Working Capital Management at Taj Residency, Nashik

Working Capital Management Taj Residency, Nashik
Project On
WORKING CAPITAL MANAGEMENT
(FINANCE)
Submitted in partial fulfillment of the PGDM
Submitted By
VEENA KUMARI
ROLL.NO
Guided by
SINHGAD BUSINESS SCHOOL , PUNE

(2007-2009)
ACKNOWLEDGEMENT
I take immense pleasure in completing this project and submitting the final project
report.
This project has been a platform in my learning about the financial sector and gave the
platform to acquire knowledge in this area. I am deeply in-depth to my institution SBS
PUNE to provide me an opportunity to undergo such a project, which gave me thorough
insights and experience of the corporate culture that will always milestone in the path of
my successful career.
The last two month with TAJ RESIDENCY has been full of learning and sense of
contribution toward the organization. I would like to thank TAJ RESIDENCY for giving
me an opportunity of learning and contributing through this project. I also take this
opportunity to thank all those people that made this experience a memorable one.
A successful project can never be prepared by the single effort of the person to whom
project is assigned, but it also demand the help and guardianship of some conversant
person who helped the undersigned actively or passively in the completion of successful
project
The project could not have been completed timely without and vital help of Mr.Abhay
Pathak, (Chief Accountant), Mr.Vinod Sonawane (Account Executive), Mr. Salim sir, and
Special thanks to Mr.Nilesh Kotwal for their invaluable guidance, keen interest
cooperation inspiration, and of course moral support through my project session.
SERIAL
NO.
CONTENT
PAGE
NO.
OBJECTIVE OF THE STUDY
SCOPE OF THE STUDY
7-8
COMPANY PROFILE
9 -18
19 - 33
WORKING CAPITAL ESTIMATION
34
INVENTORY MANAGEMENT
35 - 42
RECEIVABLE MANAGEMENT
43 - 50
CASH AND BANK MANAGEMENT
51 - 54
LOANS, ADVANCES, AND DEPOSIT

RECEIVABLES
55
10
PAYABLE MANAGEMENT
56 - 58
11
LOANS, ADVANCES, AND DEPOSIT PAYABLES
59
12
BIBLIOGRAPHY
60
OBJECTIVE OF THE STUDY
Working Capital involved in managing Risk and uncertainty in the cash flows.
Uncertainty in demand and supply of goods, escalation in cost both operating
and financing costs.
Working Capital controls under capitalization and over capitalization.
Working Capital leads to a situation where the firm may not be able to meet its
liabilities.
SCOPE OF THE STUDY

To Study about the enterprise to undertake profitable projects due to scarcity of working
capital. Some important points are given as follows:
Growth may be stunted. It may become difficult for the enterprise to

undertake profitable projects due to non-availability of working capital.
Implementation of operating plans may become difficult and consequently
the profit goals may not be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to
non-availability of the working capital.
The business may fail to honour its commitment in time, there by
adversely affecting its credibility. This situation may lead to business
closure.
The business may be compelled to buy raw materials on credit and sell
finished goods on cash. In the process it may end up with increasing cost
of purchases and reducing selling prices by offering discounts. Both these
situations would affect profitability adversely.

Non-availability of stocks due to non-availability of funds may result in
production stoppage.
While underassessment of working capital has disastrous implication on

business, over assessment of working capital also has its own Dangers.
Excess of working capital may result in unnecessary accumulation of
inventories. It may lead to offer too liberal credit terms to buyers and very
poor recovery system and cash management.
It may make management complacent leading to its inefficiency.
Over-investment in working capital makes capital less productive and may
reduce return on investment.
Working capital is very essential for success of a business and, therefore, needs
efficient management and control. Each of the components of the working capital needs
proper management to optimize profit.
Company Profile
Taj Groups pioneering spirit has continued in more recent times when in 1958, the
Group founded Tata Consultancy services, today Asias largest software and services
company, and in 1999, when the Groups automobile company, Tata Engineering,
becomes the first car makes in a developing country to design and produce a car from
the ground up. The car, the Indica, has now sold over 200,000 Units, and is currently
the largest selling car in its category in the country.
The business operation of the Group currently encompasses the Engineering, Material,
Energy, Chemicals, Consumer products, Services, and Communication and information
systems sector. The group has the largest footprint in Indias New Economy, and is
Indias largest private sector telecom service provider. Today, the scale of the groups
operations is increasingly turning global. Tata Tea is the first Indian MNC in the global
8

tea industry and Indias largest integrated tea company; Tata Chemicals is Asias largest
manufacturer of soda ash; Titan is one of the world top six manufacturer brands in the
watch segment; Tata Engineering is amongst the top ten commercial vehicle
manufacturers I the world; and Videsh Sanchar Nigam limited is Indias largest ILD
services provider, and one of the largest players in the internet services market.
To leverage the value of the Tata brand, the thrust of the groups business has shifted
from a product - driven to a brand driven portfolio. The groups stable of brands and
services includes Tata. Tata Indica, Tata Safari, Titan, Tanishq, Taj Hotels, Tata Tea,
Tetley, Tata Salt, Westside and VSNL.
The group has believed in giving back more to society than what it has received. Thus,
nearly two thirds of the equity of Tata Sons, the groups premier promoter company, is
held by philanthropic trusts, which have created a host of national institutions in natural
sciences, medical care, energy and the arts.
By combining ethical values with business acumen, globalization with national interests
and core strengths with flexibility, the Tata Group aims to be the largest and
most respected global brand from India; a long standing commitment to improving the
quality of life of its shareholders.
1970 1980
1971 - 72
Two beautiful palaces in Rajasthan were linked up to the Taj lake Palace, Udaipur, a
marbles dream afloat Lake Pichola and Rambagh Palace, originally created at the
Rajput splendor.
1974 A new company, the oriental Hotels Limited, built the Taj Coromandel Hotel at
Chennai, the finest hotel in South India.
9

1976 The Taj Group entered into an allied business with the Taj Flight Kitchen,
adjacent to the Santa Cruz airport.
1977 In Mumbai, the Taj President Hotel became a part of the chain and was
transformed into one of the most successful hotels in India.
1978 The glittering The Taj Mahal Hotel was inaugurated at New Delhi which instantly
became one of the greatest success stories in the history of Hotels.
1980 The ancient city of Varanasi on the banks of the sacred Ganges became a
further link in the Taj Group of Hotels with the opening of Taj Ganges, Benares.
1981 1990
1982 To coincide with the Asian Games, the gigantic Taj Palace Hotel at New Delhi,
with its massive Convention Centre was opened.
1983 Another Taj Air Caterers unit was added to the Indira Gandhi International
Airport, New Delhi.
1984 Three more beautiful hotels were added to the chain Connemara Hotel, in
Chennai, the Taj West End in Bangalore, a magnificent property sprawled over twenty
acres and Savoy Hotel atop the Nilgires at Ootacamund, Tamil Nadu.
1985 87 Jai Mahal Palace at Jaipur and Taj View Hotel at Agra were added to the
group in 1985 Hotel Chandela was added tohte chain in 1986.
1988 The Sawai Madhopur Lodge, deep in the heart of Rajasthan was a unique
addition.
1989 Taj Bengal, Calcutta and Gateway Hotel on Residency Road, Bangalore was
opened.
1990 Ambassador Hotel, Delhi came under the Umbrella of the Taj Group of Hotels.
10

1991 2000
1991 Taj Garden Retreat, Conoor became another jewel in the Crown.
1992 In the port city of Vishakapatnam, Taj Residency opened its Doors.
1993 Taj Residency Aurangabad, Manjarun, Mangalore joined the chain.
1994 Taj Residency Ernakulam marked the 2 nd hotel of the Taj group in Gods own
Country Kerala.
1995 Two hotels opened their doors, one was the Taj Residency, Lucknow located on
the Banks of the Gomti and other was the spacious Taj Residency, Indore.
1996 Taj Residency, Nashik and Taj Garden Retreat, Varkala were started to cater to
the business traveler and the leisure traveler respectively.
1997 Housing the Taj Ayurveda Centre, Taj Residency, Calicut began offering the
renowed Ayurvedic messages from Kerala.
1998 Taj Garden Retreat, Thekkady was opened, a veritable Eden as we call it.
1999 The end of the millennium marked the opening of Taj Exotica, Goa surrounds
over 60 acres of beautifully landscaped gardens. The Blue Diamond in Pune and City
Inn, Baramati were also added by means of acquisition.
2000 The dawn of the New Millennium brought with it two mergers in the city of
Hyderabad, the Taj Krishna and the Taj Residency.
2001 onwards
2002 Taj Exotica Resorts and Spa, Maldives was added to the family of international
Taj Properties offering facilities of resorts and spa, which attracts many tourists. Another
huge property was added in this year in Mumbai by the name of Taj Lands end in
11

northern Mumbai (formerly a Regent property) a huge 500 room property adding to the
luxury segment of the group.
2004 Taj Exotica Resort and Spa Mauritius, Taj Wellington Mews Mumbai ,Taj
Green Cove Kovalam, Usha Kiran Palace, Gwalior
2005 We acquired The Pierre in New York and Taj Langkawi, Malaysia. We also
opened Taj Chandigarh.
2006 We enter Australia with the Blue at Wooloomooloo Bay, Sydney. We also took
over new Holiday Inn at Surat and converted it into the Gateway on Athwa Lines.
STRATEGIC BUSINESS UNITS (SBUs)
The Taj Group of Hotels is one of the largest hotel chains in South Asia with over 73
hotels in India and abroad with a turnover of over 1500 crores. The Hotels operate
through four strategic business units which are; Luxury International, Luxury India
Leisure and Business.
TAJ LUXURY HOTELS (International)
St. James Court London (UK)
51 Buckingham Gate London (UK)
Taj Exotica Resorts & Spa, Maldives.
Taj Exotica Resorts & Spa, Mauritius
The Pierre, New York

12
Taj Palace, Dubai
TAJ LUXURY HOTELS (India)

The Taj Luxury Hotels capture the essence of the Taj experience. Located in the main
political and commercial cities of India they maintain the highest standards of all the
services they offer. With exquisitely appointed rooms and modern facilities of these of
these hotels offer the finest the standards of hospitality and service.
Taj Mahal Palace and Towers Mumbai
Taj Coromandel Chennai
The Taj Mahal Hotel New Delhi
Taj Bengal Kolkatta
Taj Palace Hotel New Delhi
Taj West End Bangalore
Taj Krishna Hyderabad
Taj Lands End Mumbai
Rambagh Palace Jaipur
Taj Lake Palace Udaipur
Wellington Mews Mumbai
Taj Umiad Bhavan Palace Jodhpur
TAJ BUSINESS HOTELS

Located in the heart of Indias key commercial cities and towns, the hotels provide every
modern facility at particularly attractive room with international style hotels meet the
13

growing needs of business travelers to cities, which are rapidly industrializing and
expanding.
TAJ LEISURE HOTELS
At the Leisure Hotels, pleasure seekers, the curious and those simply get away from it
all can do just that. These properties include idyllic between genuine Palaces, turn-ofthe-century garden retreats, hotels located in pilgrim centre and some of Indias best
wildlife sanctuary offering you experiences entirely unique in themselves
TAJ RESORTS HOTELS
Fishermans Cove (Chennai)
Fort Aguada Beach Resort (Goa)
The Aguada Hermitage (Goa)
Taj Exotica (Goa)
Taj Holiday Village(Goa
Blue, Sydney
Taj Sheba, Sanaa
The Pamodzi Hotel, Lusaka
Taj Samudra, Colombo
Airport Garden Hotel, Colombo
Manjarun Hotel (Mangalore)
The Ambassador Hotel (New Delhi)
Taj Residency Ummed (Ahmedabad)
Gateway Hotel on Residency Road (Bangalore)
Taj Residency (Aurangabad)

Taj Residency (Bangalore)
14

Taj Residency (Calicut)
Taj Connemara (Chennai)
Taj Banjara (Hyderabad)
Taj Residency (Hyderabad)
Taj Residency (Lucknow)
Taj President (Mumbai)
Taj Residency (Nashik)
Taj Blue Diamond (Pune)
Taj Residency (Vishakhapatnam)
Gateway on Athwa Lines (Surat)
City Inn (Baramati)
Taj Palace Hotels
Jai Mahal Palace (Jaipur)
Taj Resorts Hotels

Fishermans Cove (Chennai)
Fort Aguada Beach Resort (Goa)
The Aguada Hermitage (Goa)
Taj Exotica (Goa)
Taj Holiday Village(Goa
Taj Garden Retreats

15
Taj Garden Retreat (Chikmagalur)

Taj Garden Retreat (Coonoor)
Taj Garden Retreat (Kumarakom)
Taj Garden Retreat (Madurai)
Taj Garden Retreat (Thekkady)
Taj Garden Retreat (Varkala)
Taj Cultural-Centre Hotels
Taj View Hotel (Agra)
Taj Ganges (Benares)
Taj Malabar (Cochin)
Taj Hari Mahal (Jodhpur)
Hotel Chandela (Khajuraho)
Taj Other Hotels
Taj Residency (Ernakulam)
Taj Kuteeram (Bangalore)
Ramgarh Lodge (Jaipur)
Savoy Hotel (Ooty)
The Sawai Madhopur Lodge (Madhopur)
Taj Exotica, Bentota
Taj Coral Reef, Maldives
16
TAJ AIR CATERERS (Called TAJ-SATS Singaporean Airport Terminal Services)

TAJ merged with SATS in 2001. SATS owns 49% stake while TAJ owns 51% stake in
the venture, it has operations in the following metropolitan cities of India.
Calcutta
Mumbai
Delhi
Chennai
Taj SATS is expanding its operations in the following cities in India
- Amritsar,
Ahmedabad, Bangalore, Hyderabad & Pune. Amritsar is first on the list and construction
has been in Taj Resorts Hotels.
17

Net working capital is the difference between a business' current assets and its current
liabilities. Working capital policy, then, refers to decisions related to types and amounts
of current assets and the means of financing them.
These decisions will necessarily involve.
The management of cash and inventories,
Credit policy and collection of accounts receivables,
Short-term borrowing and other financing opportunities such as trade

credit,
Inventory financing, and
Receivables financing.
Working capital management is primarily concerned with the day-to-day operations

rather than long-term business decisions. For example, plans for introducing new
products to the market and plans for obtaining the facilities and equipment necessary to
produce them are strategic in nature, as are the long-term financing needs of the firm.
On the other hand, working capital management policies target short-term concerns
such as the followings.
Availability of raw material and inventories,
Continuous operation of the production line,
Granting credit to customers and collecting past-due accounts,
Taking advantage of credit purchases and the discounts for early

payments,
The management of the cash account.
These factors help promote smooth operation of the business on a day-to-day basis.
Since the average firm has about 40 percent of its capital tied up in current assets,
decisions regarding working capital greatly impact business success. This is especially
18
true for smaller businesses which often minimize their investment in fixed assets by
leasing rather than buying, but which cannot avoid investing in inventories, cash and
receivables. Further, small businesses tend to have a limited number of financing
opportunities and less access to capital markets. This requires them to rely heavily on
short-term credit such as accounts payable, bank loans and credit secured by
inventories and/or accounts receivable. The use of any of these financing sources
influences Working Capital by increasing current liabilities.
Finally, there is a direct relationship between sales growth and current asset levels. For
example, higher sales volume may be achieved only if production increases. Higher
production, however, requires greater investment in inventories. Additionally, if a firm
buys on credit, its accounts payable increase and when it sells on credit, its accounts
receivable increase. Therefore, higher sales require a larger investment in current
assets which, in turn, requires greater financing. Profits result from selling the product or
the service. If the goal of the business is higher profits, the importance of effective
working capital management becomes obvious.
Working Capital = Current Assets Current Liabilities.

CONCEPT OF WORKING CAPITAL
1. Balance sheet concept.
2. Operating cycle concept.
19
1) BALANCE SHEET CONCEPT:

There are two interpretations of working capital under the balance sheet concept.
i. EXCESS OF CURRENT ASSETS OVER CURRENT LIABILITIES
Excess of current assets over current liabilities are called the net working capital or net
current assets. Working capital is really what a part of long term finance is locked in and
used for supporting current activities. The balance sheet definition of working capital is
meaningful only as an indication of the firms current solvency in repaying its creditors.
When firms speak of shortage of working capital they in fact possibly imply scarcity of
cash resources.
Net working is the capital different between current assets and current liabilities or it is
that portion of current assets financed with long term funds.
i. GROSS OR TOTAL CURRENT ASSETS

Gross working capital means the current assets which represent the proportion of
investment that circulate one form to the other in the ordinary course of the business.
Cash
Raw Material
Cash
WIP
Finished Products
Debtors
2) OPERATING CYCLE CONCEPT:

A companys operating cycle typically consists of three primary activities:
Purchasing resources,
20
Producing the product and
Distributing (selling) the product.
These activities create funds flows that are both unsynchronized and uncertain.
Unsynchronized because cash disbursements (for example, payments for resource
purchases) usually take place before cash receipts (for example collection of
receivables). They are uncertain because future sales and costs, which generate the
respective receipts and disbursements, cannot be forecasted with complete accuracy.
Operating cycle is the time period that is required from the time. Cash is put in the
business Along with other to the time it is recover from the amount of sales made by the
fund. A firm puts cash as an input and inputs like raw materials are purchased with the
help of cash. The raw material is converted in to finished product and for this additional
cash is required. The finished product is converted into a sale and if the sale is made for
the cash. The operating cycle is complete and cash is recovered.
circulating capital means current assets of a

company that are changed in the ordinary course of
business from one form to another, as for example, from
cash to inventories, inventories to receivables, receivable to
cash
GENESTENBREG.
21
OPERATING CYCLE
Purchase Resource Pay
Sell on Credit
Inventory Conversion
Payable Period
Receive Cash
Receivables Conversion
Cash Conversion Cycle
Operating Cycle
From: fundamentals of contemporary financial management, 2nd ed, by Moyer, McGuigan

and Rao
22
TYPES OF WORKING CAPITAL
WORKING CAPITAL
BASIS OF
CONCEPT
Gross
Working
Capital
BASIS OF
TIME
Permanent
/ Fixed
WC
Net
Working
Capital
Temporary /
Variable WC
Seasonal
WC
Regular
WC
Special
WC
Reserve
WC
BASIS OF CONCEPT
23

1) Gross concept of working capital.
2) Net concept of working capital
GROSS CONCEPT:
No special distinction is made between the terms total current assets and working
capital by authors like Mehta, Archer, Mead and baker. According to them working
capital is nothing but the total of current assets for following reasons:
1) Profits are earned with the help of the assets which are partly fixed and
partly current. To a certain degree, similarity can be observed in fixed
and current assets in that both partly borrowed and yield profit over
and above the interest costs.
2) With every increase in funds, the gross working capital will increase
while according to the net concept of working capital there will be no
change in the funds available for the operating manager.
3) The management is more concerned with the current assets as they
constitute the total funds available for operating purposes than with the
source from which the funds came, and that
4) The Net Concept of working capital had relevance when the form of
organization was single entrepreneurship or partnership. In other
words a close contact was involved between the ownership,
management and control of enterprise and consequently the
ownership of current and fixed assets is not given so much important
as in the past.
NET CONCEPT
24

Contrary to the aforesaid point of view, writers like Smith, Guthmann and Dongal,
Howard and Gross, consider working capital as the mere difference between current
assets and current liabilities. According to Keith, V. smith, a broader view of working
capital would also include current liabilities such as account payable, notes payable and
other accruals. In his opinion, working capital management involves the managing of
individual current liabilities and the managing of all inter-relationship that link current
assets with current liabilities and other balance sheet accounts. The net concept is
advocated for the following reasons.
1)
In the long run what matters is the surplus of current assets over
current liabilities.
2)
It is this concept which helps creditors and investors to judge the

financial soundness of the enterprise.
3)
What can always be relied upon to meet the contingencies is the

excess of current assets over current liabilities , since it is not to be
returned; and
4)
This definition helps to find out the correct financial position of

companies having the same amount of current assets.
In general, the gross concept is referred to as the Economics Concept, since assets
are employed to drive a rate of return. What rate of return is generated by different
assets is more important than the analyzed difference between assets and liabilities. On
25

the contrary, the net concept is said to be the point of view of an accountant. In this
sense, working capital is viewed as a liquidation concept.
Therefore, the solvency of the firm is seen from the point of view of this difference to the
problem of working capital.
BASIS OF TIME
Working capital is divided into two varieties as:
1)
Permanent working capital.
2)
Variable working capital.
PERMANENT WORKING CAPITAL

Though working capital has a limited life and usually not exceeding a year, in actual
practice some part of the investment in that is always permanent. Since firms have
relatively longer life and production does not stop at the end of a particular accounting
period some investment is always locked up in the form of raw materials, work-inprogress, finished stocks, book debts and cash. The investment in these components of
working capital is simply carried forward to the next year. This minimum level of
investment in current assets that is required to continue the business without the
interruption is referred to as a permanent working capital. While suggesting a
methodology for financing working capital requirement by commercial bank, the
Tandon Committee has also recognized the need to maintain a minimum level of
investment in current assets. It referred them as, hard core current assets. The
committee wanted the borrowers to meet this portion of investment out of their own
sources and not to depend on commercial bank.
VARIABLE WORKING CAPITAL

26
This is also known as the circulating or transitory working capital. This is the amount of
investment required to take care of the fluctuations in the business activity. While
permanent working capital is meant to take care of the minimum investment in various
current assets, variable working capital is expected to take care for the peak in the
business activity. While investment in permanent portion can be predicted with some
probability, but investment in variable working capital cannot be predicted easily as
sudden changes in the business activity causes variations in this portion of working
capital.
A
M
O
U
N
T
O
F
Variable working capital
W
C
Permanent working capital
T I M
27
WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's life blood
and every manager's primary task is to help keep it flowing and to use the
cashflow to generate profits. If a business is operating profitably, then it should, in
theory, generate cash surpluses. If it doesn't generate surpluses, the business will
eventually run out of cash and expire.
The faster a business expands the more cash it will need for working capital and
investment. The cheapest and best sources of cash exist as working capital right within
business. Good management of working capital will generate cash will help improve
profits and reduce risks. Bear in mind that the cost of providing credit to customers and
holding stocks can represent a substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash
1. Inventory (stocks and work-in-progress)
2. Receivables (debtors owing you money).
The main sources of cash are Payable (your creditors) and Equity and Loans.
28
Each component of working capital (namely inventory, receivables and payables) has
two dimensions ........TIME ......... and MONEY. When it comes to managing working
capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g.
collect monies due from debtors more quickly) or reduce the amount of money tied up
(e.g. reduce inventory levels relative to sales), the business will generate more cash or
it will need to borrow less money to fund working capital. As a consequence, you could
reduce the cost of bank interest or you'll have additional free money available to support
additional sales growth or investment. Similarly, if you can negotiate improved terms
with suppliers e.g. get longer credit or an increased credit limit, you effectively create
free finance to help fund future sales.
If you.......
Then......
Collect receivables (debtors) faster
You release cash from the

cycle
Collect receivables (debtors) slower
Your receivables soak up

cash
29
Get better credit (in terms of duration or amount)

from suppliers
You increase your cash

resources
Shift inventory (stocks) faster
You free up cash
Move inventory (stocks) slower
You consume more cash
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant,
vehicles etc. If you do pay cash, remember that this is now longer available for working
capital. Therefore, if cash is tight, consider other ways of financing capital investment
loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are
cash outflows and, like water flowing down a plug hole, they remove liquidity from the
business.
More businesses fail for lack of cash than for want of profit.
WORKING CAPITAL AND INFLATION

Inflation, which is commonly indicated by rise in price of goods and services, is so
rampant in the world that no economy is far off from its deleterious effects. Inflation has
been experienced by almost all the countries in the world irrespective of their political
system and the stage of industrialization. The effect is that, over the last two decades,
annual rates of inflation in excess of two to three percent have become common all over
the world.
In India, the rate of inflation was more grievous than in many other countries, and the
wholesale prices rose by almost 32 percent during 1956-61, by slightly less than 30
percent during 1961-66, and 25 percent during the Annual Plan Periods (1966-69).
30

Inflation rate based on Wholesale Price Index (WPI) average around 9 percent during
1970-71 to 1990-91. Again it touched the highest level of the decades in 1991-92 at
16.7 percent, when the economic activity was at its lowest ebb. Consequent upon the
reforms, there has been some recovery in the economy and the rate of inflation has
come down to even 2 percent during 1998-99, threatening the regime of deflation.
Nevertheless, there is no consistency in the performance of the economy. Again the rate
of inflation is moving towards an average of 4-5 percent. Alongside these indices
there are some hidden inflationary potentials which are not apparent. Prominent among
these are generous subsidies, changing international prices of crude oil and petroleum
products and the administered prices for certain other products. The combined impact
of these factors is definitely seen on the inflation. At present the inflation rate is seems
approximately 12 percent. The impact of inflation on working capital be understood in
the following manner:
1) Size of working capital.
2) Availability of working capital.
3) Components of working capital.
a) Inventory
b) Cash
c) Debtors
d) Creditors
SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following:
31

Existing cash reserves.
Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit
Long-term loans
If we have insufficient working capital and try to increase sales, we can easily overstretch the financial resources of the business. This is called overtrading. Early warning
signs include:
Pressure on existing cash.
Exceptional cash generating activities e.g. offering high discounts for early
cash payment.
Bank overdraft exceeds authorized limit.
Seeking greater overdrafts or lines of credit.Part-paying suppliers or other
creditors.
Paying bills in cash to secure additional supplies.
Management pre-occupation with
surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay wages,
pending receipt of a Cheque.
FACTORS AFFECTING WORKING CAPITAL

Working capital is influence by some factors which are as follows
1)
Nature of the Industry.

32

2)
Demand of Industry.
3)
Cash Requirements.
4)
Volume of Sales.
5)
Terms of Purchase and Sales.
6)
Inventory Turnover.
7)
Business Cycle.
8)
Current Assets Requirements.
9)
Credit Control.
10) Inflation or Price level Changes.

11) Profit Planning and Control.
12) Repayment Ability.
13) Cash Reserves.
14) Attitude towards Risk.
Taj Residency, Nashik

WORKING CAPITAL ESTIMATION
As at 31-03-07
PARTICULAR'S
AMOUNTS
(Rs.)
CURRENT ASSETS
INVENTORY
-Food & Beverages
-Wine & Liquor
-Crockery,Cutlery,Linen etc.
-General Store & Spare
218,500.00
228,500.00
168,500.00
158,500.00
SUNDARY DEBTORS
-Outstanding for six months
-Others
-Provision for doubtful Debts
2,271,000.00
800,000.00
485,000.00
LOANS & ADVANCES

-Intercorporate Loan
4,790,000.00
33

-Advances Recoverable in Cash & Kind for value to be received
-Security Deposit
-Interest Accrued on Loans, Deposit etc
2,295,000.00
800,000.00
1,295,000.00
CASH & BANK BALANCES

-Cash on hand
-Cheques on hand
930,000.00
845,000.00
INTEREST ACCRUED
-On Deposit
-On Investment
50,000.00
75,000.00
TOTAL CURRENT ASSETS ( A )

CURRENT LIABILITIES
-Sundry Creditors
-Other Liability
-Income Received in Advance
-Sundry Deposits
15,410,000.00
7,669,500.00
6,138,750.00
315,750.00
215,000.00
TOTAL CURRENT LIABILITIES ( B )
14,339,000.00
NET WORKING CAPITAL ( A B )
1,071,000.00
INVENTORY MANAGEMENT
INTRODUCTION
"Inventory" to many small business owners is one of the more visible and tangible
aspects of doing business. Raw materials, goods in process and finished goods all
represent various forms of inventory. Each type represents money tied up until the
inventory leaves the company as purchased products. Likewise, merchandise stocks in
a retail store contribute to profits only when their sale puts money into the cash register.
In a literal sense, inventory refers to stocks of anything necessary to do business.
These stocks represent a large portion of the business investment and must be well
managed in order to maximize profits. In fact, many small businesses cannot absorb the
types of losses arising from poor inventory management. Unless inventories are
controlled, they are unreliable, inefficient and costly.
34
INVENTORY LEVELS
The inventory carried by a hotel can be categorized under the following heads. Exact
level will depend upon ease and time required to get replenishment and economic
ordering quantities.
1)
Imported Food and Beverages
2)
Local Food and Beverages
3)
Work-in-Progress
4)
Finished Goods
5)
Guest, Restaurant, Kitchen, and Cleaning Supplies
6)
Linen
7)
Silver, Cutlery, Crockery, Chinaware, and Glassware
8)
Kitchenware.
9)
Administration, Stationery, and Computer Consumables
10) Engineering Store.

11) Light diesel oil and kitchen fuel.
12) Goods in transit.
13) Obsolete and non-moving items.
INVENTORY
AS ON 31-03-07
2006-07
Bud.
2005-06
35

(Rs. In Lacs )
7.74
14.00
11.20
SUCCESSFUL INVENTORY MANAGEMENT

Successful inventory management involves balancing the costs of inventory with the
benefits of inventory. Many small business owners fail to appreciate fully the true costs
of carrying inventory, which include not only direct costs of storage, insurance and
taxes, but also the cost of money tied up in inventory. This fine line between keeping too
much inventory and not enough is not the manager's only concern. Others include:
1) Maintaining a wide assortment of stock -- but not spreading the
rapidly moving ones too thin;
2) Increasing inventory turnover -- but not sacrificing the service level;
36

3) Keeping stock low -- but not sacrificing service or performance.
4) Obtaining lower prices by making volume purchases -- but not
ending up with slow-moving inventory;
5) Having an adequate inventory on hand -- but not getting caught
with obsolete items.
The degree of success in addressing these concerns is easier to gauge for some than
for others. For example, computing the inventory turnover ratio is a simple measure of
managerial performance. This value gives a rough guideline by which managers can set
goals and evaluate performance, but it must be realized that the turnover rate varies
with the function of inventory, the type of business and how the ratio is calculated
(whether on sales or cost of goods sold). Average inventory turnover ratios for individual
industries can be obtained from trade associations.
THE PURCHASING PLAN

One of the most important aspects of inventory control is to have the items in stock at
the moment they are needed. This includes going into the market to buy the goods early
enough to ensure delivery at the proper time. Thus, buying requires advance planning
to determine inventory needs for each time period and then making the commitments
without procrastination. For retailers, planning ahead is very crucial. Since they offer
new items for sale months before the actual calendar date for the beginning of the new
season, it is imperative that buying plans be formulated early enough to allow for
intelligent buying without any last minute panic purchases. The main reason for this
early offering for sale of new items is that the retailer regards the calendar date for the
beginning of the new season as the merchandise date for the end of the old season. For
example, many retailers view March 21 as the end of the spring season, June 21 as the
end of summer and December 21 as the end of winter. Part of your purchasing plan
37

must include accounting for the depletion of the inventory. Before a decision can be
made as to the level of inventory to order, you must determine how long the inventory
you have in stock will last. For instance, a retail firm must formulate a plan to ensure the
sale of the greatest number of units. Likewise, a manufacturing business must formulate
a plan to ensure enough inventories are on hand for production of a finished product. In
summary, the purchasing plans details:
1) When commitments should be placed;
2) When the first delivery should be received;
3) When the inventory should be peaked;
4) When reorders should no longer be placed;
5) When the item should no longer be in stock.
Well planned purchases affect the price, delivery and availability of products for sale.
CONTROLLING OF INVENTORY
To maintain an in-stock position of wanted items and to dispose of unwanted items, it is
necessary to establish adequate controls over inventory on order and inventory in stock.
There are several proven methods for inventory control. They are listed below, from
simplest to most complex.
Visual control enables the manager to examine the inventory visually to

determine if additional inventory is required. In very small businesses where
this method is used, records may not be needed at all or only for slow moving
or expensive items.
Tickler control enables the manager to physically count a small portion of the
inventory each day so that each segment of the inventory is counted every so
many days on a regular basis.
38

Click sheet control enables the manager to record the item as it is used on a
sheet of paper. Such information is then used for reorder purposes.
Stub control (used by retailers) enables the manager to retain a portion of the
price ticket when the item is sold. The manager can then use the stub to
record the item that was sold. As a business grows, it may find a need for a
more sophisticated and technical form of inventory control. Today, the use of
computer systems to control inventory is far more feasible for small business
than ever before, both through the widespread existence of computer service
organizations and the decreasing cost of small-sized computers. Often the
justification for such a computer-based system is enhanced by the fact that
company accounting and billing procedures can also be handled on the
computer.
Point-of-sale terminals relay information on each item used or sold. The
manager receives information printouts at regular intervals for review and
action.
DEVELOPMENTS IN INVENTORY MANAGEMENT

In recent years, two approaches have had a major impact on inventory management:
1) Material Requirements Planning (MRP) and
2) Just-In-Time (JIT and Kanban).
39

Their application is primarily within manufacturing but suppliers might find new
requirements placed on them and sometimes buyers of manufactured items will
experience a difference in delivery.
Material requirements planning is basically an information system in which sales are
converted directly into loads on the facility by sub-unit and time period. Materials are
scheduled more closely, thereby reducing inventories, and delivery times become
shorter and more predictable. Its primary use is with products composed of many
components. MRP systems are practical for smaller firms. The computer system is only
one part of the total project which is usually long-term, taking one to three years to
develop.
Just-in-time inventory management is an approach which works to eliminate
inventories rather than optimize them. The inventory of raw materials and work-inprocess falls to that needed in a single day. This is accomplished by reducing set-up
times and lead times so that small lots may be ordered. Suppliers may have to make
several deliveries a day or move close to the user plants to support this plan.
TIPS FOR BETTER INVENTORY MANAGEMENT

At time of delivery
Verify count -- Make sure you are receiving as many cartons as are listed on
the delivery receipt.
40

Carefully examine each carton for visible damage -- If damage is visible, note
it on the delivery receipt and have the driver sign your copy.
After delivery, immediately open all cartons and inspect for merchandise
Damage, When damage is discovered.
Retain damaged items -- All damaged materials must be held at the point
received.
Call carrier to report damage and request inspection.Confirm call in writing-This is not mandatory but it is one way to protect yourself, Carrier inspection
of damaged items.
Have all damaged items in the receiving area -- Make certain the damaged
items have not moved from the receiving area prior to inspection by carrier.
After carrier/inspector prepares damage report, carefully read before signing,
after inspection.
Keep damaged materials -- Damaged materials should not be used or
disposed of without permission by the carrier.
Do
not
return
damaged
items
without
written
authorization
from
shipper/supplier.
SUGGESTIONS FOR MORE EFFECTIVE INVENTORY MANAGEMENT:

Determine the ideal inventory level based on historical sales patterns and on
41

projected future sales.
Calculate EOQ -- the "economic ordering quantity."
Determine the lag order time and the optimal safety stock.
Determine the average inventory turnover rate for the industry.
Identify and maintain good business relations with all suppliers.
Forecast inventory purchase price. If possible, lock-in a favorable price by
entering a supply contract.
Calculate the inventory turnover rate for your business: the average number
of times your inventory is sold within a specific period of time.
Set a markdown policy for the times when a product doesn't move quickly
enough at normal price levels.
i. Be able to recognize what part of your inventory needs to be

marked down.
ii. Record the mark-downs as soon as the need is recognized.
MANAGEMENT OF RECEIVABLE
INTRODUCTION
The profitability of a business is dependent upon its ability to successfully sell its
products for more than it costs to produce them. Selling on credit generally attracts
42

customers and increases sales volume. There are, however, direct and indirect costs to
extending credit which must be weighed against any potential benefits. A successful
credit policy is one in which the costs of granting credit are offset by the benefits of
higher sales. When the firm ships the goods or performs the services without receiving
cash, an account receivable (AR) is generated. The dollar amount of receivables is
determined by the volume of sales and the average length of time between a sale and
receipt of full cash payment, and may be calculated based on the following simple
formula:
Accounts Receivable (AR) = Credit sales per day x Length of collection period.
For example, if a business has credit sales of $1,000 per day and allows 20 days for
payment, it has a total of $1,000 x 20 or $20,000 invested in receivables at any given
time (assuming the firm's operations are stable). Any changes in the volume of sales or
the length of the collection period will change the receivable position.
Unpaid guests bills are termed receivable. They represent money due to the hotel.
When analyzing the annual accounts, the Receivable amount appearing in the Current
Assets as a debit balance should be netted for Advances Receivable from Customers
forming part of Current Liabilities. In the Balance Sheet forming part of the annual
accounts, the receivable are classified as under:
Outstanding over six months.
Outstanding of doubtful value.
Others.
Generally, provision is made for debts which are over six months and of which
realization is doubtful. For control purposes, they analyzed by:
1)
Customers wise analysis.
2)
Age wise analysis.

43
CUSTOMERS WISE ANALYSIS:

Receivable can be grouped under various categories of customers are as:
1)
Individuals.
2)
Corporate Associate companies, Public Sector, Government and

from Private Sectors, Individuals who are regular customers and
others.
3)
Travel agents.
4)
Credit card companies.
5)
Tour operators.
Each of them has different paying habits, varying changes of recovery, and discount
terms.
AGE WISE ANALYSIS:

Receivables for each group can be separately undertaken. After this is done, follow up
action can be planned. Receivables in total may appear very large and substantially
above industry average. This skewed position may be due to some Government parties,
who have inordinately delayed their payments. If detailed analysis is not available, and
the hotel management is not aware of its customers are responsible for increase in the
size of its receivables, it may restrict credit to all parties across the board. It is possible
that most of the other hotel customers settle their bills within reasonable time, and
any further tightening of credit to them would result
in
these customers stopping
patronizing the hotel. Age wise analysis of receivables should be represented bill-wise,
since some organization pay current bills promptly and regularly but older bills get stuck
44

up based on some disputes or for non-completion of paper work. Some do not pay
unless they are reminded. Computer software packages are able to analyze the
outstanding amount by their age. (From the date of the bill or the date when the bill is
due for payment) and the listing is done bill by bill. Receivables are generated out of
credit sales. The bill amount includes sales tax and other government levies and is net
of any discounts.
Receivables when expressed in term of number of months sales should ensure that:
1) The sales amount is in respect of credit sales,
2) It is inclusive of sales and other taxes,
3) Is netted for discount.
The utility of such analysis is reduced, when:
On account payment of are received;
Payment are not adjusted against specific bills;
Accounting entries are not passed promptly for agreed upon adjustment
such as for rate revision and discounts.
Level of receivable is determined by:
Trade practice.
The extent credit is given as a part of marketing strategies;
By default
Most accounting packages provide for analysis of debtors dues. As a control device, the
system break down for two reasons. Though the detail may be available on the
computer on the fourth of the subsequent month, they are available to the personal
responsible for collection of customers dues only around of, say, tenth. In the
45

meantime, the customer may have become due for payment. In other words, the person
liaising with customers does not have the latest position. It is not rare to find credit
extended to customers when the past dues have reached an unmanageable level. The
second complicated factor is on account payment or the payer and receiver of the
amount adjusting the bills for different set of bills. Over a period, the amount due from a
customer in the book of company cannot be reconciled with the amount due to the
company in the books of customers. When outstanding statements are prepared
manually, they tend to become out of date by the time they are ready. In case of such
statement, information regarding payments received after the date of the statement is
informally conveyed. Advance payments and deposits can be segregated from normal
receivables and shown as a part of liabilities in the balance sheet.
A credit policy refers to the actions taken by a business to grant, monitor and collect the
cash for outstanding accounts receivable. Four specific factors must be considered in
establishing an effective credit policy:
o Credit worthiness standards,
o Credit period,
o Collection policy, and
o Discounts for early payment.
46

First, the credit worthiness of a buyer must be evaluated. Company should measure
credit quality and evaluate a customer's probability of default by examining the five Cs
of credit:
Character,
Capacity to repay,
Capital,
Collateral, and
Conditions.
A Customer's Character refers to his/her acknowledgement of a moral obligation to pay

the debt as promised. It may be evaluated by examining the customer's previous
payment habits. Relevant information may be requested from the customer's bank,
previous suppliers or from credit reporting agencies.
The Capacity to repay is the subjective judgment of customer's ability to repay the loan.
An examination of the financial statements and the business plan of the credit buyer
may aid in making the correct judgment. The analysis of financial ratios, especially risk
ratios such as the debt-to-asset and the current ratios, will help in measuring capital.
Finally, special attention should be paid to the collateral which the customer may offer
as security and to the general economic as well as specific geographical and industry
conditions. Credit period is the length of time allowed before the credit buyer must pay
for credit purchases. Collection policy refers to actions that the business is willing to
take to collect slow-paying accounts. The length of time a firm is willing to extend credit
to its customers and the "toughness" of the firm in collecting its receivables may
47
influence sales and, ultimately, its profits, while a "relaxed" collection policy may
increase the percentage of bad debt. The receivable position must be monitored closely
by calculating the average collection period (ACP) according to the following formula
and comparing it to the industry average.
Average Collection Period (ACP) = Receivables / Daily sales.
SUMMARY OF OUTSATANDING DEBTORS

TAJ RESIDENCY, NASHIK
SUMMARY OF OUTSTANDING DEBTORs

AS ON 31.03.2007
Particulars
Actual
Rs. In lacs
Last Year
Rs. In lacs
Less than 30 days
28.55
80%
12.56
31 60 days
3.01
8%
1.89
61 90 days
1.33
4%
0.58
91 - 120 days
0.17
0%
0.26
Above 120 days & Less than Rs.50,000/-
0.16
0%
1.97
Above 120 days & exceeding Rs.50,000/-
0.95
3%
7.08
Guest Staying On
1.39
4%
2.10
Legal Cases
0%
0.54
On A/C / Advances
0%
TOTAL DEBTORS
35.56
100%
26.97
Late payments erode profits and can lead to bad debts.
48
DEBTORS
As on 31-03-2007
2006-07
Bud
2005-06
(Rs. In Lacs )
35.56
62.00
26.97
49
SUGGESTIONS
FOR
MORE
EFFECTIVE
MANAGEMENT
OF
ACCOUNTS RECEIVABLE
Monitor the dollar amount of your receivables position on an ongoing
basis.
Calculate the percentage of total sales that are sold on credit.
Evaluate the "credit worthiness" of your customers, using the 5 Cs of
credit.
Establish the credit period, discount percent for early payments, the
discount period and surcharge for late-payers.
Calculate and evaluate your average collection (AC) period. As a rule of
thumb: if the AC is more than one-third larger than the credit period, i.e.,
credit period of 30 days and an AC of more than 40 days, there may be a
problem.
Age your receivables. Identify and pursue slow-paying customers.
Identify prompt-paying customers. Maintain and search for more like them
by informing them of the discount for early payment and of any special
sales.
Send invoices immediately after the sale, rather than waiting until the end
of the month.
Identify and evaluate accelerating techniques for collecting your cash,
such as lock box services, pre-authorized checks and concentration
banking.
50
CASH AND BANK MANAGEMENT

INTRODUCTION
Cash is needed for transaction purposes, for example, payment of salary, raw materials
and taxes. The amount of cash held to cover day-to-day transactions is called
transaction balances. Additional cash may be necessary to take advantage of special
bargains, such as a supplier's clearance sale of raw materials. The cash held for such
purposes is called speculative cash balances. Moreover, a business may desire to hold
some extra cash as precautionary balances for emergencies or unexpected outflows of
funds. Finally, compensating balances may be maintained to help compensate lenders
for their services. For example, a bank may require the small business to maintain a
checking account with a minimum deposit equal to some percentage of the loan
amount. Since this requirement generates additional revenues for the lender it is often
included in financing packages.
In the context of working capital management, cash management refers to optimizing
the benefits and associated with holding cash. As described earlier, unless the cash is
put into use, there is no benefit derived out just by holding. Further, holding cash without
a purpose also costs firm either directly in the form of interest or opportunity income that
could be earned out of the cash. At the same time, it is not possible to operate the
business without holding cash.
CASH AND BANK

1)
Main cash.
2)
Front office collection- cash.
3)
Front office collection- cheques.
4)
Foreign exchange control.
5)
Float cash front office.
6)
Float cash restaurants.

51

7)
Float cash others.
BALANCE WITH SCHEDULE BANKS
HDFC BANK- PIEM
STATE BANK OF INDIA
CASH BUDGET
Cash budget basically incorporates estimates of future inflows and outflows of cash
over a projected short period of time which may usually be a year, a half or a quarter
year. Effective cash management is facilitated if the cash budget is further broken down
into month, week or even on daily basis.
There are two components of cash budget.
1)
Cash inflows
2)
Cash outflows.
The main sources for these flows are given hereunder:
CASH INFLOWS
1)
Cash sales.
2)
Cash received from debtors.
3)
Cash received from loans, deposits, etc.
4)
Cash receipt of other revenue income.
5)
Cash received from sale of investments or assets.
CASH OUTFLOWS:
1)
Cash purchases.
2)
Cash payment to creditors.
3)
Cash payment for other revenue expenditure.
4)
Cash payment for assets creation.

52

5)
Cash payment for withdrawals, taxes.
6)
Repayment of loans, etc.
THE WORKING CAPITAL CASH CONVERSION CYCLE

The working capital cycle involves the steps a business normally takes from the time it
makes the first cash commitment toward providing a product or a service, to the point
when it receives cash payment for its sales. The firm orders and receives the raw
material, generating an account payable. It also hires additional employees to produce
the goods and, since workers generally aren't paid the moment their work is performed,
accrued wages are generated. Eventually, the product is sold which, if the product is
purchased using credit, generates an account receivable. Firms will typically start the
payment of their payables before collecting cash for receivables. This produces a net
cash outflow. An individual cycle ends when the full cash amount for the sale is
received. Each new transaction begins the cycle again.
The cash conversion cycle (CCC) is defined as the length of time between the payment
of the payables and the collection of receivables. During this cycle a business' funds are
unavailable for other purposes. Cash has been paid for purchases but cash has not
been collected from sales. Short term financing may be needed to sustain business
activities for this period. Since there is always a cost to such financing, a goal of any
business should be to minimize the cash conversion cycle.
To achieve this goal three terms must be clearly understood:
1) Inventory Conversion Period (ICP)
2) Payable Deferral Period (PDP)
3) Receivable Conversion Period (RCP)
Inventory conversion period (ICP) refers to the length of time between purchase of
raw material, production of the goods or service, and the sale of the finished product.
53

Payable deferral period (PDP) is the time between the purchase of raw material on
credit and cash payments for the resulting accounts payable.
Receivable conversion period (RCP) is the time between the sale of the final product
on credit and cash receipts for the accounts receivable.
The cash conversion cycle may be calculated by using the following formula:
CCC = ICP + RCP - PDP
For example, if it takes 35 days after orders are placed to receive and process the raw
material into finished product, the ICP is 35 days. Assuming that 25 days after the
arrival of raw material, the firm pays for them, the PDP is 25 days. Finally, if the firm
receives cash payment for the sale of its product or service in 30 days, the RCP is 30
days. The CCC is thus 35+30-25, or 40 days.
The CCC may be shortened by:
o Reducing the ICP -- Processing the raw material and producing the goods as
quickly as possible;
o Reducing the RCP -- speeding up collections; or
o Lengthening the payable conversion period -- slowing payments.
These three strategies are best utilized by the small business owner who is familiar with
sound inventory, receivables and payables management techniques as well as the
sources and costs of short-term financing. Presents a few tips for shortening the CCC
through faster cash collection and slower cash disbursement. We then examine
techniques for managing the various components of current assets such as cash,
marketable securities, accounts receivable and credit management, and inventories.
Following this we'll examine the use of short-term liabilities as a means of financing
operation.
54
LOANS, ADVANCES AND DEPOSITS RECEIVABLES

Many of the deposits such as with Electricity Supply companies are of permanent
nature. This amount does not change significantly from month to month. Periodically,
each account can be analyzed to secure refund of deposits, which are no longer
necessary, or terms of the deposits are not fulfilled. Regular review, recovery, and
adjustments, are recommended to clean up dormant accounts. Deposits, which are
unlikely to be returned, can be segregated from the rest and written off to the Profit and
Loss Accounts of the current period. These amounts can be forecast when estimating
the working capital requirement. Under this head, one also finds loans and advances to
companies under the same management and balance arising from current transaction.
Such accounts needs to be reconciled at regular intervals, and if they represent oneway transactions.
ADVANCES
AS ON 31-03-07
2006-07
Bud
2005-06
(Rs. In Lacs )
91.80
60.00
57.13
55
PAYABLES MANAGEMENT
INTRODUCTION
A substantial part of purchase of goods and services in business are on credit terms
rather than against cash payment. While the supplier of goods and services tend to
perceive credit as a level for enhancing sales or as a form of non-price instrument of
competition, the buyer tend to look upon it as a loaning of goods or inventory. The
suppliers credit is referred to as Account Payable (Creditors), Trade Credit, Trade
Acceptance, Commercial Draft or bills Payable depending on the nature of credit
provided. The extent to which this buy-now, pay-later facility is provided will depend
upon a variety of factors such as the nature, quality and volume of items to be
purchased, the prevalent practices in the trade, the degree of competition and the
financial status of the parties concerned. Trade credits or Payables constitute a major
segment of current liabilities in many business enterprises. And they primarily finance
inventories which form a major component of current assets in many cases.
SIGNIFICANCE OF PAYABLE
56

Payables constitute a current or short term liability representing the buyers obligation to
pay a certain amount on a date in the near future for value of goods or services
received. They are short term deferments of cash payments that the buyer of goods and
services is allowed by the seller. Trade credit is extended in connection with good a
purchased for resale or for processing and resale, and hence excludes consumer credit
provided for purchase of daily consumption material. Trade credit or payables serve as
non-interest bearing source of funds in most cases. They provide a spontaneous source
of capital that flows in naturally in the course of business in keeping with established
commercial practices or formal understandings.
CRS & LIABILITIES

AS ON 31-03-07
2006-07
Bud
2005-06
(Rs. In Lacs )
143.39
105.00
126.29
57
DETERMENANTS OF TRADE CREDIT

1) Size of the firm
2) Industrial Categories.
3) Nature of product.
4) Financial position of seller.
5) Financial position of the buyer.
6) Term of sale.
7) Degree of risk.
8) Nature and extent of competition.
10) Dating
58
ADVANTAGES OF PAYABLES
1) Easy to obtain.
2) Suppliers assume the risk.
3) Informality.
4) Continuous financing.
LOANS, ADVANCES AND DEPOSIT PAYABLE

Advances by customer can be scrutinized periodically to ensure that there are no
dormant accounts and it is only those, which are waiting to be being set off against
appropriate debits or treated as apart of income. Cash credit facilities extended by the
bank, unsecured loans without firm repayment dates, and public deposits are treated as
part of Current liabilities. Some bankers insist on loan installments of term loans
payable during the next twelve months are treated as a part of Current Liabilities.
59
BIBLIOGRAPHY
www.google.com
www.wikipedia.com
www.tajhotels.com
Modern Accounting Theory and Management Accounting.
60

- (Debasish Benerjee)
61

Working Capital Management at Taj Residency, Nashik

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Working Capital Management at Taj Residency, Nashik

Uploaded by

Copyright:

Available Formats

Working Capital Management Taj Residency, Nashik

SINHGAD BUSINESS SCHOOL , PUNE

Working Capital Management Taj Residency, Nashik

Working Capital Management Taj Residency, Nashik

OBJECTIVE OF THE STUDY

SCOPE OF THE STUDY