Project On Working Capital Management by A$HWIN CHOUHAN

A
PROJECT REPORT
ON
“WORKING CAPITAL MANAGEMENT”
IN
UNIVERSAL STARCH CHEM. ALLIED LTD.
DONDAICHA.
SUBMITTED TO
NORTH MAHARASHTRA UNIVERSITY
TOWARDS PARTIAL FULFILLMENT OF
BACHELOR DEGREE IN BUSINESS ADMINISTRATION
SUBMITTED BY
A$HWIN CHOUHAN
BACHELOR IN BUSINESS ADMINISTRATION
{FINANCIAL MANAGEMENT}
{2010-
{2010-11}
FROM
UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT
ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of gratitude to all those who have
helped me in completing this 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.
First of all I would like to thank North Maharashtra University, Jalgoan for providing
me an opportunity to undertake a project as a partly fulfillment of BBA degree.
I am really thankful to my mentor Mr. Ankush Agrawal Sir, for guiding and helping me
to solve all kinds of queries regarding the project work. His systematic way of working
and incomparable guidance has inspired the pace of the project to a great extent.
I would also like to thank my project coordinator Mr. Sachin Surana Sir for guiding me
about preparing project report and very thankful to all lecturers, office staff and library
staff of Institute of Management Research And Development, Shirpur for their useful
guidance and advise.
I am very grateful to Mr. J.S Patil Sir (Sr. Administration Manager) UNIVERSAL
STARCH-CHEM ALLIED LTD. Who has given me the opportunity to do this project
in their esteemed organization.
This project would not have been successful without the help of Mr. Altaf Sheikh Sir
(Finance Manager) and Mr. Devendrasingh Rawal (A.C Maintenance Dept.) of
UNIVERSAL STARCH-CHEM ALLIED LTD.
Last but not least I would like to thank all the employees of UNIVERSAL STARCH-
CHEM ALLIED LTD. who have directly and indirectly helped me with their moral
support for the completion of my project
Finally I would to express sincere thanks to my Dad & Mom for their blessings and
appreciation which helped me some or other way in making my project successful.
( Ashwin Chouhan )
Institute of Management Research and Development, Shirpur. 2

A PROJECT REPORT
TABLE OF CONTENTS
Chapter No. Subject Page No
Ch No. 1 Objective And Limitations…………………... 4

Ch No. 2 Executive Summary…………………………. 5
Ch No. 3 Company Profile ……………………………. 7
Ch No. 4 Working Capital Management
- An Overview………………………………. 11
Ch No. 5 Calculation Analysis and
Interpretation………………………………... 27
5.1 Changes In Working Capital……………….. 28

5.2 Analysis of various components of
Working capital……….................................. 32
5.3 Calculation of Net Operating Cycle……….. 45
5.4 Estimation of Working Capital
Requirement………………………………… 45
5.5 Calculation Working Capital Ratios
And Interpretation…………………………... 48
Ch No. 6 Major Finding………………………………… 66

Ch No. 7 Recommendations…………………………….. 68
Ch No. 8 Bibliography & Reference………………......... 70
Ch No. 9 Annexure……………………………………… 72
Profit & loss A/c, Balance Sheet
(06-07, 07-08, 08-09, 09-10)

A PROJECT REPORT
OBJECTIVES & LIMITATIONS
It is compulsory that under three year full time course of B.B.A. degree, a student has to
undergo different training programs so as to establish himself capable of managing at the
place of his work after the completion of this degree. Thus project work is an unique way
of studying an organization.
The main purpose of assigning this task of project report is to keep new practical
knowledge, establishing relations with different persons outside the organization and to
obtain first hand and factual information.
The project helps to draw out the differences and similarities between the theoretical
knowledge with the actual job conditions, this helps the students to persuade and activate
strategy decision-making when they start their carriers. It provides an opportunity to
develop communication skill and analytical skills.
The project provides the opportunity to understand the working capital management of
Universal Starch-Chem Allied Ltd.
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 4-year records.

The study is restricted to financial position of the company with on attention
given to loans and advances and deposit mobilization.
While computing ratios, average, percentage, the figures are appropriated to two
decimal places. Therefore sometimes the total may not exactly tally
Sometime round figures are taken on place of accurate figures.

A PROJECT REPORT

A PROJECT REPORT
EXECUTIVE SUMMARY
The group was founded in the year 1973 by Hon'ble Shri Dadasaheb Rawal, the Ex-Ruler,
Ex-MLA & Freedom Fighter. This visionary personality thought of bringing industry,
power & water works to his town of Dondaicha, which was otherwise an under-developed
region of North Maharashtra. In his vision he selected an agro- based industry to process
Maize into value-added products.
The project entitled “Working Capital Management and Analysis” deals with brief of
management of their day to day expenses, inflow as well as outflow of cash in
UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.which is an agro-
based industry to process Maize into value-added products. The term of study was kept
limited to make the title true. The purpose of the report is to get the in depth
understanding of the process of working capital management. The Company has
successfully enhanced the production capacity of Maize Refining from 60 MT to 400 MT
per day.
The objective of this project work is to focus on the working capital of the STARCH-
CHEM ALLIED LTD. DONDAICHA. And exploring its potential in the company. The
project contain the basic postulates of working capital, procedure of analysis of working
capital, ratio being used to define the working capital and the impact of working capital in
the company in case of excess or inadequacy. Also, the project contains analysis of
estimation of working capital requirement and the procedure to estimate working capital
requirement in manufacturing and trading concern. and from the data available it can be
concluded that it holds a very strong position in the market. The total turnover of
company is around `.85 crores and still counting. Company showing good ratios which
indicate sound efficiency , liquidity , and structural health of company.

A PROJECT REPORT
Founder
Vision
Mission
Company History
Structure
Capacities
Products

A PROJECT REPORT
Founder:
A well-read, widely traveled, highly educated Law Graduate who

has dedicated his life for the upliftment of human society beyond
the boundaries of nation, caste & creed.
The group was founded in the year 1973 by Hon'ble
Shri Dadasaheb Rawal, the Ex-Ruler, Ex-MLA & Freedom
Fighter. This visionary personality thought of bringing industry,
power & water works to his town of Dondaicha, which was
otherwise an under-developed region of North Maharashtra. In his vision he selected an
agro- based industry to process Maize into value-added products.
His two young sons assisted him to set up this industry. He being a progressive minded
person took the lead in updating technology, products, quality, system and transportation
and delivery of the liquid products etc. In his efforts he has been first in many spheres in
India like introduction of tankerisation for transport of Liquid Glucose and Dextrose
Syrup.
In the fields of Education and Training, he started a Diploma Engineering College at

Dhule, in 1945 the district headquarters, which was the first technical institute in the
region. It followed by starting Science Colleges, Agriculture Schools and ITI training
institutes under the inspiring guidance of Dadasaheb Rawal. He was the first person to
introduce Rural Electric Power Company at Dondaicha before the SEB (State Electricity
Board) could lay lines here.
He is also the first to start reforestation of this area with Juliflora Prosopis to make fuel
wood available to villagers and also to ensure protection of the soil from erosion.
Vision:
It is UNIVERSAL truth that maize is amazing and, we are committed to excellence
giving products of UNIQUE quality to customer satisfaction.
Mission:
Our plant and machinery has been established on the strong foundation of modern
technology for refining of Maize and to manufacture finished products conforming to
the international quality standards. The plant and machinery are being operated by highly
qualified, experienced & dedicated people who monitor continuously the day-to-day
operations in maintaining the consistency of results in all the operations. The total
administrative and technical manpower is working under the guidelines of dynamic and
forward thinking Management.

A PROJECT REPORT
Company History
M/s. UNIVERSAL STARCH-CHEM ALLIED LTD.

DONDAICHA. Has achieved remarkable milestones during the
history of last 30 years since its incorporation in 1973. The
Company has successfully enhanced the production capacity of
Maize Refining from 60 MT to 400 MT per day.
The product range has been also successfully expanded to cater the requirements of Food,
Pharmaceutical, Textile, Paper & Adhesive industries. The process of new product
development has been accomplished through the instantaneous efforts of different teams
like Marketing, R & D, Engineering & Production. The Company’s R and D Laboratory
is recognized by D.S.I.R., Govt. of India. The Company was awarded by OPPI as the
“BEST VENDOR’ in the category of ‘Excipient Supplier” for the year 1998-99. The
Company has a H.R.D. Centre for training the staff and workers on Total Quality
Management, Productivity and ISO 9000.
The Company is thriving in sectors of Energy, Environment

under the dynamic leadership of Management. The Company
has sophisticated and full-fledged Effluent Treatment Plant along
with Bio-Digestors in which Biogas is generated from the factory
effluents. The Biogas is being utilized as the fuel for by-product
driers and boilers and actively participating in the National Campaign of “SAVE
ENERGY SAVE NATION”. The Company has also established Wind Mill to generate
0.6 M.W. power and also succeeded in establishing a Co-Generation Power plant for
captive consumption. The Management is dedicated in the service of Mankind with the
production and supply of quality products through Maize Refining industry.
Structure:
Chairman & Managing Director Hon'ble Shri.Sarkarsaheb

: USA -- Universal Starch-Chem Rawal
Allied Ltd.
Director - Business Development Shri. Jaykumar J. Rawal -
M.L.A.
Director - Business Shri. Rishikesh Rawal
Administration
Director Shri. Vikrant Rawal
Chief Executive Officer
Finance Advisor Mr. M.N. Patwari
General Manager - R & D Mr. D.A. Patil
General Manager - Q.A. Mr. G.P. Chaudhary
General Manager – Engg

A PROJECT REPORT
Capacities:
Maize Crushing 400 MT Per Day

All Types Of Starches (Native+Modified) 120 MT Per Day
Liquid Glucose 100 MT Per Day
Dextrose Monohydrate 35 MT Per Day
Dextrose Anhydrous 10 MT Per Day
Dextrose monohydrate Syrup 15 MT Per Day
Cornello (Refined Corn Oil) 08 MT Per Day
Caramels (ISI Grade) 03 MT Per Day
Products:
SR. Product Name

NO.
01 Maize Starch Powder - IP (Super Quality)
02 Maize Starch Powder - IP (Special Quality)
03 Maize Starch Powder - (Pure)
04 Maize Starch Powder - IP (Best Quality)
05 Unigel - 160, 270 & 500
06 LIQUID GLUCOSE - IG & SO2-free
07 Utexlose
08 White Dextrins
09 Unisol - B & T
10 Dextrose Monohydrate
11 Dextrose Anhydrous
12 Dextrose Syrup
13 High Maltose Corn Syrup
14 Caramel ( All types of BIS Mark)
15 Maize Germ
16 Maize Germ Oil Cake
17 Maize Gluten - 60%, 50% & 40%
18 Maize Refined Oil – “CORNELLO”
19 Pepsize – 200 (Oxidized Starch)
20 Unicats 25/45 (Cationic Starch)
21 Unifilm – 10 (Esterified Starch)
22 Unistar – 65 (Amphoteric Starch)

A PROJECT REPORT
Working capital has been described as the

“Life blood of any business which is apt because it
constitutes a cyclically flowing stream through the
business.”

A PROJECT REPORT
This section includes:

INTRODUCTION :
The term working capital is commonly used for the capital required for day-to-day
working in a business concern, such as for purchasing raw material, for meeting day-to-
day expenditure on salaries, wages, rents rates, advertising etc. But there are much
disagreement among various financial authorities (Financiers, accountants, businessmen
and economists) as to the exact meaning of the term working capital.
DEFINITION AND CLASSIFICATION OF WORKING CAPITAL:
Working capital refers to the circulating capital required to meet the day to day operations
of a business firm. Working capital may be defined by various authors as follows:
1. According to Weston & Brigham - “Working capital refers to a firm’s investment
in short term assets, such as cash amounts receivables, inventories etc.
2. Working capital means current assets. - Mead, Baker and Malott
3. “The sum of the current assets is the working capital of the business” - J.S.Mill
Working capital is defined as “the excess of current assets over current liabilities and
provisions”. But as per accounting terminology, it is difference between the inflow and
outflow of funds. In the Annual Survey of Industries (1961), working capital is defined to
include “Stocks of materials, fuels, semi-finished goods including work-in-progress and
finished goods and by-products; cash in hand and bank and the algebraic sum of sundry
creditors as represented by (a) outstanding factory payments e.g. rent, wages, interest and
dividend; b)purchase of goods and services; c) short-term loans and advances and sundry
debtors comprising amounts due to the factory on account of sale of goods and services
and advances towards tax payments”.
The term “working capital” is often referred to “circulating capital” which is frequently
used to denote those assets which are changed with relative speed from one form to
another i.e., starting from cash, changing to raw materials, converting into work-in-
progress and finished products, sale of finished products and ending with realization of
cash from debtors.
Working capital has been described as the “life blood of any business which is apt
because it constitutes a cyclically flowing stream through the business”.
Working Capital may be classified in two ways

a) Concept based working capital
b) Time based working capital
Concepts of working capital

A PROJECT REPORT
1. Gross Working Capital: It refers to the firm’s investment in total current or

circulating assets.
2. Net Working Capital:

The term “Net Working Capital” has been defined in two different ways:
i. It is the excess of current assets over current liabilities. This is, as a matter of fact,
the most commonly accepted definition. Some people define it as only the difference
between current assets and current liabilities. The former seems to be a better
definition as compared to the latter.
ii. It is that portion of a firm’s current assets which is financed by long-term funds.
3. Permanent Working Capital: This refers to that minimum amount of investment in

all current assets which is required at all times to carry out minimum level of business
activities. In other words, it represents the current assets required on a continuing basis
over the entire year. Tandon Committee has referred to this type of working capital as
“Core current assets”.
The following are the characteristics of this type of working capital:
1. Amount of permanent working capital remains in the business in one form or
another. This is particularly important from the point of view of financing. The
suppliers of such working capital should not expect its return during the life-
time of the firm.
2. It also grows with the size of the business. In other words, greater the size of the
business, greater is the amount of such working capital and vice versa. Permanent
working capital is permanently needed for the business and therefore it should be
financed out of long-term funds.
4. Temporary Working Capital: The amount of such working capital keeps on

fluctuating from time to time on the basis of business activities. In other words, it
represents additional current assets required at different times during the operating year.
For example, extra inventory has to be maintained to support sales during peak sales
period. Similarly, receivable also increase and must be financed during period of high
sales. On the other hand investment in inventories, receivables, etc., will decrease in
periods of depression.Suppliers of temporary working capital can expect its return during
off season when it is not required by the firm. Hence, temporary working capital is
generally financed from shortterm sources of finance such as bank credit.
5. Negative Working Capital: This situation occurs when the current liabilities exceed
the current assets. It is an indication of crisis to the firm.
Need for Working Capital

Working capital is needed till a firm gets cash on sale of finished products. It depends on
two factors:
i. Manufacturing cycle i.e. time required for converting the raw material into finished
product; and
ii. Credit policy i.e. credit period given to Customers and credit period allowed by
creditors. Thus, the sum total of these times is called an “Operating cycle” and it
consists of the following six steps:

UNIVERSAL
NIVERSAL STARCH-CHEM
STARCH ALLIED LTD. DONDAICHA.
DONDAICHA
A PROJECT REPORT
i. Conversion of cash into raw materials.

ii. Conversion of raw materials into work-in-process.
work
iii. Conversion of work-in-process
work into finished products.
iv. Time for sale of finished goods—cash
goods sales and credit sales.
s.
v. Time for realization from debtors and Bills receivables into cash.
vi. Credit period allowed by creditors for credit purchase of raw materials,
inventory and creditors for wages and overheads.
Chart for operating cycle or working capital cycle.
RAW
CREDITORS
MATERIAL
WORK-IN-
CASH
PROGRESS
OPERATING CYCLE
FINISHED
DEBTORS
GOODS
SALES
In case of trading concerns, the operating cycle will be:

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Cash Stock Debtors Cash.
CASH STOCK
DEBTORS
In case of financial concerns, the operating cycle will be:
Cash Debtors Cash only.
CASH DEBTORS
DETERMINANTS OF WORKING CAPITAL :

A PROJECT REPORT
The factors influencing the working capital decisions of a firm may be classified as two
groups, such as internal factors and external factors. The internal factors includes, nature
of business size of business, firm’s product policy, credit policy, dividend policy, and
access to money and capital markets, growth and expansion of business etc. The external
factors include business fluctuations, changes in the technology, infrastructural facilities,
import policy and the taxation policy etc. These factors are discussed in brief in the
following lines.
I. Internal Factors
1. Nature and size of the business

The working capital requirements of a firm are basically influenced by the nature and
size of the business. Size may be measured in terms of the scale of operations. A firm
with larger scale of operations will need more working capital than a small firm.
Similarly, the nature of the business - influence the working capital decisions. Trading
and financial firms have less investment in fixed assets. But require a large sum of money
to be invested in working capital. Retail stores, business units require larger amount of
working capital, whereas, public utilities need less working capital and more funds to
invest in fixed assets.
2. Firm’s production policy

The firm’s production policy (manufacturing cycle) is an important factor to decide the
working capital requirement of a firm. The production cycle starts with the purchase and
use of raw material and completes with the production of finished goods. On the other
hand production policy is uniform production policy or seasonal production policy etc.,
also influences the working capital decisions. Larger the manufacturing cycle and uniform
production policy – larger will be the requirement of working capital. The working capital
requirement will be higher with varying production schedules in accordance with the
changing demand.
3. Firm’s credit policy

The credit policy of a firm influences credit policy of working capital. A firm following
liberal credit policy to all customers requires funds. On the other hand, the firm adopting
strict credit policy and grant credit facilities to few potential customers will require less
amount of working capital.
4. Availability of credit
The working capital requirements of a firm are also affected by credit terms granted by
its suppliers – i.e. creditors. A firm will need less working capital if liberal credit terms
are available to it. Similarly, the availability of credit from banks also influences the
working capital needs of the firm. A firm, which can get bank credit easily on favorable
conditions, will be operated with less working capital than a firm without such a facility.
5. Growth and expansion of business

Working capital requirement of a business firm tend to increase in correspondence with
growth in sales volume and fixed assets. A growing firm may need funds to invest in
fixed assets in order to sustain its growing production and sales. This will, in turn,

A PROJECT REPORT
increase investment in current assets to support increased scale of operations. Thus, a

growing firm needs additional funds continuously.
6. Profit margin and dividend policy

The magnitude of working capital in a firm is dependent upon its profit margin and
dividend policy. A high net profit margin contributes towards the working capital pool.
To the extent the net profit has been earned in cash, it becomes a source of working
capital. This depends upon the dividend policy of the firm. Distribution of high proportion
of profits in the form of cash dividends results in a drain on cash resources and thus
reduces company’s working capital to that extent. The working capital position of the
firm is strengthened if the management follows conservative dividend policy and vice
versa.
7. Operating efficiency of the firm

Operating efficiency means the optimum utilisation of a firm’s resources at minimum
cost. If a firm successfully controls operating cost, it will be able to improve net profit
margin which, will, in turn, release greater funds for working capital purposes.
8. Co-ordinating activities in firm

The working capital requirements of a firm are depend upon the co-ordination between
production and distribution activities. The greater and effective the co-ordinations, the
pressure on the working capital will be minimized. In the absence of co-ordination,
demand for working capital is reduced.
II. External Factors
1. Business fluctuations
Most firms experience fluctuations in demand for their products and services. These
business variations affect the working capital requirements. When there is an upward
swing in the economy, sales will increase, correspondingly, the firm’s investment in
inventories and book debts will also increase. Under boom, additional investment in fixed
assets may be made by some firms to increase their productive capacity. This act of the
firm will require additional funds. On the other hand when, there is a decline in economy,
sales will come down and consequently the conditions, the firm try to reduce their short-
term borrowings. Similarly the seasonal fluctuations may also affect the requirement of
working capital of a firm.
2. Changes in the technology

The technological changes and developments in the area of production can have
immediate effects on the need for working capital. If the firm wish to install a new
machine in the place of old system, the new system can utilise less expensive raw
materials, the inventory needs may be reduced there by working capital needs.
3. Import policy
Import policy of the Government may also affect the levels of working capital of a firm
since they have to arrange funds for importing goods at specified times.

A PROJECT REPORT
4. Infrastructural facilities
The firms may require additional funds to maintain the levels of inventory and other
current assets, when there is good infrastructural facilities in the company like,
transportation and communications.
5. Taxation policy
The tax policies of the Government will influence the working capital decisions. If the
Government follow regressive taxation policy, i.e. imposing heavy tax burdens on
business firms, they are left with very little profits for distribution and retention purpose.
Consequently the firm has to borrow additional funds to meet their increased working
capital needs. When there is a liberalized tax policy, the pressure on working capital
requirement is minimized. Thus the working capital requirements of a firm are influenced
by the internal and external factors.
MEASUREMENT OF WORKING CAPITAL :

There are 3 methods for assessing the working capital requirement as explained below:
a) Percent of Sales Method

Based on the past experience, some percentage of sale may be taken for determining
the quantum of working capital
b) Regression Analysis Method

The relationship between sales and working capital and its various components may be
plotted on Scatter diagram and the average percentage of past 5 years may be ascertained.
This average percentage of sales may be taken as working capital. Similar exercise may
be carried out at the beginning of the year for assessing the working capital requirement.
This method is suitable for simple as well as complex situations.
c) Operating Cycle Method

As a first step, we have to compute the operating cycle as follows:
i) Inventory period: Number of days consumption in stock = I + M_

365
Where I = Average inventory during the year.
M = Materials consumed during the year.
ii) Work-in-process: Number of days of work-in-process = W + _ K_

365
Where W = Average work-in-process during the year.
K = Cost of work-in-process i.e., Material + Labour + Factory overheads.
iii) Finished products inventory period: G ÷ F_

365
Where G = Average finished products inventory during the year

F = Cost of finished goods sold during the year.

A PROJECT REPORT
iv) Average collection period of Debtors: D ÷ F_

365
Where D = Average Debtors balances during the year.

S = Credit sales during the year.
v) Credit period allowed by Suppliers: C ÷ P_

365
Where C= Average creditors’ balances during the year.
P = credit purchases during the year.
vi) Minimum cash balance to be kept daily.
Formula: O.C. = M + W + F + D – C
Note: It is also known as working capital cycle. Operating cycle is the total time gap
between the purchase of raw material and the receipt from Debtors.
Importance or Advantages of Adequate Working Capital
Working capital is the life blood and nerve centre of a

business. Just as circulation of blood is essential in the human body for maintaining life,
working capital is very essential to maintain the smooth running of a business. No
business can run successfully without an adequate amount of working capital. The main
advantages of maintaining adequate amount of working capital are as follows:
1. Solvency of the business: Adequate working capital helps in maintaining solvency

of the business by providing uninterrupted flow of production.
2. Goodwill: Sufficient working capital enables a business concern to make prompt
payments and hence helps in creating and maintaining goodwill.
3. Easy loans: A concern having adequate working capital, high solvency and good
credit standing can arrange loans from banks and other on easy and favourable terms.
4. Cash Discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence it reduces costs.
5. Regular supply of raw materials: Sufficient working capital ensures regular supply
of raw materials and continuous production.
6. Regular payment of salaries, wages and other day-to-day commitments:
A company which has ample working capital can make regular payment of salaries,
wages and other day-to-day commitments which raises the morale of its employees,
increases their efficiency, reduces wastages and costs and enhances production and
profits.
7. Exploitation of favorable market conditions: Only concerns with adequate working
capital can exploit favorable market conditions such as purchasing its requirements in
bulk when the prices are lower and by holding its inventories for higher prices.
8. Ability to face Crisis: Adequate working capital enables a concern to face business
crisis in emergencies such as depression because during such periods, generally, there
is much pressure on working capital.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
9.Quick
Quick and Regular return on Investments: Every Investor wants a quick and regular
return on his investments. Sufficiency of working capital enables a concern to pay
quick and regular dividends to its investors as there may not be much pressure to
plough back profits. This gains the confidence of its investors and creates a favourable
market
rket to raise additional funds i.e., the future.
10. High morale: Adequacy of working capital creates an environment of security,
confidence, high morale and creates overall efficiency in a business.
Importance or Advantages
Advantages of Adequate Working Capital
Payments to
Suppliers
Regular
Payments of Planning and
Salaries & Forecasting
Wages
Working
Capital
Efficient
Creates
Supply Chain
Goodwill
Management
Easy Loan Increase in

from Banks Efficiency
Excess or Inadequate Working Capital

A PROJECT REPORT
Every business concern should have adequate

working capital to run its business operations. It should have neither redundant or excess
working capital nor inadequate nor shortage of working capital. Both excess as well as
short working capital positions are bad for any business. However, out of the two, it is the
inadequacy of working capital which is more dangerous from the point of view of the
firm.
Disadvantages of Redundant or Excessive Working Capital

1. Excessive Working Capital means ideal funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.
2. When there is a redundant working capital, it may lead to unnecessary purchasing and
accumulation of inventories causing more chances of theft, waste and losses.
3. Excessive working capital implies excessive debtors and defective credit policy
which may cause higher incidence of bad debts.
4. It may result into overall inefficiency in the organization.
5. When there is excessive working capital, relations with banks and other financial
institutions may not be maintained.
6. Due to low rate of return on investments, the value of shares may also fall.
7. The redundant working capital gives rise to speculative transactions.
Disadvantages or Dangers of Inadequate Working Capital

1. A concern which has inadequate working capital cannot pay its short-term liabilities
in time. Thus, it will lose its reputation and shall not be able to get good credit
facilities.
2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.
3. It becomes difficult for the firm to exploit favourable market conditions and undertake
profitable projects due to lack of working capital.
4. The firm cannot pay day-to-day expenses of its operations and its creates
inefficiencies, increases costs and reduces the profits of the business.
5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of
liquid funds.
6. The rate of return on investments also falls with the shortage of working capital.
MANAGEMENT OF WORKING CAPITAL:

Working Capital Management involves management of different components of working
capital such as cash, inventories, accounts receivable, creditors etc. A brief description
follows regarding the various issues involved in the management of each of the above
components of working capital.
INVENTORY MANAGEMENT:
Inventory constitutes an important item in the working capital of many business
concerns.Net working capital is the difference between current assets and current
liabilities. Inventory is a major item of current assets. The term inventory refers to the
stocks of the product of a firm is offering for sale and the components that make up the
product Inventory is stores of goods and stocks. This includes raw materials, work-in-
process and finished goods. Raw materials consist of those units or input which are used
to manufactured goods that require further processing to become finished goods. Finished

A PROJECT REPORT
goods are products ready for sale. The classification of inventories and the levels of the
components vary from organisaion to organisation depending upon the nature of business.
For example steel is a finished product for a steel industry, but raw material for an
automobile manufacturer. Thus, inventory may be defined as “Stock of goods that is held
for future use”. Since inventories constitute about 50 to 60 percent of current assets, the
management of inventories is crucial to successful working capital management. Working
capital requirements are influenced by inventory holding. Hence, the need for effective
and efficient management of inventories. A good inventory management is important to
the successful operations of most organisaions, unfortunately the importance of inventory
is not always appreciated by top management. This may be due to a failure to recognize
the link between inventories and achievement of organizational goals or due to ignorance
of the impact that inventories can have on costs and profits. Inventory management refers
to an optimum investment in inventories. It should neither be too low to effect the
production adversely nor too high to block the funds unnecessarily. Excess investment in
inventories is unprofitable for the business. Both excess and inadequate investment in
inventories is not desirable. The firm should operate within the two danger points. The
purpose of inventory management is to determine and maintain the optimum level of
inventory investment.
Techniques of Inventory Control

The following are the various measures of selective control of inventory:
F. Inventory Turnover Ratio
i) Inventory Turnover Ratio: __ Cost of goods sold __

average total inventories.
The higher the ratio, more the efficiency of the firm
ii) Work in process turnover ratio = Cost of goods sold ________

Average inventory of finished goods at costs
Here, in this ratio also higher the ratio, more the efficiency of the firm.
iii) Weeks inventory finished goods on hand = _________Finished Goods______

Weekly of finished sales goods
The ratio reveals that the lower the ratio, the higher the efficiency of the firm
iv) Weeks raw material on order = ______Raw material on order_______

Weekly consumption of raw material
This ratio indicates that the lower the ratio, the higher the efficiency of the firm.
v) Average age of raw material inventory = _Average raw material inventory at cost_
Average daily purchases of raw material
This ratio says that the lower the ratio the higher the efficiency of the firm.
vi) Average age of finished goods inventory

UNIVERSAL
DONDAICHA
A PROJECT REPORT
= __ Average finished goods invetory at cost_____

Average cost of finished goods manufactured per day
This ratio comes that the lower the ratio the higher the efficiency of the firm.
i) Out of stock index = _No. of times out of stock_

No. of items requisitioned
This ratio indicates the lower the ratio higher the efficiency of the firm.
ii) Spare parts index = Value of spare parts inventory

Value of capital equipment
This ratio reveals that the higher the ratio the more the efficiency of the firm.
CASH MANAGEMENT :
Cash management is one of the key areas of working capital management. Cash is the
most liquid current assets. Cash is the common denominator to which all current assets
can be reduced because the other major liquid
assets, i.e. receivable and inventory get ge
eventually converted into cash. This underlines
the importance of cash management. The term
“Cash” with reference to management of cash is
used in two ways. In a narrow sense cash refers to
coins, currency, cheques, drafts and deposits in
banks. The broaderder view of cash includes near
cash assets such as marketable securities and
time deposits in banks.The reason why these near cash assets are included in cash is that
they can readily be converted into cash. Usually, excess cash is invested in marketable
securities
ecurities as it contributes to profitability. Cash is one of the most important components
of current assets. Every firm should have adequate cash, neither more nor less. Inadequate
cash will lead to production interruptions, while excessive cash remains idle i and will
impair profitability. Hence, the need for cash management. The cash management
assumes significance for the following reasons.
Significance:
1. Cash planning - Cash is the most important as well as the least unproductive of all
current assets. Though, it is necessary to meet the firm’s obligations, yet idle cash
earns nothing. Therefore, it is essential to have a sound cash planning neither excess
nor inadequate.
2. Management of cash flows - This is another important aspect of cash management.
Synchronization between cash inflows and cash outflows rarely happens. Sometimes,
the cash inflows will be more than outflows because of receipts from debtors, and cash
sales
ales in huge amounts. At other times, cash outflows exceed inflows due to payment of
taxes, interest and dividends etc. Hence, the cash flows should be managed for better
cash management.
3. Maintaining optimum cash balance - Every firm should maintain optimum opt cash
balance. The management should also consider the factors determining and influencing
the cash balances at various point of time. The cost of excess cash and danger of

A PROJECT REPORT
inadequate cash should be matched to determine the optimum level of cash balances.
4. Investment of excess cash - The firm has to invest the excess or idle funds in short
term securities or investments to earn profits as idle funds earn nothing. This is one of
the important aspects of management of cash.
Thus, the aim of cash management is to maintain adequate cash balances at one hand
and to use excess cash in some profitable way on the other hand.
Motives
Motives or desires for holding cash refer to various purposes. The purpose may be
different from person to person and situation to situation. There are four important
motives to hold cash.
a. Transactions motive - This motive refers to the holding of cash, to meet routine cash
requirements in the ordinary course of business. A firm enters into a number of
transactions which requires cash payment. For example, purchase of materials, payment
of wages, salaries, taxes, interest etc. Similarly, a firm receives cash from cash sales,
collections from debtors, return on investments etc. But the cash inflows and cash
outflows do not perfectly synchronize. Sometimes, cash receipts are more than payments
while at other times payments exceed receipts. The firm must have to maintain sufficient
(funds) cash balance if the payments are more than receipts. Thus, the transactions motive
refers to the holding of cash to meet expected obligations whose timing is not perfectly
matched with cash receipts. Though, a large portion of cash held for transactions motive
is in the form of cash, a part of it may be invested in marketable securities whose maturity
conform to the timing of expected payments such as dividends, taxes etc.
b. Precautionary motive - Apart from the non-synchronization of expected cash receipts
and payments in the ordinary course of business, a firm may be failed to pay cash for
unexpected contingencies. For example, strikes, sudden increase in cost of raw materials
etc. Cash held to meet these unforeseen situations is known as precautionary cash balance
and it provides a caution against them. The amount of cash balance under precautionary
motive is influenced by two factors i.e. predictability of cash flows and the availability of
short term credit. The more unpredictable the cash flows, the greater the need for such
cash balances and vice versa. If the firm can borrow at short-notice, it will need a
relatively small balance to meet contingencies and vice versa. Usually precautionary cash
balances are invested in marketable securities so that they contribute something to
profitability.
c. Speculative motive - Sometimes firms would like to hold cash in order to exploit, the
profitable opportunities as and when they arise. This motive is called as speculative
motive. For example, if the firm expects that the material prices will fall, it can delay the
purchases and make purchases in future when price actually declines. Similarly, with the
hope of buying securities when the interest rate is expected to decline, the firm will hold
cash. By and large, firms rarely hold cash for speculative purposes.
d. Compensation motive - This motive to hold cash balances is to compensate banks and
other financial institutes for providing certain services and loans. Banks provide a variety
of services to business firms like clearance of cheques, drafts, transfer of funds etc. Banks
charge a commission or fee for their services to the customers as indirect compensation.

A PROJECT REPORT
Customers are required to maintain a minimum cash balance at the bank. This balance
cannot be used for transaction purposes. Banks can utilise the balances to earn a return to
compensate their cost of services to the customers. Such balances are compensating
balances. These balances are also required by some loan agreements between a bank and
its customers. Banks require a chest to maintain a minimum cash balance in his account to
compensate the bank when the supply of credit is restricted and interest rates are rising.
Thus cash is required to fulfill the above motives. Out of the four motives of holding cash
balances, transaction motive and compensation motives are very important. Business
firms usually do not speculate and need not have speculative balances. The requirement of
precautionary balances can be met out of short-term borrowings.
Objectives
The basic objectives of cash management are
(i) to make the payments when they become due and
(ii) to minimize the cash balances. The task before the cash management is to reconcile
the two conflicting nature of objectives.
1. Meeting the payments schedule - The basic objective of cash management is to meet
the payment schedule. In the normal course of business, firms have to make payments of
cash to suppliers of raw materials, employees and so on regularly. At the same time firm
will be receiving cash on a regular basis from cash sales and debtors. Thus, every firm
should have adequate cash to meet the payments schedule. In other words, the firm should
be able to meet the obligations when they become due. The firm can enjoy certain
advantages associated with maintaining adequate cash. They are:
a. Insolvency - The question of insolvency does not arise as the firm will be able to meet
its obligations.
b. Good relations - Adequate cash balance in the business firm helps in developing good
relations with creditors and suppliers of raw materials.
c. Credit worthiness - The maintenance of adequate cash balances increase the credit
worthiness of the firm. Consequently it will be able to purchase raw materials and
procure credit with favorable terms and conditions.
d. Availing discount facilities - The firm can avail the discounts offered by the creditors
for payments before the due date.
e. To meet unexpected facilities - The firm can easily meet the unexpected cash
expenditure in situations like strikes, competition from customers etc. with little strain.
So, every firm should have adequate cash balances for effective cash management.
2. Minimising funds committed to cash balances - The second important objective of

cash management is to minimise cash balance. In minimizing the cash balances two
conflicting aspects have to be reconciled. A high level of cash balances will ensure
prompt payment together with all advantages, but at the same time, cash is a non-earning
asset and the larger balances of cash impair profitability. On the other hand, a low level of
cash balance may lead to the inability of the firm to meet the payment schedule. Thus the
objective of cash management would be to have an optimum cash balance.
Factors determining cash needs - Maintenance of optimum level of cash is the main
problem of cash management. The level of cash holding differs from industry to industry,

A PROJECT REPORT
organization to organisation. The factors determining the cash needs of the industry is
explained as follows:
i. Matching of cash flows - The first and very important factor determining the level of
cash requirement is matching cash inflows with cash outflows. If the receipts and
payments are perfectly coincide or balance each other, there would be no need for cash
balances. The need for cash management therefore, due to the non-synchronization of
cash receipts and disbursements. For this purpose, the cash inflows and outflows have
to be forecast over a period of time say 12 months with the help of cash budget. The
cash budget will pin point the months when the firm will have an excess or shortage of
cash.
ii. Short costs - Short costs are defined as the expenses incurred as a result of shortfall of
cash such as unexpected or expected shortage of cash balances to meet the
requirements. The short costs includes, transaction costs associated with raising cash to
overcome the shortage, borrowing costs associated with borrowing to cover the
shortage i.e. interest on loan, loss of trade-discount, penalty rates by banks to meet a
shortfall in compensating, cash balances and costs associated with deterioration of the
firm’s credit rating etc. which is reflected in higher bank charges on loans, decline in
sales and profits.
iii. Cost of cash on excess balances - One of the important factors determining the cash
needs is the cost of maintaining cash balances i.e. excess or idle cash balances. The
cost of maintaining excess cash balance is called excess cash balance cost. If large
funds are idle, the implication is that the firm has missed opportunities to invest and
thereby lost interest. This is known as excess cost. Hence the cash management is
necessary to maintain an optimum balance of cash.
iv. Uncertainty in business - Uncertainty plays a key role in cash management, because
cash flows cannot be predicted with complete accuracy. The first requirement of cash
management is a precautionary cushion to cope with irregularities in cash flows,
unexpected delays in collections and disbursements, defaults and expected cash needs
the uncertainty can be overcome through accurate forecasting of tax payments,
dividends, capital expenditure etc. and ability of the firm to borrow funds through over
draft facility.
v. Cost of procurement and management of cash - The costs associated with establishing
and operating cash management staff and activities determining the cash needs of a
business firm. These costs are generally fixed and are accounted for by salary, storage
and handling of securities etc. The above factors are considered to determine the cash
needs of a business firm.

A PROJECT REPORT

A PROJECT REPORT
5.1 STATEMENT SHOWING CHANGES IN WORKING CAPITAL
Particulars 2006-07 2007-08 Increase Decrease ‰
(A)Current Assets
a)Inventories 156107639 149519226 ---- 6588413 -4
b)Sundry Debtors 118442812 87926979 ---- 30515833 -26
c)Cash & Bank Balances 57389888 52069059 ---- 5320829 -9
d) Loans & Advances 52904647 59051856 6147209 ---- +12
Total (A) 384844986 348567120 6147209 42425075
(B) Current Liabilities
a)Trade Creditors 63201210 109806615 ---- 46605405 -74
b)Other Liabilities 14913131 11941806 2971325 ---- +20
c)Unclaimed Dividends 695953 779041 ---- 83088 -12
d)Temporary Bank Overdraft ---- ---- ---- ----
e)Interest accrued but not due 818284 662710 155574 ---- +19
f)Provision for taxation 13595642 5065873 8529769 ---- +63

g)Corporate Tax on Dividend
356895 356895 ---- ---- 0
h)Proposed Dividend 2100000 2100000 ---- ---- 0
i)Leave Encashment 2807488 3369347 ---- 561859 +20
Total (B) 98488603 134082287 11656668 47250352
Total Increase/Decrease(A)+(B) 17803877 89675427
Working Capital (A)-(B) 286356383 214484833 71871550
There is Net Decrease in Working Capital by `. 71871550
Interpretation: We see that there is a net decrease in the working capital, because in the
year 2007-08 there was decrease in the sundry debtors by 26%, the cash and bank balance
also decreased by 9% of the previous year. Along with it the trade creditors also increased
by 74%.

A PROJECT REPORT
(A)Current Assets
a)Inventories 149519226 58248592.00 ----- 91270634 -61
b)Sundry Debtors 87926979 73917086.00 ----- 14009893 -16
c)Cash & Bank Balances 52069059 36834733.03 ----- 15234325.97 -29
d) Loans & Advances 59051856 58696311.20 ----- 355544.80 -0.60
Total (A) 348567120 227696722.23 ----- 120870397.77
a)Trade Creditors 109806615 89982941.48 19823673.52 ---- -18
b)Other Liabilities 11941806 16726276.92 ----- 4784470.92 +40
c)Unclaimed Dividends 779041 857126.00 ----- 78085 +10

d)Temporary Bank Overdraft ----- -----
e)Interest accrued but not due 662710 541994.00 120716 ----- -18
f)Provision for taxation 5065873 5065873.00 ----- -----
g)Corporate Tax on Dividend 356895 ----- 356895 ----- -100
h)Proposed Dividend 2100000 ----- 2100000 ----- -100

i)Leave Encashment 3369347 4290503.00 ----- 921156 +27
Total (B) 134082287 117464714.40 22401284.52 5783711.92
Total Increase/Decrease(A)+(B) 22401284.52 126654109.69

Working Capital (A) - (B) 214484833 110232007.83 ----- 104252825.17
There is Net Decrease in Working Capital by `. 104252825.17
Interpretation: We see that there is a net decrease in the working capital, because in the
year 2008-09 there was decrease in the inventories by 61%, the cash and bank balance
also decreased by 29% of the previous year. Along with it the other liabilities also
increased by 40%.

A PROJECT REPORT

(A)Current Assets
a)Inventories 58248592.00 95347031.67 37098439.67 ----- +64
b)Sundry Debtors 73917086.00 106529364.52 32612278.52 ----- +44
c)Cash & Bank Balances 36834733.03 28789632.72 ----- 8045100.31 -22
d) Loans & Advances 58696311.20 71298529.65 12602218.45 ----- +21
Total (A) 227696722.23 301964558.56 82312936.64 8045100.31
a)Trade Creditors 89982941.48 140837352.94 ----- 50854411.46 +57
b)Other Liabilities 16726276.92 25953505.44 ----- 9227228.52 +55
c)Unclaimed Dividends 857126.00 783140.00 73986.00 ----- -9
d)Temporary Bank Overdraft ----- 2377923.87 ----- 2377923.87 +100
e)Interest accrued but not due 541994.00 846989.00 ----- 304995.00 +56
f)Provision for taxation 5065873.00 8849230.76 ----- 3783357.76 +75
g)Corporate Tax on Dividend ----- 356895.00 ----- 356895.00 +100
h)Proposed Dividend ----- 210000.00 ----- 2100000.00 +100
i)Leave Encashment 4290503.00 5770279.00 ----- 1479776.00 +34
Total (B) 117464714.40 187875316.01 73986.00 50854411.46
Total Increase/Decrease(A)+(B) 82386922.64 78529687.92
Working Capital (A)-(B) 110232007.83 114089242.55 3857234.72 -----
There is Net Increase in Working Capital by `. 3857234.72
Interpretation: We see that there is a net increase in the working capital, because in the
year 2009-10 there was increase in the inventories by 64%, sundry debtors were increased
by 44%, loan and advances also increased by 21% as compared to the previous year 2008-
09.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Analysis through graph:

graph
Change In Working Capital

35000000
30000000 286356383
25000000
214484833
20000000
15000000
110232007 114089242.6
10000000
50000000
0
2006-07 2007-08 2008-09 2009-10
Current Assets Current Liabilities

60000000
50000000
98488603
134082287
40000000
114089242.6
30000000 117464714.4
20000000 384844986
348567120
301964558.6
10000000 227696722.2
0
2006--07 2007-08 2008-09 2009-10

A PROJECT REPORT
5.2 ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL
Particulars 2006-07 2007-08 2008-09 2009-10
(A)Current Assets
a)Inventories 156107639 149519226 58248592.00 95347031.67
b)Sundry Debtors 118442812 87926979 73917086.00 106529364.52
c)Cash & Bank Balances 57389888 52069059 36834733.03 28789632.72
d) Loans & Advances 52904647 59051856 58696311.20 71298529.65
Total(A) 384844986 348567120 227696722.23 301964558.56
a)Trade Creditors 63201210 109806615 89982941.48 140837352.94
b)Other Liabilities 14913131 11941806 16726276.92 25953505.44
c)Unclaimed Dividends 695953 779041 857126.00 783140.00
d)Temporary Bank Overdraft ----- ----- ----- 2377923.87
e)Interest accrued but not due 818284 662710 541994.00 846989.00
f)Provision for taxation 13595642 5065873 5065873.00 8849230.76
g)Corporate Tax on Dividend 356895 356895 ----- 356895.00
h)Proposed Dividend 2100000 2100000 ----- 210000.00
i)Leave Encashment 2807488 3369347 4290503.00 5770279.00
Total(B) 98488603 134082287 117464714.40 187875316.01
By studying schedule of change in working capital of last four year we can find that
there is decreasing trend working capital and its component current assets. The current
liabilities shows gentle increasing trend as compared to current assets. In further
analysis will study year-wise changing structure of gross working capital as well as net
working capital.

UNIVERSAL STARCH
Institute of Management Research and Development, Shirpur.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
2008
2008-09
In year 2008-09
2008 the total
current assets comprises
of `.227696722.23 and it
constitute 66%, it
decreased by
Current
Liabilities `.120897397.77 (6%) as
117464714 compared to previous
.4 year. The total current
34%
liabilities were
Current
Assets `.117464714.40 and it
227696722 constitute of 34% it
.2 decreased by `.16617572.6
66%
but increased by 6% in
proportion of current
liabilities of previous year.
In year 2009-10
2009 the total
current assets comprises
2009
2009-10 of `.301964558.65 and it
constitute 62%, it
increased by `.74267836
but it decreased by 4% in
proportion of current
assets of previous year.
Current
Liabilities The total current
18787531 liabilities were
6.01 `.187875316.01 and it
38%
Current constitute
ute 38%, it
Assets increased by
30196455
8.65 `.70410601.61 (4%) as
62% compared to previous
year.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Composition of Current Assets for the following years:
2006
2006-07
In year 2006-07
2006 total current
assets were of `.384844986
Loan & (100%), it constitute of
Advances inventories `.156107639
14%
(40%), sundry debtors
Inventories `.118442812 (31%), cash and
Cash & Bank
Balances 40% bank balances `.57389888
15% (15%), loan & advances
`.52904647 (14%).
Sundry
Debtors
31%
In year 2007-08
2007 the total
current assets were
2007
2007-08 `.348567120 (100%) it
constitute of inventories
`.149519226 43% (↑3%),
sundry debtors `.87926979
Loans & 25% (↓6%), cash & bank
Advances balances `.52069059 15%,
17%
loan & advances `.59051856
Cash & Inventories 17% (↑3%)
3%) with respect to
Bank 43% previous year (2006-07).
(2006
Balances
15%
Sundry
Debtors
25%

UNIVERSAL
DONDAICHA
A PROJECT REPORT
2008
2008-09
In year 2008-09
2008 the total
current assets were
Loans &
Inventories `.227696722.23 (100%) it
Advances
26% 26% constitute of inventories
`.58248592 26% (↓17%),
sundry debtors `.73917086
32% (↑7%), cash & bank
Cash & Bank balances `.36834733.03 16%
Balance
Sundry (↑1%), loan & advances
16%
Debtors `.58696311.20 26% (↑9%)
32% with respect to previous year
(2007-08).
In year 2009-10
2009 the total
2009
2009-10 current assets were
`.301964558.56 (100%) it
constitute o
of inventories
`.95347031.67 32% (↑8%),
sundry debtors
Loans & `.106529364.52 35% (↑3%),
Advances
24% Inventories cash & bank balances
32% `.28789632.72 9% (↓7%),
loan & advances
Cash & Bank `.71298529.65 24% (↓2%)
Balance
9% with respect to previous year
(2008-09).
Sundry
Debtors
35%

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Composition of Current Liabilities for the following years:

2006
2006-07
In year 2006-07
2006 the total
current liabilities were of
Provisions
19% `.98488603 (100%), it
constitute of liabilities
`.79628578 (81%) and other
provisions `.18860025 (19%).
Liabilities
81%
Provisions
2007--08
8%
In year 2007-08
2007 the total
current liabilities were
`.134082287
82287 (100%), it
`.123190172 92% (↑11%) and
provisions `.10892115 8%
(↓11%) with respect to
previous year (2006-07).
(2006
Liabilities
92%

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Provisions 2008
2008-09
4%
In year 2008-09
2008 the total
`.117464714.40 (100%), it
`.108108338.40 96% (↑4%)
and provisions `.9356376
4% (↓4%) with respect to
(2007
Liabilities
96%
2009
2009-10 In year 2009-10
2009 the total
`.187875316.01 (100%), it
Provisions
constitute
titute of liabilities
9%
`.170798911.25 91% (↓5%)
and provisions `.17076404.76
9% (↑5%) with respect to
(2007
Liabilities
91%

UNIVERSAL
DONDAICHA
A PROJECT REPORT
(A) CURRENT ASSETS:

(i) Inventory Analysis:
Inventory is total amount of goods and materials content in a store of factory at any given
time. Inventory means stock of three things :-
:
1. Raw materials
2. Semi finished goods.
3. Finished goods.
Position of Inventory In Universal Starch-Chem
Starch Allied Ltd.
Inventories 2006-07 2007-08 2008-09 2009-10
Stores and spare 21925917 24758427 16087585.00 19350543.65
parts
Raw Materials 105484298 82164065 11513249.00 48887468.02
Finished Goods 20288509 30376893 21048142.00 12454023.00
Process Stock 7477572 11490084 9008707.00 14105579.00
Trading Goods 931343 729757 590909.00 549418.00
Total 156107639 149519226 58248592.00 51347031.67

graph
Inventories
18000000
156107639
16000000 149519226
14000000
12000000
95347031.67
10000000
80000000
58248592
60000000
40000000
20000000
0
2006
2006-07 2007-08 2008-09 2009-10
Interpretation: By analyzing the 4 years data we see that the inventories shows
decreasing trend. We can
ca see that inventories are decreased by 4%% and 61% in 07-08 and
08-09 respectively as compared to relevant previous years.
year . By this decrease we can say
that the company is trying to cut its investment in idle inventories. But in year 2009-10
2009
there is increase in inventories by 64% due to increasing turnover and uncertain
availability of raw material on time.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
(ii) Sundry Debtors Analysis:

Analysis
Debtors or an account receivable is an important component
component of working capital and fall
under current assets. Debtors arise only when credit sales are made.
Position of Sundry Debtors in Universal Starch-Chem

Starch Allied Ltd.
Sundry Debtors 2006-07 2007-08 2008-09
09 2009-10
Debts outstanding for a 12191485 15762273 10680644.00 14390833.49
period exceeding six
months
Other Debts 110118729 74487292 65559028.00 94461050.73
122310214 90249565 76239672.00 108851950.22
Less: Provision For 3867402 2322586 2322586.00 2322585.70
Doubtful Debts
Total 118442812 87926979 73917086.00 106529364.52
graph
Sundry Debtors
14000000
118442812
12000000 106529364.5
10000000 87926979
80000000 73917086
60000000
40000000
20000000
0
2006
2006-07 2007-08 2008-09 2009-10
Interpretation: In the table and graph we see

ee that there is continuous fall in the debtors
of USA Ltd. in the successive years. A simple logic is that debtors decrease when
company adopts good credit policy. We can see 26% and 16% reduction in 07-08 07 and 08-
09 as compared to relevant previous years. But in year 2009-10 10 debtors raised by 44%. If
company controls the Debtors they can use the money in many investment plans and more
the debtors more the bad debts and illiquid money.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
(iii) Cash & Bank Balance Analysis:

Cash is called the most liquid asset and vital current assets, it is an important component
of working capital. In a narrow sense, cash includes notes, bank draft, cheques
cheque etc while
in a broader sense it includes near cash assets such as marketable securities and time
deposits with bank.
Position of Cash & Bank Balance
Bala in Universal Starch-Chem
Chem Allied Ltd.
Cash & Bank Balance 2006-07 2007-08 2008-09

09 2009-10
Cash Balance on hand 376256 505715 377441.02 516295.52
Bank Balances
ces with scheduled 775954 1699517 2751168.01 1121877.70
banks Cur. A/c
Fixed Deposits* 2984831 3241377 21294596.00 23150689.00
With others Current A/c 593655 421024 619087.00 2411978.50
Fixed Deposits* 52659192 46201426 1792441.00 1588792.00
Total
otal 57389888 52069059 36834733.03 28789632.72
graph
Cash & Bank Balances

70000000
60000000 57389888
52069059
50000000
40000000 36834733.03
28789632.72
30000000
20000000
10000000
0
2006--07 2007-08 2008-09 2009-10
Interpretation: If we analyze
a the above table and graph we find that it follows a
decreasing trend. In the year 2006-07
2006 it had maintained a huge amount of cash and bank
balance which has fallenn slightly by 9% in the year 2007-08
08 but there is huge fall by 29%
& 22% in the year 2008-09
2008 and 2009-10 respectively.. Although company’s cash & bank
balance is decreasing but this
this is very good sign for because unnecessary cash & bank
balance do not earn profits for company.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
(iv) Loans & Advances Analysis:

Loans and Advances here refers to any to amount given to different parties, company,
employees for a specific period of time and in return they will be liable to make timely
repayment of that amount in addition to interest on that loan.
Position of Loan & Advances in Universal Starch-Chem
Starch Chem Allied Ltd.
Loans & Advances 2006-07 2007-08 2008-09

09 2009-10
Advances recoverable 25459011 38486299 37784489.20 49056674.65
TDS Payments includes 15714480 6745744 7702555.00 8356717.00
Advance Tax
Loans to staff 49564 208522 146940.00 46450.00
Excise Duty 75519 921278 461244.00 634737.00
Other Deposits 11606073 12690013 12601083.00 13838688.00
Total: 52904647 59051856 58696311.20 71298529.65

graph
Loans & Advances

80000000
71298529.65
70000000
59051865 58696311.2
60000000 52904647
50000000
40000000
30000000
20000000
10000000
0
2006--07 2007-08 2008-09 2009-10
Interpretation: If we analyze the table and the graph we can see that it follows an
increasing trend which is a good sign for the company. In the year 2007-08
2007 & 2009-10
loans and advances increased by 12% and 21% respectively. But in the year 2008-09
2008
there is slight fall by 0.60%. It is good that company provide loans to staff and makes
advance payment of taxes and duties.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
(B) CURRENT LIABILITIES

IABILITIES:
(i) Current Liabilities Analysis:
Current liabilities are any liabilities that are incurred by the firm on a short term basis or
current liabilities that has to be paid by the firm within one year
Position of Current Liabilities in Universal Starch-Chem
Starch Chem Allied Ltd.
Current Liabilities 2006-07 2007-08 2008-09 2009-10

Creditors (All) 63201210 109806615 89982941.48 140837352.94
Other Liabilities 14913131 11941806 16726276.92 25953505.44
Unclaimed Dividends 695953 779041 857126.00 783140.00
Temporary Bank 2377923.87
Overdraft
Interest Accrued But not 818284 662710 541994.00 846989.00
Due
Total: 79628578 123190172 108108338.40 170798911.25
graph
Current Liabilities
18000000
16000000 170798911.3
14000000 123190172
12000000 108108338.4
10000000
79628578
80000000
60000000
40000000
20000000
0
2006
2006-07 2007-08 2008-09 2009-10
Interpretation: If we analyze the above table and graph then we can see that it follow an
uneven trend. The important component of current liabilities is sundry creditors
credit and other
liabilities. In the year 07-08
07 creditors increased by 74% in year 08-09
08 it decreased by
18% and in year 2009-10 10 it increased by 54%. In the year 07-08
08 other liabilities decreased
by 20% in year 08-09 09 it increased by 40%
40 and in year 2009-1010 it increased by 55%. The
trade creditors of company are increasing every year. High gh trade creditors indicate that
company is using credit facilities by creditors. Thesee are liabilities for company so this
should be tried to reduce.
reduce When company has minimum liabilities it creates a better
goodwill in market.

UNIVERSAL
DONDAICHA
A PROJECT REPORT
(ii) Provisions Analysis:

Provisions represents funds set aside by company for paying taxes, provisional expenses
and losses that are anticipated to occur in future. The anticipated funds for expenses and
losses are only accrued but not yet occurred.
Position of Provisions in Universal Starch-Chem

Starch Allied Ltd.
Provisions 2006-07 2007-08 2008

2008-09 2009-10
Provision for Taxation 13595642 5065873 5065878.00 8849230.76
Corporate Tax on Dividend 356895 356895 356895.00
Proposed Dividend 2100000 2100000 2100000.00
Leave Encashment 2807488 3369347 4290503.00 5770279.00
T
Total 18860025 10892115 9356376.00 17076404.76
Provisions
20000000
18000000 17076404.76
18860025
16000000
14000000
12000000 10892115
10000000 9356376
8000000
6000000
4000000
2000000
0
2006
2006-07 2007-08 2008-09 2009-10

graph
Interpretation: From the above table and graph we can see that at provision shows an
decreasing trend in successive years 2007-08
2007 and 2008-09.. But in the year 2009-10 there
is huge growth 83% in total provisions due increase in income tax by 74%, proposed
dividend by 100% (not proposed in previous year), corporate tax on dividend by 100%. It
is good sign that company pays taxes on time and proposes dividend.
dividend These increase
goodwill of company and shows that company is earning more profits.

A PROJECT REPORT
5.3 CALCULATION OF NET OPERATING CYCLE
Operating Activity Period Days

(a) Raw material Storage period 34
(b) W.I.P holding period 30
(c) Finished goods storage period 5
(d) Debtors collection period 40
(e) Credit period availed 70
Total operating cycle perod [ (a)+(b)+(c)+(d)] [34+30+5+40] 114
Less: (e) Average credit period availed 70
Net Operating Cycle Period (NOC Period) 39
Number of operating cycle in a year ( 365 days / NOC Period) 9.35
5.4 ESTIMATION OF WORKING CAPITAL FOR YEAR 2010-11 & 2011-12.
Working capital as percentage of sales method:
2006-07 2007-08 2008-09 2009-10

Net Sales 741176005 765190079 740434903.94 844485378.50
Total Current Assets 384844986 348567120 227696722.06 301964558.56
Total Current Liabilities 98488603 134082287 117464714.40 187875316.01
Current Assets as a % of Sales 51.92 % 45.55 % 30.75 % 35.75 %
Current Liabilities as a % of 13.28 % 17.52 % 15.86 % 22.24 %
Sales
(a) The average of current assets as a percentage of sales is 41%

(i.e. 51.92 % + 45.55 % + 30.75 % + 35.75 % = 163.97 % = 164*/4= 41 %)
(b) The average of current liabilities as a percentage of sales is 17.25 %

(i.e. 13.28 % + 17.52 % + 15.28 % + 22.24 % = 68.90 % = 69*/4=17.25 %)
So, net working capital as a percentage of sales is 24%

[i.e. (a) – (b) = (44 % - 17.25 %) = 23.75 % = 24%* ]

A PROJECT REPORT
The percentage change in Net Sales:

Year %Change The average % change in Net Sales is 15%
(i.e., 16.73%+14.05% = 30.78 /2 = 15.39% = 15%*)
2007-08 16.73
2008-09 -3.23
2009-10 14.05
The net sales shows increase by 16.73 % and 14.05 % in
year 2007-08 and 2009-10 respectively. But however in year 2008-09 net sales decresed
by 3.23 %. The percentage of net sales decreased (3.23) in 2008-09 is neglected while
finding the average % change in Net Sales.
Estimation Of working Capital Requirement For Financial Year 2010-2011.
Expected Sales = 844485378.50 + 15 % thereof.

= 844485378.50 +126672806.77
= 971158185.27
Expected Net Working Capital
Net working capital as % of sales = 24%

Expected net working capital
= 971158185.27 × 24%
= 233077964.46
Expected Gross Working Capital (Current Assets)
Current assets as % of sales = 41%

Expected current assets
= 971158185.27 × 41%
= 398174855.96
Expected Current Liabilities
Current liabilities as % of sales = 17%

Expected current liabilities
= 971158185.27 × 17%
= 165096891.49

A PROJECT REPORT
Estimation Of Working Capital Requirement For Financial Year 2011-2012.
Expected Sales = 971158185.27 + 15% thereof.

= 971158185.27 + 145673727.79
= 1116831913.06
Expected Net Working Capital
Net working capital as % of sales = 24%

Expected net working capital
= 1116831913.06 × 24%
= 268039659.13
Expected Gross Working Capital (Current Assets)

Current assets as % of sales = 41%
= 1116831913.06 × 41%
= 457901084.35
Expected Current Liabilities
Current liabilities as % of sales = 17%

= 1116831913.06 × 17%
= 189861425.22
Table showing estimated working capital requirement for year 2010-11, 2011-12
2010-2011 2011-2012
Expected Sales 971158185.27 1116831913.06
Expected Current Assets 398174855.96 457901084.35
Expected Current Liabilities 165096891.49 189861425.22
Expected Net Working Capital 233077964.46 268039659.13

A PROJECT REPORT
5.5 WORKING CAPITAL RATIOS AND ITS INTERPRETATION
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
1. Stock Turnover Ratio or Inventory Turnover Ratio.
The ratio indicates whether the investment in inventory is efficiently used and whether it
is within proper limits. It is calculated as follows:
Stock Turnover Ratio or Inventory Turnover Ratio = Net Sales _

Average Inventory
Significance: The ratio signifies the liquidity of inventory. A high inventory turnover
ratio indicates brisk sales and vice-versa. The ratio is therefore a measure to discover
possible trouble in the form of over-stocking or over-valuation of inventory.
Calculation of Inventory Turnover Ratio:
Year ____Net Sales _ Ratio

Average Inventory
2007-08 765190079_ 5.00

152813432.5
2008-09 740434903.94 7.12

103883909
2009-10 844485378.50 10.99

76797811.83

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Inventory Turnover Ratio

12
11
10
8 7.12
6 5
4
0
08
2007-08 2008-09 2009-10
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. A low stock turnover ratio
reveals undesirable accumulation of obsolete stock. Byy analyzing the three year data it
seen that it follows an increasing trend. We see that from the year 2008-09
2008 goes on
increasing in successive year. In the year 2008-09
2008 09 ratio increased by 42% and in
year2009-10
10 ratio increased by 54%. Higher the ratio more
more the efficiency of conversion
of inventory into sales during year.
year

A PROJECT REPORT
2. Debtors Turnover Ratio or Receivable Turnover Ratio.
The ratio indicates the speed with which money is collected from the debtors. It is
computed as follows:
Debtors Turnover Ratio or Receivable Turnover Ratio = ____ Net Sales_______

Average Accounts Receivable
Significance: Debtors Turnover Ratio or Debt Collection Period Ratio measures the
quality of debtors since it indicates the rapidity or slowness with which money is
collected from the debtors. A shorter collection period implies prompt payment by
debtors. A longer collection period implies too liberal and inefficient credit collection
performance. The credit policy should neither be too liberal nor too restrictive. The
former will result in more blockage of funds and bad debts while the latter will cause
lower sales which will reduce profits.
Calculation of Debtors Turnover Ratio:
Year _________Net Sales_________ Ratio

Average Accounts Receivables
2007-08 765190079_ 7.41

103184895.5
2008-09 740434903.94 9.14

80922032.50
2009-10 844485378.50 9.35

90223225.26

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Debtors Turnover Ratio

10
9.14 9.35
9
8 7.41
7
6
5
4
3
2
1
0
2007-08
08 2008-09 2009-10
Interpretation: The debtors turnover ratio indicates efficiency of company to collect its
debts.. The ratio indicates the time at which the debts are collected on an average during
the year. Needless to say that a high Debtors Turnover Ratio implies a shorter collection
period which indicates prompt payment made by the customer and lowers the chances of
bad debts. Now if we analyze the three year data we can say that it holds a good position
while receiving its money from its debtors. The ratios are in an increasing trend in every
successive year,, which implies that recovery position is good and company should
maintain these positions.

A PROJECT REPORT
3. Creditors Turnover Ratio or Payable Turnover Ratio.
This is similar to Debtors Turnover Ratio. It indicates the speed with which payments for
credit purchases are made to creditors. It can be computed as follows:
Creditors Turnover Ratio or Payable Turnover Ratio = ___ Net Purchase______

Average Accounts Payable
Significance: The creditors turnover ratio and the credit period enjoyed ratio indicate
about the promptness or otherwise in making payment for credit purchases. A higher
creditors turnover ratio or a lower credit period enjoyed ratio signifies that the creditors
are being paid promptly thus enhancing the credit-worthiness of the company. However,
a very favorable ratio to this effect also shows that the business is not taking full
advantage of credit facilities which can be allowed by the creditors.
Calculation of Creditors Turnover Ratio:
Year _________Net Purchase_________ Ratio

Average Accounts Payables
2007-08 443607346_ 5.22

84834155
2008-09 376862871_ 3.86

97464123.74
2009-10 569321718.22_ 5.19

109600169.90

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Creditors Turnover Ratio

6
5.22 5.19
5
3.86
4
0
2007-08
08 2008-09 2009-10
Interpretation: Actually this ratio reveals the ability of the firm to avail the credit
facility from the suppliers throughout the year. Generally a low creditors turnover ratio
implies favorable since the firm enjoys lengthy credit period Now if we analyze
analy the three
years datata we find that in the year 2006-0
2006 the ratio was very high which means that its
position of creditors that year was
was not good, but in the next year 2008-09
2008 it is seen that
the ratio has been decreased which is very good sign for the company,com these year
company has enjoyed credit around 90 days.
days But again in year 2009--10 the ratio rises. So
we can say that company enjoys a very good credit facility ity from the suppliers about 70
days in last year.

A PROJECT REPORT
4. Current Ratio.
The ratio is an indicator of the firm’s commitment to meet its short-term liabilities. It is
expressed as follows:
Current Ratio = Current Assets__

Current Liabilities
An ideal current ratio is ‘2’. However, a ratio of 1.5 is also acceptable if the firm has
adequate arrangements with its bankers to meet its short-term requirements of funds.
Significance: The ratio is an index of the concern’s financial stability, since, it shows the
extent to which the current assets exceed its current liabilities. A higher current ratio
would indicate inadequate employment of funds, while a poor current ratio is a danger
signal to the management.
Calculation of Current Ratio:
Year _ Current Assets___ Ratio

Current Liabilities
2006-07 384844986_ 3.90

98488603
2007-08 348567120_ 2.59

134082287
2008-09 227696722.23_ 1.93

117464714.40
2009-10 301964558.56_ 1.60

187875316.01

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Current Ratio
4.5
3.9
4
3.5
3 2.59
2.5
1.93
2 1.6
1.5
1
0.5
0
2006-07 2007-08 2008-09 2009-10
Interpretation: This ratio reflects the financial

financial stability of the company.
company The standard of
the normal ratio is 2 but in most of companies standard is taken according to Tandon
Committee
ommittee which is taken as 1.33.
1.33 Now if we analyze the four year data years data it can
be said that in 2006-07
07 ratio was too high (3.9) which means for every one rupee (`.) ( of
liabilities company possesses around `.4 .4 of current assets this indicates
indica inadequate
employment of funds. In next successive year ratio is in decreasing trend which indicate
that company is efficiently employing its fund in current assets. In year 2008-09
2008 the ratio
was an ideal i.e., around 2. In year 2009-10
2009 ratio has fallenn below an ideal standard.

A PROJECT REPORT
5. Liquidity Ratio.
The ratio is also termed as Acid Test Ratio or Quick Ratio. The ratio is ascertained by
comparing the liquid assets i.e., current assets (excluding stock and prepaid expenses) to
current liabilities. The ratio can be expressed as follows:
Liquidity Ratio = Liquid Assets___ = Current Assets – Stock_______

Current Liabilities Current Liabilities – Bank Overdraft
Some accountants prefer the term liquid liabilities for current liabilities. The term ‘liquid
liabilities’ means liabilities payable within a short period. Bank overdraft and cash credit
facilities (if they become permanent modes of financing) are excluded from current
liabilities for this purpose. The ratio may be expressed as follows:
Liquidity Ratio = Liquid Assets__

Liquid Liabilities
The ideal ratio is ‘1’.
Significance: The ratio is an indicator of short-term solvency of the company. A

comparison of the current ratio to quick ratio should also indicate the inventory hold-ups.
For instance, if two units have the same current ratio but different liquidity ratios, it
indicates over-stocking by the concern having low liquidity ratio as compared to the firm
which has a higher liquidity ratio.
Calculation of Liquidity Ratio:
Year Liquid Assets_ Ratio

Liquid Liabilities
2006-07 228737347_ 2.32

98488603
2007-08 199047894_ 1.48

134082287
2008-09 169448130.23_ 1.44

117464714.40
2009-10 206617526.89_ 1.11

185497392.14

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Liquidity Ratio
2.5
2.32
1.48 1.44
1.5
1.11
1
0.5
0
2006-07 2007-08 2008-09 2009-10
Interpretation: It is the ratio between quick liquid assets and 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. By analyzing the four
years data it cann be said that the ratio was much higher than an ideal liquidity ratio in the
year 2006-07. but it improved
improv significantly in the next three years. By comparing current
ratios and liquidity ratios of the company it seems small difference between them this
indicate that company does not generally invest more in illiquid assets like stock. In year
2009-1010 the ratio (1.11) was good and close to ideal ratio.
ra

A PROJECT REPORT
6. Working Capital Turnover Ratio.
Working capital turnover ratio establishes a relationship between net sales and net
working capital. This ratio measures the efficiency of utilization of net working capital. It
can be calculated as follows:
Working Capital Turnover Ratio = Net Sales______

Net Working Capital
Significance: This ratio indicates the number of times the utilisation of working capital
in the process of doing business. The higher is the ratio, the lower is the investment in
working capital and the greater are the profits. However, a very high turnover indicates a
sign of over-trading and puts the firm in financial difficulties. A low working capital
turnover ratio indicates that the working capital has not been used efficiently.
Calculation of Working Capital Turnover Ratio:
Year _ Net Sales______ Ratio

Net Working Capital
2006-07 741176005_ 2.58

286356383
2007-08 765190079_ 3.56

214484833
2008-09 740434903.94_ 6.71

110232007.83
2009-10 844485378.50_ 7.40

114089242.55

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Working Capital Turnover Ratio

8 7.4
7 6.71
6
5
4 3.56
3 2.58
2
1
0
2006-07 2007-08 2008-09 2009-10
Interpretation: This ratio indicates whether the investments in current assets or net
current assets ( i.e., working capital ) have been properly utilized. In order words it shows
the relationship between sales and working capital. Higher the ratio lower is the
investment in working capital and higher is the profitability. But too high ratio indicates
over trading. This ratio is an important indicator about the working capital position. Now
if we analyze the four years data, we can find that it follows an increasing trend which
means that its investment in working capital is lowerwer and the company is generating more
sales from it. In the year 2009-10
2009 the ratio is 7.4 which show that every rupee (`.)
( of
working capital is ultilised 7 times to generate sales. Higher the ratio it means more
efficiently utilization of working capital in process of business.

A PROJECT REPORT
7. Current Assets Turnover Ratio.
Current Assets Turnover ratio, shows the productivity of the the company's current
assets. Ratio that indicates how efficiently a firm is using its current assets to
generate revenue. The amount of sales generated for every Rupees worth of assets. It is
calculated by dividing sales in rupees by assets in rupees. It is calculated as follows:
Current Assets Turnover Ratio = Net Sales___

Current Assets
Significance: Asset turnover measures a firm's efficiency at using its assets in generating
sales or revenue - the higher the ratio better the utilization of its current assets. It also
indicates pricing strategy; companies with low profit margins tend to have high asset
turnover, while those with high profit margins have low asset turnover.
Calculation of Current Assets Turnover Ratio:
Year Net Sales____ Ratio

Current Assets
2006-07 741176005_ 1.92

384844986
2007-08 765190079_ 2.19

348567120
2008-09 740434903.94_ 3.25

227696722.23
2009-10 844485378.50_ 2.79

301964558.56

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Current Assets Turnover Ratio

3.5
3.25
3 2.79
2.5 2.19
1.92
2
1.5
0.5
0
2006-07 2007-08 2008-09 2009-10
Interpretation: This ratio tells a story that how effectively the company uses its current
assets to generate sales. Higher the ratio,
ratio high the efficiency of company to utilize its
current assets. If we analyze four year data we can find increasing trend of ratio. This
shows that company is increasing its efficiency year by year. In the year 2008-09
2008 the ratio
(3.25) was good which shows that for every rupee (`.)( ) worth of current assets company
generates `. 3.25 of sales.

A PROJECT REPORT
8. Return On Working Capital Ratio.
Return on Working capital employed establishes the relationship between the net profit
and the Net working capital employed. It indicates the percentage of return on net woking
capital employed in the business and it can be used to show the overall profitability and
efficiency of the business. It can be calculated as follows:
Return On Working Capital Ratio = Net Profit______ × 100

Net Working Capital
Significance: Return on working capital employed ratio is considered to be the best

measure of profitability in order to assess the overall performance of the business. It
indicates how well the management has used the investment made by owners and
creditors into the business. It is commonly used as a basis for various managerial
decisions. As the primary objective of business is to earn profit, higher the return on
capital employed, the more efficient the firm is in using its funds. The ratio can be found
for a number of years so as to find a trend as to whether the profitability of the company
is improving or otherwise.
Calculation of Return On Working Capital Ratio:
Year Net Profit____ × 100 Ratio

Net Working Capital
2006-07 17287748_ × 100 6.03

286356383
2007-08 2374533_ × 100 1.10

214484833
2008-09 27229836.64_ × 100 24.70

110232007.83
2009-10 2512127.85_ × 100 2.20

114089242.55

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Return On Working Capital Ratio

30
24.7
25
20
15
10
6.03
5 2.2
1.1
0
2006-07 2007-08 2008-09 2009-10
Interpretation: This ratio describes company’s track of return on total working capital
employed. Higher the ratio, high the return on working capital employed by company. If
we study four years data we can find that there is uneven change net profit and net
working capital employed. As we seen that company is increasing its efficiency year by
year this means it employs less working capital to generate high sales result in high net
profit in respect of working capital employed in previous year.

A PROJECT REPORT
9. Super-Quick Ratio.
It is a slight variation of quick ratio. It is calculated by comparing the super quick assets
with the current liabilities (or liquid liabilities) of a firm. The ratio may be expressed as
follows:
Super-Quick Ratio = Super-Quick Assets_

Liquid Liabilities
The term ‘Super-Quick Assets’ means current assets excluding stock, prepaid expenses
and debtors. Thus, super-quick assets comprise mainly cash, bank balance and
marketable securities.
Significance: This ratio is the most rigorous test of a firm’s liquidity position. In case the
ratio is ‘1’, it means the firm can meet its current liabilities any time.
The ratio is a conservation test and not widely used in practice
Calculation of Super-Quick Ratio:
Year Super-Quick Assets_ Ratio

Liquid Liabilities
2006-07 57389888_ 0.05

98488603
2007-08 52069059_ 0.38

134082287
2008-09 36834733.03_ 0.31

117464714.40
2009-10 28789632.72_ 0.15

185497392.14

UNIVERSAL
DONDAICHA
A PROJECT REPORT
Super-Quick
Quick Ratio
0.4
0.35 0.38 0.31
0.3
0.25
0.2
0.15
0.15
0.1
0.05
0.05
0
2006-07 2007-08 2008-09 2009-10
Interpretation: This ratio shows super-liquidity

liquidity position of firm. This ratio is not widely
use but we can find our position of liquidity on respective day. This considers super
liquid assets like cash and bank balance and marketable securities. Generally company
does not believe in maintaining
main aining enough cash and bank balance that would use to pay off
their liabilities any time. But company should maintain enough cash and bank balance
would be sufficient to meet its trade creditors any time.
Table of ratios:
Ratio Years 06-07 07

07-08 08-09 09-10
Inventory Turnover Ratio --- 5 7.12 10.99
Debtors Turnover Ratio --- 7.41 9.14 9.35
Creditors Turnover Ratio --- 5.22 3.86 5.19
Current Ratio 3.90 2.59 1.93 1.60
Quick Ratio / Liquidity Ratio / Acid Test Ratio 2.32 1.48 1.44 1.11
Working Capital Turnover Ratio 2.58 3.56 6.71 7.40
Current Assets Turnover Ratio 1.92 2.19 3.25 2.79
Return On Working Capital Ratio 6.03 1.10 24.70 2.20
Super-Quick Ratio 0.05 0.38 0.31 0.15

A PROJECT REPORT

A PROJECT REPORT
As the project was conducted to analyze the Working Capital Management of
“UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA, ” for the last four
years. During calculations, analysis and making project report I came to some major
finding that are as follows:
Working capital shows a constant decrease 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 above the standard ratio which is 1:1.
Trade creditors of company are increasing in high proportion with respect to other
liabilities.
The company enjoys good credit period from creditors as compares to credit period
they avail to their debtors.
The working capital turnover ratio is rapidly increasing which shows increase in
efficiency of production
Year by Year Company increasing its turnover in respect to low net working capital.
The debtor’s turnover ratio is found good.
The creditor’s turnover ratio is improving every year.
Cash and bank balances shows decrease every year.
Company is generating better profit on net working capital employed every year.

A PROJECT REPORT

A PROJECT REPORT
Working Capital Management, there are mainly three parts they are Cash Management,
Receivables 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 “UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.”
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 30 days allowed to the customer and
company should held enough cash that it can meet its creditors any time.
Considering the receivables management, certain credit standards and policy should
be established, like:
Establishment of policy in appointing sales recovery force.

Cash discounts policy for cash purchases and early payment of debts balance by
customer to be established.
Credit rating systems to be established.
Considering the inventory management, there should be a fast movement of

inventory, by taking efforts in increment of the sales and inventories should be
maintained considering bulk purchase discount and inflating price of raw material and
according to market forecast to make saving in cost of raw material.
Considering the creditors the management should set a price range for the creditors as
company enjoy good credit.
The creditors who are paid early should be given a low price.
The creditors who are waiting for a longer period should be paid more.

UNIVERSAL
DONDAICHA
A PROJECT REPORT

A PROJECT REPORT
Bibliography:
Financial Management: ICAI, (Course-II).

Finance Management & International Finance Management: ICWAI (Course-II).
Financial Management – By Dr.R.M.Srivastava, Pragati Prakashan Meerut.
Financial Management Principles And Practice – By G.Sudarsana Reddy,
Himalaya Publishing House
Financial Manage Management – By P.V.Kulkarni, Himalaya Publishing House.
The Indian Financial System – By Bharati V.Pathak, Dorling Kindersley (India)
Pvt. Ltd.
Advanced Cost And Management Accounting – By V.K.Saxena & C.D.Vashist,
Sultan Chand & Sons.
Investment Analysis And Portfolio Management – By Prasanna Chandra, Tata
Mcgraw Hill Publishing Co.Ltd
Reference:
Mr. Ankush Agrawal Sir (9028677070)

Mr. Sachin Surana Sir (9763713291)
Mr. Amul Tamboli Sir (9763356722)
Webliograghy:
www.finance.mapsof world.com
www.universalteacher4u.com
www.universalstarch.com
www.investorwords.com
www.investopedia.com
www.businessdictionary.com

Project On Working Capital Management by A$HWIN CHOUHAN

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

Project On Working Capital Management by A$HWIN CHOUHAN

Uploaded by

Copyright:

Available Formats

A

Institute of Management Research and Development, Shirpur. 2

Chapter No. Subject Page No

Ch No. 1 Objective And Limitations…………………... 4

5.1 Changes In Working Capital……………….. 28

Ch No. 6 Major Finding………………………………… 66

Institute of Management Research and Development, Shirpur. 3

OBJECTIVES & LIMITATIONS

The study is based only on last 4-year records.

Institute of Management Research and Development, Shirpur. 4

Institute of Management Research and Development, Shirpur. 5

Institute of Management Research and Development, Shirpur. 6

Institute of Management Research and Development, Shirpur. 7

A well-read, widely traveled, highly educated Law Graduate who

In the fields of Education and Training, he started a Diploma Engineering College at

Institute of Management Research and Development, Shirpur. 8

M/s. UNIVERSAL STARCH-CHEM ALLIED LTD.

The Company is thriving in sectors of Energy, Environment

Chairman & Managing Director Hon'ble Shri.Sarkarsaheb

Institute of Management Research and Development, Shirpur. 9

Maize Crushing 400 MT Per Day

SR. Product Name

Institute of Management Research and Development, Shirpur. 10

Working capital has been described as the

Institute of Management Research and Development, Shirpur. 11

This section includes:

DEFINITION AND CLASSIFICATION OF WORKING CAPITAL:

Working Capital may be classified in two ways

Concepts of working capital

Institute of Management Research and Development, Shirpur. 12

1. Gross Working Capital: It refers to the firm’s investment in total current or

2. Net Working Capital:

3. Permanent Working Capital: This refers to that minimum amount of investment in

4. Temporary Working Capital: The amount of such working capital keeps on

Need for Working Capital

Institute of Management Research and Development, Shirpur. 13

i. Conversion of cash into raw materials.

Chart for operating cycle or working capital cycle.

In case of trading concerns, the operating cycle will be:

Institute of Management Research and Development, Shirpur. 14

Cash Stock Debtors Cash.

In case of financial concerns, the operating cycle will be:

Cash Debtors Cash only.

DETERMINANTS OF WORKING CAPITAL :

Institute of Management Research and Development, Shirpur. 15

1. Nature and size of the business

2. Firm’s production policy

3. Firm’s credit policy

5. Growth and expansion of business

Institute of Management Research and Development, Shirpur. 16

increase investment in current assets to support increased scale of operations. Thus, a

6. Profit margin and dividend policy

7. Operating efficiency of the firm

8. Co-ordinating activities in firm

II. External Factors

2. Changes in the technology

Institute of Management Research and Development, Shirpur. 17

MEASUREMENT OF WORKING CAPITAL :

a) Percent of Sales Method

b) Regression Analysis Method

c) Operating Cycle Method

i) Inventory period: Number of days consumption in stock = I + M_

i) Inventory Turnover Ratio: Cost of goods sold

iii) Weeks inventory finished goods on hand = ___Finished Goods

iv) Weeks raw material on order = Raw material on order_

= Average finished goods invetory at cost___