) TCS & Surcharge
Payable
j) TDS Payable

2013
-41100
1284780
0
702650
2853650
1636300
0

2014 Increase
277750

318850

19428050
1135700

6580250
433050

6968400

4114750

27809900 11446900

8709300
0
8850
0
741150
53550
63100
20450

5672850
21550
20600
26700
626550
16500
95500
18550

2150
110050
9708600

21550
26100
6546450

Total Increase/Decrease
Working Capital (A-B)

6654400

2126345
0

Decrease
0

3036450
21550
11750
26700
114600
37050
32400
1900
19400
83950
3273950
1472085
0

111800
111800

1460905
0

41

2013-14
Working capital = Current assets - Current liabilities 44172900 - 16255050
27917850

There is a Net Working Capital of 2013-14 Rs - 27917850

Interpretation & Analysis:We see that there is a net increase in the working capital,
because in the year 2013-14 there was increase in the inventories by 51%, the sundry debtors
also Increased by 144% of the previous year. Along with it the creditors also decreased by
35%.

2014-15

42

Particulars
A) Current Assets
a) Cash & Bank Bal.

2014
277750

b) Inventories
c) Loans & Advances
d) Sundry Debtors

19428050
1135700
6968400
27809900

B) Current Liabilities
a) Sundry Creditors
b) Advances to Staff
c) Profession Tax Payable
d) VAT BST
e) VAT CST
f) VAT Payable Delhi
g) VAT - 31.03.2005 (BST)
h) VAT - 31.03.2005 (CST)
i) Provision for Taxation
j) Provision for FBT
k) Sales Tax Payable
l) O/s Expenses
m) Elect. Charges Payable
n) Audit Fee Payable
o) Tax Audit Fees Payable
p) Salaries Payable
q) Telephone Exp. Payable
r) TCS & Surcharge
Payable
s) TDS Payable

101750
3354155
0 14113500
1727350
591650
9256600 2288200
4462725 1699335
0
0

5672850 11348050
21550
0
20600
7400
0
300
0
50
0
6700
0
456250
0
3900
26700
28050
0
215600
626550
0
0
3000
16500
18200
95500
19500
0
19500
0
155850
18550
0
21550
26100
6546450

Total Increase/Decrease
Working Capital (A-B)

2015 Increase

21263450

0
2100
1228445
0

Decrease
176000

176000
5675200

21550
13200
300
50
6700
456250
3900
1350
215600
626550
3000
1700
76000
19500
155850
18550
21550
24000
801400
1779475
0

6539400
6715400

3234280
0 11079350

2014-15
43

Working capital = Current assets current liablities

72437150 - 18830900
53606250

There is a Net Working Capital of 2014-15 Rs. 53606250

Interpretation & Analysis:

We see that there is a net increase in the working capital, because in the year 2014-15
there was again an increase in the inventories by 73% and the debtors also increased by
33%. Even though there was increase in creditors by 100%.

44

5.2 CALCULATION OF RATIOS

Working capital
Working capital is defined as the excess of current assets over current liabilities.

Working capital = Current assets Current liabilities

Year

Current assets

Working capital

Current liabilities
2013-14
2014-15

44172900 16255050
72437150 - 18830900

27917850
53606250

CURRENT RATIOS
45

The current ratios is a popular financial ratio used to test a company's liquidity (also referred
to as its current or working capital position) by deriving the proportion of current assets
available to cover current liabilities.
The concept behind this ratio is to ascertain whether a company's short-term assets (cash,
cash equivalents, marketable securities, receivables and inventory) are readily available to
pay off its short-term liabilities (notes payable, current portion of term debt, payables,
accrued expenses and taxes). In theory, the higher the current ratio, the better.
Current Assets, Loans & Advances
Current Liabilities & Provisions

Year

Current Assets

Current Ratio

Current Liabilities
2013-14

44172900

2.71

16255050

2014-2015

72437150

3.84

18830900

LIQUID RATIO
This ratio is also known as liquid ratio or test ratio. It expresses the relationship between
quick current assets and current liabilities. While calculation of quick ratio, inventories are
excluded from current assets, since inventories cannot be converted into cash in short time

46

without loss of value. This ratio is a more refined tool to measure the liquidity of an
organization.
Current Assets, Loans & Advances Inventories
Current Liabilities & Provisions Bank Overdraft
with the stock. Stock is a not liquid current asset.

Year

Liquid Current Assets

Liquid Ratio

Liquid Liabilities
2013-14

11897050

0.43

16255050
2014-15

19467550

0.63

18830900

5.3 ESTIMATION OF WORKING CAPITAL

Working Capital as a Percentage of Net Sales

Net Sales

2014

2015

1055530
0

1513820
0

47

Total Current Assets

Total Current Liabilities
Current Assets as a % of
Sales
Current Liabilities as a % of
Sales

2780990
0
6546450

4462725
0
1228440
0

263%

295%

62%

81%

The average of current assets as a % of sales is 410%

i.e. (263%+295%)/2
The average of current liabilities as a % of sales is 102%
i.e. (62%+81%)/2
So, net working capital as a % of Sales is

308%

i.e. (410% - 102%)

Creditors

48

12000000
10000000
8000000
Year

6000000

Creditors

4000000
2000000
0
1

Interpretation & Analysis:

In the above graph there has been a increase in the year 2013 andthen after there ia a downfall
in the year 2014 and again there is a increase in the year 2015 of the amount of the creditors
of flamingo in the last two years due to fluctution in credit purchases.

Debtors

49

10000000
9000000
8000000
7000000
6000000

year

5000000

debtors

4000000
3000000
2000000
1000000
0
1

Interpretation & Analysis:

In the above graph there has been a constant increase in the amount of the debtors of
flamingo in the last two years due to increase in credit sales.

Cash

50

1200000
1000000
800000
year

600000

cash

400000
200000
0
1

-200000

Interpretation & Analysis:

The above graph shows there was a negative cash balance in year 2014 and then there was a
constant increase in the cash balance in year 2014 and 2015.

51

CHAPTER -6

[A] OBSEVATION AND FINDINGS

[B]CONCLUSIONAND SUGGESTIONS

(A) OBSERVATIONS AND FINDINGS

52

In Working Capital Management, there are mainly Two parts they are Cash
Management and Inventory Management. For optimum use of working
capital, these three parts should be managed properly, for that I would like to
give suggestions to Flamingo Winery, they are as follows:
Considering the cash management the company should maintain a cash
flow budget every year, considering monthly or quarterly. During the
preparation of the cash budget the credit period should be below 150
days allowed to the customer.
Considering the inventory management, there should be a fast
movement of inventory, by taking efforts in increment of the sales.
Considering the creditors the management should set a price range for
the creditors.

(B) CONCLUSIONS AND SUGGESTIONS

53

As the project was conducted to analyze the Working Capital of

FLAMINGO WINES CO. PVT.LTD. for the last two years. During this
project working and project report I came to conclusions that are as follows:
Working capital shows a constant increase every year.
Current ratio is good of the company, which means the company has
sufficient assets, which can be converted into cash to pay the debts
when required.
The acid test ratio is just below the standard ratio which is 1:1.
The working capital turnover ratio is found below standards during the
year 2013, 2014, and 2015.
The inventory turnover ratio is found too low.

The company has a long inventory holding period.

The debtors turnover ratio is found average.

The creditors turnover ratio is improving every year.
Lots of current assets are in blocked position.

54

CHAPTER - 7

BIBLIOGRAPHY
ANNXURE

55

BIBLIOGRAPHY
BOOKS
Financial Management: N. M. Vechalekar.
Financial Management: R. P. Rastogi.
Working capital management of Flamingo Wines Co. Pvt. Ltd.
2013-14 to 2014-15.
www.flamingowines.co.in

56

ANNEXTURE
Working capital management of Two years
Years :- 2013 2014, 2014 - 2015

57