Professional Documents
Culture Documents
ON
Submitted By:
Sheetal
MBA-Finance
Batch 2015-2017
Institute:-
HPURC,DHARAMSHALA,H.P
1
TABLE OF CONTENTS
Abstract 4
Certificate of company 5
Declaration by student 6
1 Introduction 7-13
7 Conclusion 73
2
ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of
gratitude to all those who have helped me in completing this
winter project to the best of my ability. Being a part of this
project has certainly been a unique and a very productive
experience on my part.
SHEETAL
MBA finance
Batch 2015-17
3
ABSTRACT
4
CERTIFICATE OF COMPANY
5
6
DECLARATION BY STUDENT
Date:
7
CHAPTER - 1
INTRODUCTION
8
INTRODUCTION
9
companys operational and financial efficiency. Any company
should have a right amount of cash and lines of credit for its
business needs at all times.
This project describes how the management of working capital
takes place at
ACME
10
Net working capital
OBJECTIVE OF STUDY
11
To suggest ways for better management and control of working capital at
the concern.
12
IN C R E A
SE
E F FE C IE
IN C R E A S E NY EASY
IN F IX LO A N
ASSETS FROM
BANKS
IN C R E A S E S IG N IFIC A N --C E
DEBT O F W O R K IN G
C A PAC IT Y C A P ITA L
D IV ID E N D
D IS T R IB U -
T IO N
PAYM E N T
TO
S U P P LIE
RS
13
SOURCES OF WORKING CAPITAL
ACME has the following banks available for the fulfillment of its
working capital requirements in order to carry on its operations
smoothly:
Banks:
These include the following banks
SYNDICATE Bank
ICICI Bank
14
Sound working capital involves two fundamental decisions for
the firm. They are the determination of:
The optimal level of investments in current assets.
The appropriate mix of short-term and long-term financing used
to support this investment in current assets, a firm should
decide whether or not it should use short-term financing. If
short-term financing has to be used, the firm must determine its
portion in total financing. Short-term financing may be preferred
over long-term financing for two reasons:
15
long term or permanent assets needs (Box 3) would comprise a
set of moderate risk profitability strategies. But what one gains
by following alternative strategies (like by box 2 or box 4) needs
to weighed against what you give up.
16
CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:
GOTSRPNK E E PE E I MR P
OREASGM C E SR A A N R
NN
YOTIRUET A N/ L V T A / R
ISLNVAFWD A I EA X B E L E
HWD O R
SEWLROS
KWORO I ON RG
CBOKRK AI R N P G I T
ARFKCI ALI P I
SKTNW A II L
NIGSO
GSCOR A
COPAF IA
AFTPC
K A I
I
PNLTI T A I
TO
TILANG
AMLC
LEC
A
PP
I
TT
A
L
17
Types of Working Capital Needs
18
The working capital needs can be bifurcated as:
Permanent working capital
Temporary working capital
19
The permanent level is constant while the temporary
working capital is fluctuating increasing and decreasing in
accordance with seasonal demands as shown in the
figure. In the case of an expanding firm, the permanent
working capital line may not be horizontal. This is
because the demand for permanent current assets might
be increasing (or decreasing) to support a rising level of
activity. In that case line would be rising.
20
FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS
21
size it holds in the market makes it a must for them to
hold their inventory and current asset at a huge level.
22
WORKING CAPITAL CYCLE
23
RAW MATERIAL
CASH
OPERATING CYCLE
SALES
FINISH GOODS
25
Unlike, movements in the working capital items,
most of these non-working capital cash transactions
are not every day events. Some of them are annual
events (e.g. tax payments, lease payments,
dividends, interest and, possibly, fixed asset
purchases and sales). Others (e.g. new equity and
loan finance and redemption of old equity and loan
finance) would typically be rarer events.
INVENTORY MANAGEMENT
Inventories
Inventories constitute the most important part of the
current assets of large majority of companies. On an
average the inventories are approximately 60% of the
current assets in public limited companies in India.
Because of the large size of inventories maintained by the
firms, a considerable amount of funds is committed to
them. It is therefore, imperative to manage the
inventories efficiently and effectively in order to avoid
unnecessary investment.
Nature of Inventories
Inventories are stock of the product of the company is
manufacturing for sale and components make up of the
26
product. The various forms of the inventories in the
manufacturing companies are:
Raw Material:
It is the basic input that is converted into the finished
product through the manufacturing process. Raw
materials are those units which have been purchased and
stored for future production.
Work-in-progress:
Inventories are semi-manufactured products. They
represent product that need more work they become
finished products for sale.
Finished Goods:
Inventories are those completely manufactured products
which are ready for sale. Stocks of raw materials and
work-in-progress facilitate production, while stock of
finished goods is required for smooth marketing
operations. Thus, inventories serve as a link between the
production and consumption of goods.
27
In managing inventories, the firms objective should be to
be in consonance with the shareholder wealth
maximization principle. To achieve this, the firm should
determine the optimum level of inventory. Efficiently
controlled inventories make the firm flexible. Inefficient
inventory control results in unbalanced inventory and
inflexibility-the firm may sometimes run out of stock and
sometimes pile up unnecessary stocks.
Requisition
Purchase Ordering
Transporting
Receiving
28
Inspecting
Storing
Warehousing Cost
Handling
Administrative cost
Insurance
Deterioration and obsolescence
ABC System
ABC system of inventory keeping is followed in the
factories. Various items are categorized into three
different levels in the order of their importance. For e.g.
items such as memory, high capacity processors and
royalty are placed in the A category. Large number of
firms has to maintain several types of inventories. It is
not desirable the same degree of control all the items.
29
The firm should pay maximum attention to those items
whose value is highest. The firm should therefore, classify
inventories to identify which items should receive the
most effort in controlling. The firm should be selective in
approach to control investment in various types of
inventories. This analytical approach is called ABC
Analysis. The high-value items are classified as A items
and would be under tightest control. C items represent
relatively least value and would require simple control.
B items fall in between the two categories and require
reasonable attention of management.
30
The branch offices of the company at various
locations hold the collection of cheques of the
customers.
Those cheques are either handed over to the CMS
agencies or bank of the particular location take
charge of whole collection.
These CMS agencies or bank send those cheques to
the clearing house to make them realized. These
cheques can be local or outstation.
The CMS agencies or bank send information to the
central hub of the company regarding
realization/cheque bounced.
The central hub passes on the realized funds to the
company as per the agreed agreements.
The CMS agencies or concerned bank provides the
necessary MIS to the company as per requirement.
In cash management the collect float taken for the
cheques to be realized into cash is irrelevant and non-
interfering because banks such as Standard Chartered,
HDFC and CitiBank who give credit on the basis of these
cheques after charging a very small amount. These
credits are given to immediately and the maximum time
taken might be just a day. The amount they charge is
very low and this might cover the threat of the cheque
sent in by two or three customers bouncing. Even
otherwise the time taken for the cheques to be processed
is instantaneous. Their Cash Management System is quite
efficient.
Matching Approach
In this, the firm follows a financial plan, which matches
the expected life of assets with the expected life of
source of funds raised to finance assets. When the firm
follows this approach, long term financing will be used to
finance fixed assets and permanent current assets and
short term financing to finance temporary or variable
current assets.
Conservative Approach
In this, the firm finances its permanent assets and also a
part of temporary current assets with long term financing.
In the periods when the firm has no need for temporary
current assets, the long-term funds can be invested in
32
tradable securities to conserve liquidity. In this the firm
has less risk of facing the problem of shortage of funds.
Aggressive Approach
In this, the firm uses more short term financing than
warranted by the matching plan. Under an aggressive
plan, the firm finances a part of its current assets with
short term financing.
33
CHAPTER - 2
ACME GENERICS LLP
(ORAL SOLID DOSAGE FACILITY)
OVERVIEW
HISTORY
CILENTS
EMPLOYEE STRENGHTH
LIFE
MISSION ,VISION
PRODUCTS
ACCREDITATION
34
HISTORY
35
Bed Driers, Octagonal Blender, Compression Machines
with AWC, Automatic Coating Machines, Automatic
Capsule Filling Machines, Blister Packing Machines with
visual inspection system & Strip Packing Machines with
NFD are PLC controlled.
COMPRESSION AREA
It has installed various Tablet Compression Machines:
COATING
Coating Machines of different sizes are also equipped
along with other allied equipments.
36
One Coating pan of 60 inches with capacity of 300 Kgs
2 Coating pan of 48 inches with capacity of 140 Kgs
One Coating pan of 36/24 inches with capacity of 18-55
Kgs
CAPSULE FILLING
PACKING
37
It also has ten packing lines consisting of 7 Blister
packing machines and two Strip packing machine.
QUALITY CONTROL
(EQUIPMENTS AND
INSTRUMENTS)
CLIENTS
39
EMPLOYEE STRENGTH
Acme Generics
40
LIFE @ ACME
41
MISSION & VISION
MISSION
To achieve the highest standards in Quality and
Regulatory so as to get certified from US FDA, EU-
GMP/UK-MHRA, TGA, ANVISA, PIC'S and many more.
VISION
To become a global leader in pharmaceutical contract
manufacturing and also developing & manufacturing
highest quality pharmaceutical products with ethical
standards and keeping in mind the social responsibilities
to contribute to the better health care of the society.
PRODUCTS
Cardiovascular Drugs/hypertension
Analgesics/pain Management
Enzyme
Urinary Tract Related Drugs
Liver Drugs
42
Antacids/gastrology/antivertigo
Anticold/antiallergic
Antidiabetic
Vitamins & Iron Supplements
Hpylori Kits
Gynaecology & Female Hormonal Products
Antibiotics
Antifungals
Calcium Preparation
Central Nervous Drugs
Anti-Obesity Drugs
Drugs Used In Gout
Laxative
Erectile Dysfunction
Anti Malaria
Peripheral Neuropathy
Thyroid Management
ACCREDITATIONS
PHARMACY AND POISONS BOARD
43
Kenya
03 & 04.08.2014
CHAPTER 3
44
ANALYSIS
OF
WORKING CAPITAL
AND
ITS VARIOUS
COMPONENT
45
WORKING CAPITAL POSITION ANALYSIS
IN ACME GENERIC LLP
(Rs.in lacks)
YEAR 31.03.14
31.03.15 31.03.16
CURRENT ASSETS
INVENTORIES 180.26
291.13 653.95
46
--------------
-------------- -------------
--------------
-------------- --------------
LESS:-
Provisions 21.56
59.05 64.05
--------------
-------------- ----------
47
----------------
---------------- --------
0 1
1.14
2014 2015 2016
YEAR
Data Interpretation:
48
INVENTORY ANALYSIS
(rs.in lakh)
YEAR 31.03.14
31.03.15 31.03.16
Stock In trade-
49
Material under process 54.38
78.80 246.54
---------------
---------------- -------------
180.26
291.13 653.95
-------------------
---------------- ------------- Analysis through chart:
800
600
200
0
2014 2015 2016
YEAR
INTERPRETATION:
50
By analyzing the 3 years data, We are looking
increasing pattern in inventories. We can see that
inventories are increased from 180.26 lacs to 291
lacs in the year 2015 and in the year 2016 it is
increased from 291 lacs to 653 lacs. By seeing this
pattern we can say that the company is managing
the inventory according to the sale. Company have a
great demand for the medicine in the year 2010 that
is biggest reason for increase in inventories. From
other point of view we can say that the liquidity of
firm is blocked in inventories but to stock is very
good due to uncertainty of availability of raw
material in time.
(Rs.in lacks)
51
YEAR 31.03.14
31.03.15 31.03.16
-------------
------------- ---- --------
114.33
390.84 219.79
---------------
---------------- ----------
400
300
200
AMOUNT ( IN LACKS)
100
0
2014 2015 2016
YEAR
INTERPRETATION:
52
In the table and figure we see that there is rise in
the debtors in the year 2015 and decrease in the
year 2016. A simple logic is that debtors increase
only when sales increase and decrease if sales
decrease. In the year 2015, sales is increased by
72.30% and decreased by 19.24% in the year 2016.
We can say that it is a good sign as well as negative
also. Company policy of debtors is very good but a
risk of bad debts is always present in high debtors.
when sales is increasing with a great speed the profit
also increases. If company decreases the Debtors
they can use the money in many investment plans.
53
(Rs.in lacks)
Bank Balance-
With Scheduled Banks 9.36 7.00
26.12
-------------
------------- ------------
10.81 34.30
29.02
------------- -------------
------------
54
35
30
25
20
AMOUNT ( IN LACKS ) 15
10
5
0
2014 2015 2016
YEAR
INTERPRETATION:
55
CURRENT LIABILITIES ANALYSIS
(Rs.in lacks)
Current Liabilities
Sundry Creditors 159.49 256.33
305.99
Bank Loan 94.54 336.70
315.76
Advance Received 25.30 18.16
59.88
56
Provisions for taxes 21.56 59.05
64.05
Other Liabilities 16.82 29.36
70.34
----------------- -----------------
--------------
332.37 720.71
888.02
----------------- -----------------
---------------
Analysis through chart:
1000
800
AMOUNT ( IN600
LACKS ) 400
200
0
2014 2015 2016
YEAR
INTERPRETATION
57
256.33 lacs and in 15-16 it increased from 256.33
lacs to 305.99 lacs. This is liability for company so
this should be less. when company have minimum
liabilities it creates a better goodwill in market. High
current liabilities indicate that company is using
credit facilities by creditors.
(Rs.in lacks)
58
122.84
354.86 375.64
--------------
---------------- -----------
INTERPRETATION
Working capital
ratio
And
Its
Interpretation
60
Position of WORKING CAPITAL
RATIO Acme generic llp
FORMULA:
INVENTORY +
RECIVEABLE PAYABLE
WORKING CAPITAL RATIO=
----------------------------------------------------------
(AS % OF SALES)
SALES
61
WORKING CAPITAL RATIO 18 32
53
60
50
40
30
AS %
20
10
0
2014 2015 2016
YEAR
INTERPRETATION:
FORMULA:
TOTAL CURRENT ASSET
CURRENT RATIO= ---------------------------------------
TOTAL CURRENT LIABILITIES
1.2
1.15
1.1
1.05
1
0.95
0.9
2014 2015 2016
YAER
INTERPRETATION
64
Position of QUICK RATIO in Acme
generic llp
FORMULA:
65
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2014 2015 2016
YEAR
INTERPRETATION:
It is the ratio between quick liquid assets and quick
liabilities. The normal value for such ratio is taken to
be 1:1. It is used as an assessment tool for testing
the liquidity position of the firm. It indicates the
relationship between strictly liquid assets whose
realizable value is almost certain on one hand and
strictly liquid liabilities on the other hand. Liquid
assets comprise all current assets minus stock.
66
Position of CURRENT ASSETS TO
FIXED ASSETS RATIO in Acme
generic llp
FORMULA:
CURRENT ASSETS
CA TO FA RATIO = -----------------------------
FIXED ASSETS
67
3.5
3
2.5
2
DAYS 1.5
1
0.5
0
2014 2015 2016
YEAR
INTERPRETATION:
Assuming a constant level of fixed assets, a higher
CA/FA ratio indicates a conservative current assets
policy and a lower CA/FA ratio means an aggressive
current assets policy assuming other factors to be
constant. A conservative policy i.e. higher CA/FA ratio
implies greater liquidity and lower risk; while an
aggressive policy i.e. lower CA/FA ratio indicates
higher risk and poor liquidity.
Now if we analyze the three year data we find the CA
TO FA Ration in increasing pattern, so we can say
that company is following the conservative policy to
finance its short term capital requirement.
68
Position of INVENTORY TURNOVER
RATIO in Acme generic llp
Formula:
AVERAGE STOCk
STOCK TURN OVER RATIO ( IN DAYS )=
------------------------------------------ * 365
COST
OF GOODS SOLD
YEAR 31.03.14
31.03.15 31.03.16
200
150
DAYS 100
50
0
2014 2015 2016
YEAR
INTERPRETATION:
This ratio tells the story by which stock is converted
into sales. A high stock turnover ratio reveals the
liquidity of the inventory i.e., how many times on an
average, inventory is turned over or sold during the
year. If a firm maintains a minimum stock level in
order to maximize sales by quick rotation of
inventory and the holding cost of inventory will be
minimum. A low stock turn over ratio reveals
undesirable accumulation of obsolete stock.
70
inventory conversion period in order to reduce the
cost.
FORMULA:
DEBTORS
RECEIVABLE RATIO = ---------------- * 365
SALES
YEAR 31.03.14
31.03.15 31.03.16
RECEIVABLE RATIO (IN DAYS) 54 70
104
71
120
100
80
60
DAYS
40
20
0
2014 2015 2016
YEAR
INTERPRETATION:
72
Position of PAYABLE RATIO in Acme
generic llp
FORMULA:
CREDITORS
PAYABLE RATIO= ----------------------------- * 365
COST OF SALES
YEAR 31.03.14
31.03.15 31.03.16
73
Analysis through chart:
160
140
120
100
80
DAYS
60
40
20
0
2014 2015 2016
YAER
INTERPRETATION:
74
decreasing trend which is very good sign for the
company. So we can say it enjoys a very good credit
facility from the from the suppliers.
RESEARCH
METHODOLOGY
75
RESEARCH METHODOLOGY:-
A research method is a systematic plan for conducting
research. Sociologists draw on a variety of
bothqualitative and quantitative research methods,
including experiments, survey research, participant
observation, and secondary data. Quantitative methods
aim to classify features, count them, and create statistical
models to test hypotheses and explain observations.
Qualitative methods aim for a complete, detailed
description of observations, including the context of
events and circumstances.
PRIMARY RESEARCH
Primary research is designed to meet your unique and
specific needs. The research is conducted by you, or by a
research firm you hire for the project. The research can
include focus groups, surveys, interviews, and
observations.
76
SECONDARY RESEARCH
Secondary market research is when you use previously
completed studies and apply the results to your own
situation. It's easy to find using the internet or research
journals and is usually free or low cost. The drawback for
businesses is that the results are not specific to your
business, and you may not be aware of all of the
variables involved. The results may also be broader than
your company's niche, making to more difficult to help
inform your business decisions.
The Problems
In the management of working capital, the firm is faced
with two key problems:
78
Second, given these optimal amounts, what is the
most economical way to finance these working capital
investments? To produce the best possible results,
firms should keep no unproductive assets and should
finance with the cheapest available sources of funds.
Why? In general, it is quite advantageous for the firm
to invest in short term assets and to finance short-term
liabilities.
79
we have the data of other companies on the same
subject.
MAJOR FINDINGS
(amt. in lacks)
80
Working Capital 102 121
by by
5000% 19%
by 72% by
19.10
%
by 62% by 125%
by 209% by 15%
by 117% by
23%
Sundry Creditors 256 306
by 42% by 19.53%
Advances by 196% by 6%
81
Provisions & 80.16 136
by 74.55% by 139.5%
82
Cash and the bank balances are decreased by 15%
which shows company might face the liquidity
problem.
CONCLUSION
The working capital position of the company is sound and the
various sources through which it is funded are optimal
The debts doubtful have been doubled over the years but their
percentage on the debts has almost become half. This implies a
83
sales and collection policy that get along with the receivables
management of the firm.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion
of the inefficiencies in the working capital management.
Acme generic llp. has reached a position where the default costs
are as low as negligible and where they can readily factor their
accounts receivables for availing finance is noteworthy.
SUGGESTIONS AND
RECOMMENDATIONS
The management of working capital plays a vital role in
running of a successful business. So, things should go
with a proper understanding for managing cash,
receivables and inventory.
Acme generic llp. is managing its working capital in a
good manner, but still there is some scope for
improvement in its management. This can help the
company in raising its profit level by making less
investment in accounts receivables and stocks etc. This
will ultimately improve the efficiency of its operations.
84
Following are few recommendations given to the
company in achieving its desired objectives:
The business runs successfully with adequate amount of
the working capital but the company should see to it that
the cash should not be tied up in excessive amount of
working capital.
Though the present collection system is near perfect, the
company as due to the increasing sales should adopt
more effective measures so as to counter the threat of
bad debts.
The over purchasing function should be avoided as it
could lead to liquidity problems. The investment of cash
in marketable securities should be increased, as it is very
profitable for the company. Holding of excessive and
insufficient stock must be avoided as it creates a burden
on the cashresources of a business and results in lost
sales, delays for customers, etc respectively.
BIBLIOGRAPHY
85
www.acmeformulation.com/
http://www.bloomberg.com/markets/
http://www.tcs.com/Pages/default.aspx
www.educorporatebridge.com
www.google.com
www.scribd.com
www.acmegeneric.in
86