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7/31/2019 Working Capital Mangement
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A PROJECT REPORT ON
WORKING CAPITAL MANAGEMENTAT NETMAX TECHNOLOGIES
An Industrial training report submitted in partial fulfillment of the
requirement for the degree of BBA
BACHELOR OF BUSINESS ADMINISTRATION
(2009-2012)
Submitted by:
Arun Kumar kanojia
BBAVI (SEM)
Roll No.: 92261011
BABA FARID COLLEGE
D E O N ,
B A T H I N D A
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DECLARATION
I hereby declare that project titled WORKING CAPITAL MANAGEMENT is an
original piece of research work carried out by me under the guidance and supervision of Mr.
SUNIL THAKUR. The information has been collected from genuine & authentic sources.
The work has been submitted in partial fulfillment of the requirement of BBA programme
(Batch 2009-2012) of BABA FARID COLLEGE.
Date: ARUN KUMAR KANOJIA
SIGNATURE BBA 6th semester
ROLL NO - 92261011
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ACKNOWLEDGEMENT
If words are considered as symbol of Approval and Token of appreciation then let the
words play the heralding role of expressing my sincere gratitude and thanks. Any
accomplishment requires the effort of many people and this work is no different. I am
indebted to Mr. Sunil Thakur but for whose guidance and patience I would have not been
able to accomplish this task. I also owe a great thanks to him for providing me an opportunity
to go through summer training, and providing me this golden opportunity to be a part of thesaid esteemed college and letting me work on this project.
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INDEX
S.NO. PARTICULARS PAGE NO.
1 EXECUTIVE SUMMARY 5-6
2 INDUSTRY PROFILE 7-18
2.1 IT INDUSTRY 9
2.2 IT INDUSTRY IN INDIA 10-13
2.3 TOPTEN IT HUBS 15-16
2.4 INDIA IT INDUSTRY 17-18
3 COMPANY PROFILE 19-24
3.1 COURCES AVAILABLE IN NETMAX 23-24
4 WORKING CAPITAL MANAGEMENT 25-57
4.1 IMPORTANCE 25
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4.2 CONCEPTS 27-57
5 OBJECTINES OF STUDY 58
6 RESEARCH METHODOLOGY 59
7 DATA INTERPRETATION 60-85
8 FINDINGS 86
9 SUGGESTIONS 87
10 BIBLIOGRAPHY 88
11 ANNEXTURE 89
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SUMMARY
The research conducted was descriptive in nature. The survey was conducted to analyze the
employee training in NetMax Technologies Bathinda. The survey was to find out most of
employees Satisfy with training provided in the NetMax technologies. With these objectives
in mind, a survey was conducted in the Bathinda region. Questionnaire method was used to
obtain the required information. Convenient sampling was used as the mode of conducting the
survey. Care was taken that the respondents were as diversified as possible, with all the
regions being given equal weight age and the sample size being suitably divided among
various regions.
A sample size of about 50 employees was taken for this purpose. After the survey was
complete, the data was first sorted, and then analyzed on the chosen parameters. This analyzed
data was later converted into various forms of graphs such as pie-charts. This was to make
results easily comprehensible by anyone going through the report. This also made it easy to
draw conclusions based on the research and provide a presentable format of the report. Later
on all this information was compiled in the form of a presentable and comprehensible data.
My Project is the study of working capital management. The study was conducted at the
NetMax technologies Bathinda. During the project I interviewed the executives & staff tocollect the data, & also made use of company records & annual reports. The data collected
were then compiled, tabulated and analyzed.
Working Capital Management is a very important facet of financial management due to:
Investments in current assets represent a substantial portion of total
investment.
Investment in current assets & the level of current liabilities have to be
geared quickly to change sales.
Some the points to be studied under this topic are:
How much cash should a firm hold? What should be the firms credit policy?
How to & when to pay the creditors of the firm?
How much to invest in inventories?
By studying about the company s different areas I came to know certain things like:
Acid test ratio is more than one but it does not mean that
company has excessive liquidity.
Standard current ratio is 2:1 and for industry it is 1.33:1. NetMax
technologies ratios satisfactory. Debtors of the company were high; they were increasing year by year, so
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more funds were blocked in debtors. But now recovery is becoming faster.
Working capital turnover ratio is continuously increasing that shows
increasing needs of working capital
OBJECTIVES
To identify the financial strengths & weakness of the company.Through the net profit ratio & other profitability ratio, understand the
profitability of the company
Evaluating company s performance relating to financial statement analysis.To know the liquidity position of the company with the help of current ratio.To find out the utility of financial ratio in credit analysis & determining the
financial capacity of the firm.
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Industrial Profile
Information Technology is one of the most important industries in the Indian economy. The
IT industry of India has registered huge growth in recent years. India's IT industry grew from150 million US Dollars in 1990-1991 to a whopping 50 billion UD Dollars in 2006-2007. In
the last ten years the Information Technology industry in India has grown at an average
annual rate of 30%.
The liberalization of the Indian economy in the early nineties has played a major role in the
growth of the IT industry of India. Deregulation policies adopted by the Government of India
have led to substantial domestic investment and inflow of foreign capital to this industry. In
1970, high import duties had forced IBM to leave India. However, after the early nineties,
many multinational IT companies, including IBM, have set up their operations in India.
During the ten year period 1992-2002, the Indian software industry grew at double the rate as
the US software industry.
Some of the major reasons for the significant growth of the IT industry
of India are:-
Abundant availability of skilled manpower.
Reduced telecommunication and internet costs.
Reduced import duties on software and hardware products.
Cost advantages.
Encouraging government policies.
Some of the major companies in the IT industry of India are:-
Tata Consultancy Services (TCS)
Infosys
Wipro
IBM
HP
HCL
Cognizant Technology Solutions (CTS)
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India's IT industry caters to both domestic and export markets. Exports contribute around
75% of the total revenue of the IT industry in India. The IT industry can be broadly divided
into four segments:-
IT services
Softwares (includes both engineering and Research
and Development)
ITES-BPO
Hardware
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Information Technology Industry
Information technology, and the hardware and software associated with the IT industry, are
an integral part of nearly every major global industry.
Information technology, and the hardware and software associated with the IT industry, are
an integral part of nearly every major global industry.
The information technology (IT) industry has become of the most robust industries in the
world. IT, more than any other industry or economic facet, has an increased productivity,
particularly in the developed world, and therefore is a key driver of global economic growth.
Economies of scale and insatiable demand from both consumers and enterprises characterize
this rapidly growing sector.
The Information Technology Association of America (ITAA) explains 'information
technology' as encompassing all possible aspects of information systems based on computers.Both software development and the hardware involved in the IT industry include everything
from computer systems, to the design, implementation, study and development of IT and
management systems.
Owing to its easy accessibility and the wide range of IT products available, the demand for IT
services has increased substantially over the years. The IT sector has emerged as a major
global source of both growth and employment
Features of the IT Industry at a Glance:-
Economies of scale for the information technology industry are high. The
marginal cost of each unit of additional software or hardware is insignificant
compared to the value addition that results from it.
Unlike other common industries, the IT industry is knowledge-based.
Efficient utilization of skilled labor forces in the IT sector can help an economy
achieve a rapid pace of economic growth.
The IT industry helps many other sectors in the growth process of the economy including the
services and manufacturing sectors.
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The role of the IT Industry
The IT industry can serve as a medium of e-governance, as it assures easy accessibility to
information. The use of information technology in the service sector improves operational
efficiency and adds to transparency. It also serves as a medium of skill formation.
Information technology in India
TheIndian Information Technology industry accounts for a 5.19% of the country's GDP
and export earnings as of 2009, while providing employment to a significant number of itstertiary sector workforce. More than 2.5 million people are employed in the sector either
directly or indirectly, making it one of the biggest job creators in India and a mainstay of the
national economy. In 2010-11, annual revenues from IT-BPO sector is estimated to have
grown over US$76 billion compared to China with $35.76 billion and Philippines with $8.85
billion. India's outsourcing industry is expected to increase to US$225 billion by 2020. The
most prominent IT hub is Bangalore. The other emerging destinations are Chennai,
Hyderabad, Coimbatore, Kolkata, Kochi, Pune, Mumbai, Ahmedabad , NCR . Technically
proficient immigrants from India sought jobs in the western world from the 1950s onwards as
India's education system produced more engineers than its industry could absorb. India'sgrowing stature in the Information Age enabled it to form close ties with both the United
States of America and the European Union. However, the recent global financial crises has
deeply impacted the Indian IT companies as well as global companies. As a result hiring has
dropped sharply and employees are looking at different sectors like the financial service,
telecommunications, and manufacturing industries, which have been growing phenomenally
over the last few years.
India's IT Services industry was born in Mumbai in 1967 with the establishment of Tata
Group in partnership with Burroughs. The first software export zone SEEPZ was set up here
way back
in 1973, the old avatar of the modern day IT Park. More than 80 percent of the country's
software exports happened out ofSEEPZ, Mumbai in 80s.
Each year India produces roughly 500,000 engineers in the country, out of them only 25% to
30% possessed both technical competency and English language skills, although 12% of
India's population can speak in English. India developed a number of outsourcing companies
specializing in customer support via Internet or telephone connections. By 2009, India also
has a total of 37,160,000 telephone lines in use, a total of 506,040,000 .
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Tertiary_sectorhttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Business_process_outsourcinghttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Coimbatorehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Kochihttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Ahmedabadhttp://en.wikipedia.org/wiki/National_Capital_Region_%28India%29http://en.wikipedia.org/wiki/Information_Agehttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Telephone_lineshttp://en.wikipedia.org/wiki/Telephone_lineshttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010http://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/Information_Agehttp://en.wikipedia.org/wiki/National_Capital_Region_%28India%29http://en.wikipedia.org/wiki/Ahmedabadhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Kochihttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Coimbatorehttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Business_process_outsourcinghttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Tertiary_sectorhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/India7/31/2019 Working Capital Mangement
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mobile phone connections, a total of 81,000,000 Internet userscomprising 7.0% of the
country's population, and 7,570,000 people in the country have access to broadband
Internet making it the 12th largest country in the world in terms of broadband Internet
users. Total fixed-line and wireless subscribers reached 543.20 million as of November,
2009.
Formative years (till 1991)
The Indian Government acquired the EVS EM computers from the Soviet Union, which were
used in large companies and research laboratories. In 1968 Tata Consultancy Services
established in SEEPZ, Mumbai by the Tata Groupwere the country's largest software
producers during the 1960s. As an outcome of the various policies of Jawaharlal Nehru
(office: 15 August 1947 27 May 1964) the economically beleaguered country was able to
build a large scientific workforce, third in numbers only to that of the United States of
America and the Soviet Union. On 18 August 1951 the minister of education Maulana Abul
Kalam Azad, inaugurated the Indian Institute of Technology at Kharagpur in West Bengal.
Possibly modeled after the Massachusetts Institute of Technology these institutions were
conceived by a 22 member committee of scholars and entrepreneurs under the chairmanship
of N. R. Sarkar.
Relaxed immigration laws in the United States of America (1965) attracted a number of
skilled Indian professionals aiming for research. By 1960 as many as 10,000 Indians were
estimated to have settled in the US. By the 1980s a number of engineers from India were
seeking employment in other countries. In response, the Indian companies realigned wages to
retain their experienced staff. In the Encyclopedia of India, Kamdar (2006) reports on the role
of Indian immigrants (1980 - early 1990s) in promoting technology-driven growth:
The United States technological lead was driven in no small part by the brain power of
brilliant immigrants, many of whom came from India. The inestimable contributions of
thousands of highly trained Indian migrants in every area of American scientific and
technological achievement culminated with the information technology revolution most
associated with CaliforniasSilicon Valley in the 1980s and 1990s.
The National Informatics Centre was established in March 1975. The inception of The
Computer Maintenance Company (CMC) followed in October 1976. Between 1977-1980
the country's Information Technology companies Tata Infotech, Patni Computer Systems and
Wipro had become visible. The 'microchip revolution' of the 1980s had convinced both Indira
Gandhi and her successor Rajiv Gandhi that electronics and telecommunications were vital to
India's growth and development. MTNL underwent technological improvements. Between
1986-1987, the Indian government embarked upon the creation of three wide-area computer
networking schemes: INDONET (intended to serve the IBM mainframes in India), NICNET
(the network for India's National Informatics Centre), and the academic research oriented
Education and Research Network (ERNET).
19912001
http://en.wikipedia.org/wiki/Mobile_phonehttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/Landlinehttp://en.wikipedia.org/wiki/Wirelesshttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Tata_Consultancy_Serviceshttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Indian_Institute_of_Technologyhttp://en.wikipedia.org/wiki/Kharagpurhttp://en.wikipedia.org/wiki/West_Bengalhttp://en.wikipedia.org/wiki/Massachusetts_Institute_of_Technologyhttp://en.wikipedia.org/wiki/Encyclopedia_of_Indiahttp://en.wikipedia.org/wiki/Californiahttp://en.wikipedia.org/wiki/Californiahttp://en.wikipedia.org/wiki/Silicon_Valleyhttp://en.wikipedia.org/wiki/Silicon_Valleyhttp://en.wikipedia.org/wiki/National_Informatics_Centrehttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/Wiprohttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/MTNLhttp://en.wikipedia.org/wiki/MTNLhttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Wiprohttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/National_Informatics_Centrehttp://en.wikipedia.org/wiki/Silicon_Valleyhttp://en.wikipedia.org/wiki/Californiahttp://en.wikipedia.org/wiki/Encyclopedia_of_Indiahttp://en.wikipedia.org/wiki/Massachusetts_Institute_of_Technologyhttp://en.wikipedia.org/wiki/West_Bengalhttp://en.wikipedia.org/wiki/Kharagpurhttp://en.wikipedia.org/wiki/Indian_Institute_of_Technologyhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Tata_Consultancy_Serviceshttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Wirelesshttp://en.wikipedia.org/wiki/Landlinehttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/Mobile_phone7/31/2019 Working Capital Mangement
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Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to
relax regulations on linking in 1991:
In 1991 the Department of Electronics broke this impasse, creating a corporation called
Software Technology Parks of India (STPI) that, being owned by the government, could
provide VSAT communications without breaching its monopoly. STPI set up softwaretechnology parks in different cities, each of which provided satellite links to be used by firms;
the local link was a wireless radio link. In 1993 the government began to allow individual
companies their own dedicated links, which allowed work done in India to be transmitted
abroad directly. Indian firms soon convinced their American customers that a satellite link
was as reliable as a team of programmers working in the clients office.
Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in
1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible
scale in 1992. Election results were displayed via National Informatics Centre's NICNET.
The Indian economy underwent economic reforms in 1991, leading to a new era ofglobalization and international economic integration. Economic growth of over 6% annually
was seen between 1993-2002. The economic reforms were driven in part by significant the
internet usage in the country.
The new administration under Atal Bihari Vajpayeewhich placed the development of
Information Technology among its top five priorities formed the Indian National TaskForce on Information Technology and Software Development.
Wolcott & Goodman (2003) report on the role of the Indian National Task Force on
Information Technology an D Software Development:
Within 90 days of its establishment, the Task Force produced an extensive background report
on the state of technology in India and an IT Action Plan with 108 recommendations. The
Task Force could act quickly because it built upon the experience and frustrations of state
governments, central government agencies, universities, and the software industry. Much of
what it proposed was also consistent with the thinking and recommendations of international
bodies like theWorld Trade Organization(WTO), International Telecommunications Union
(ITU), and World Bank. In addition, the Task Force incorporated the experiences of
Singapore and other nations, which implemented similar programs. It was less a task of
invention than of sparking action on a consensus that had already evolved within the
networking community and government.
The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's
telecommunications sector. The Information Technology Act 2000 created legal procedures
for electronic transactions and e-commerce.
Throughout the 1990s, another wave of Indian professionals entered the United States. Thenumber ofIndian Americans reached 1.7 million by 2000. This immigration consisted largely
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of highly educated technologically proficient workers. Within the United States, Indians fared
well in science, engineering, and management. Graduates from the Indian Institutes of
Technology (IIT) became known for their technical skills.
Thus GOI planned to establish new Institutes especially for Information Technology to
enhance this field. In 1998 India got the first IT institute name Indian Institute ofInformation Technology at Gwalior. The success of Information Technology in India not
only had economic repercussions but also had far-reaching political consequences.
India's reputation both as a source and a destination for skilled workforce helped it improve
its relations with a number of world economies. The relationship between economy and
technologyvalued in the western worldfacilitated the growth of an entrepreneurial class
of immigrant Indians, which further helped aid in promoting technology-driven growth.
India is now one of the biggest IT capitals in the modern world.The economic effect of the technologically inclined services sector in Indiaaccounting for
40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25%
of its workforceis summarized by Sharma (2006):
The share of IT (mainly software) in total exports increased from 1 percent
In1990 to 18 percent in 2001. IT-enabled services such as BackOffice operations, remote
maintenance, accounting, public call centers, medical transcription, insurance claims, and
other bulk processing are rapidly expanding. Indian companies such as HCL,TCS, Wipro,
and Infosys may yet become household names around the world.
Today, Bangalore is known as the Silicon Valley of India and contributes 33% of Indian IT
Exports. India's second and third largest software companies are head-quartered in Bangalore,
as are many of the global SEI-CMM Level 5 Companies.
And Mumbai too has its share of IT companies that are India's first and largest, like TCS and
well established like Reliance, Patni, LnT Infotech, i-Flex, WNS, Shine, Naukri, Jobspert etc.
are head-quartered in Mumbai. And these IT and dot com companies are ruling the roost of
Mumbai's relatively high octane industry ofInformation Technology.
Such is the growth in investment and outsourcing; it was revealed that Cap Gemini will soon
have more staff in India than it does in its home market of France with 21,000 personnel+ inIndia.
On 25 June 2002 India and the European Union agreed to bilateral cooperation in the field of
science and technology. A joint EU-India group of scholars was formed on 23 November
2001 to further promote joint research and development. India holds observer status at CERN
while a joint India-EU Software Education and Development Center is due at Bangalore.
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India's IT industry (USD bn)
Particulars FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
IT Services 10.4 13.5 17.8 23.5 31.0
- Exports 7.3 10.0 13.13 18.0 23.1
- Domestic 3.1 3.5 4.5 5.5 7.9
ITES-BPO 3.4 5.2 7.2 9.5 12.5
- Exports 3.1 4.6 6.3 8.4 10.9
- Domestic 0.3 0.6 0.9 1.1 1.6
Engineering services, R&D and
Software products
2.9 3.9 5.3 6.5 8.6
- Exports 2.5 3.1 4.0 4.9 6.4
- Domestic 0.4 0.7 1.3 1.6 2.4
Hardware 5.0 5.9 7.0 8.5 12.0
- Exports 0.5 0.5 0.6 0.5 0.5
- Domestic 4.4 5.1 6.5 8.0 11.5
Total IT industry (including
hardware)
21.6 28.4 37.4 48.0 64.
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Top 10 ITS Hubs in India
ranking City Description
1 Bangalore Popularly known as the capital of the Silicon Valley of India iscurrently leading in Information Technology Industries in
India.
2 Chennai It is the second largest exporter of Software. It has the largest
operations for Indias top software company TCS
3 Hyderabad Hyderabad which has good infrastructure and goodgovernment support is also a good technology base in India.
The Government of AP Has built a separate township for IT
Industry called the HITEC City.
4 Pune Pune, a major industrial point in India.
5 Coimbatore It is the Manchester of South India. Among major metro-
markets Coimbatore (up 31% precent) MAY 11(Bangalore
showed the slowest rate of annual growth at 4 percent driven
by reduced demand in the BPO/ITES sector), It Become an
Upcoming Major IT hub of India.
6 NCR The National Capital Region of India comprising Delhi,Gurgaon, Faridabad, Noida, Greater Noida and Ghaziabad
are having ambitious projects and are trying to do every
possible thing for this purpose.
7 Mumbai Popularly known as the commercial, entertainment, financial
capital ofIndia, This is one city that has seen tremendous
growth in IT and BPO industry, it recorded 63% growth in
http://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Silicon_Valley_of_Indiahttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Chennai,_Indiahttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/HITEC_Cityhttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Coimbatore,_Indiahttp://en.wikipedia.org/wiki/NCR_Indiahttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Faridabadhttp://en.wikipedia.org/wiki/Noidahttp://en.wikipedia.org/wiki/Greater_Noidahttp://en.wikipedia.org/wiki/Ghaziabad,_Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Ghaziabad,_Indiahttp://en.wikipedia.org/wiki/Greater_Noidahttp://en.wikipedia.org/wiki/Noidahttp://en.wikipedia.org/wiki/Faridabadhttp://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/NCR_Indiahttp://en.wikipedia.org/wiki/Coimbatore,_Indiahttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/HITEC_Cityhttp://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Chennai,_Indiahttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Silicon_Valley_of_Indiahttp://en.wikipedia.org/wiki/Bangalore7/31/2019 Working Capital Mangement
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2008. TCS, Patni, LnT Infotech, I-Flex WNS and other
companies are headquartered here.
8 Kolkata Kolkata is a major IT hub in eastern India. All major ITcompanies are present here. The city has tremendous potential
for growth in this sector with upcoming areas like Rajarhat.
9 Trivandrum Famously known as "Gateway of South India. Trivandrum,
the capital of kerala is a green metropolis and tier I city. GOK
provides a good platform for IT development in the city with
India's largest IT park Technopark and dedicated Technocity
SEZs.
10 Jaipur This rapidly growing industrial hub houses a lot of IT/ITES
and BPO giants. Genpact, Connexions IT services, Deutsche
Bank and EXL BPO, Infosyss, Tech Mahindra, and Wipro
are here. There are plans to build the largest IT SEZ in India
by Mahindra under the Mahindra World City.
http://en.wikipedia.org/wiki/Tata_Consultancy_Serviceshttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/Larsen_%26_Toubro_Infotechhttp://en.wikipedia.org/wiki/Oracle_Financial_Services_Softwarehttp://en.wikipedia.org/wiki/WNS_Global_Serviceshttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Rajarhathttp://en.wikipedia.org/wiki/Trivandrumhttp://en.wikipedia.org/wiki/Technoparkhttp://en.wikipedia.org/wiki/Technocityhttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Technocityhttp://en.wikipedia.org/wiki/Technoparkhttp://en.wikipedia.org/wiki/Trivandrumhttp://en.wikipedia.org/wiki/Rajarhathttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/WNS_Global_Serviceshttp://en.wikipedia.org/wiki/Oracle_Financial_Services_Softwarehttp://en.wikipedia.org/wiki/Larsen_%26_Toubro_Infotechhttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/Tata_Consultancy_Services7/31/2019 Working Capital Mangement
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India IT Industry
The Indian information technology (IT) industry has played a major role in placing India on
the international map. Over the last few years the IT and BPO sector in India has become one
of the major contributors to the country's growth. The IT/ BPO industry in India has
contributed directly and indirectly to the economy by providing employment, generating
revenues and creating value.
The Indian IT industry is mainly governed by IT software and services such as System
Integration, Software experiments, Custom Application Development and Maintenance
(CADM), network services and IT Solutions. According to the findings of National
Association of Software and Service Companies (Nasscom) the revenues of the Indian IT-
BPO industry will aggregate up to US$ 88.1 billion for the FY2011. The IT software and
services sector alone will account for revenues upto US$ 76.1 billion for the same year.
The export revenues earned by the sector will reach US$ 59 billion in FY2011 making the
sector a holder of 26 per cent of market share of the total Indian export industry. The number
of people employed with the sector will also increase to 2 million employees. Within the
realm of exports the IT Services division grew at a rate 22.7 per cent in FY2010. It was the
fastest growing sector accounting to aggregate export revenues of US$ 33.5 billion.
Top IT Companies
As per the latest reports published by Dataquest, The top 20 IT companies in India which
comprise both hardware and software accounted for accumulated revenues of $2 billion in
2009-10.
Top IT Companies in India
Below is a list of the top IT Companies in India in 2010 showing their revenue and growth
rate.
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Company Revenue Growth Rate
Hewlett-Packard India Rs 14,992 crore 16 percent
HCL Infosystems Ltd Rs 11,836 crore -4 percent
Ingram Micro India Rs 8,824 crore -6 percent
Redington Rs 7,024 crore 7 percent
IBM India Rs 5,888 crore 2 percent
Dell India Rs 5,275 crore 24 percent
Wipro Rs 5,268 crore 9 percent
Intel India 4,690 crore Not available
Microsoft India Rs 3,575 crore 14 percent
SAP India: Rs 3,204 crore 46 percent
Acer India Rs 2,749 crore 38 percent
Oracle India Rs 2,700 crore 11 percent
APC-MGE Rs 2,620 crore -1 percent
Emerson Network Power India Rs 2,500 crore NA
Lenovo India Rs 2,396 crore -3 percent
Cisco Systems India Rs 2,324 crore 0 percent
Tulip Telecom Rs 1,965 crore 22 percent
LG India Rs 1,798 crore 39 percent
Samsung India Rs 1,664 crore 29 percent
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Profile of NetMax Technologies
NetMax Technologies is an organization which was established in 2001 in the field of
network training, support & embedded system design solution. Its mission is To provide
world class solution in advance.
NetMax Technologies is a leader in network support, embedded systems, and software &
web development services. NetMax Technologies group of companies is divided into two:
NetMax Technologies (Core) & NetMax Web solutions. It is a private company and its site is
www.netmaxtech.com. Its headquarter is in Sco 198-200 3rd floor sec 34a Chandigarh.
An ISO 9001:2008 Certified Organization providing service in field of Education, Software
Development, Web site Development, Hosting Services since almost a decade now and that
proves our quality service because quality is the only thing that can with stand the test of
time. Its products are
CCNA,CCNP,MCITP,LINUX,PHP,.NET,JAJA,8051,PIC,AVR,PLC,ARM,and REBOTICS.
Net max Web solutions, is an ISO 9001:2008 Certified Web Development and Software
development unit of NetMax Technologies established in 2001 in Chandigarh. We have been
serving a wide variety of clients, ranging from Corporate, Software Development,
Educational Institutions, to other Business houses.
An ISO 9001:2008 Certified Organization providing service in field of Education, Software
Development, Web site Development, Hosting Services since almost a decade now and that
proves our quality service because quality is the only thing that can with stand the test oftime.
Type:- Privately Held
Company Size:- 11-50 employees
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Website:- http://netmaxtech.com
Industry:- Professional Training & Coaching
Founded:- 2001
Headquarters:-
Sco 198-200 3rd floor
Sec 34a Chandigarh,
Chandigarh 160022(India)
We since then have been the prime institution in the field of Training and Education in
Chandigarh and North India Region. With over 1000 students under going training every yearin field of IT and Electronics we have proven our worth. Only Quality can withstand the test
of time in todays highly demanding market and we expanding since our establishment from
one office to five offices in four different cities since almost a decade ago prove our worth.
With professionals hired to provide training to the student, we aim to give the real industry
environment to the student so that they be ready for it.
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NetMax Technologies provides industrial training to BTech/MCA/BCA/Diploma students to
make them proficient in following fields
Advance Networking
JAVA development
PHP Programming and Web
Development
Microsoft System Administration
PLC and SCADA Automation
Technologies
.NET development
Embedded systems
Robotics
NetMax Technologies (Core) takes care of IT support, embedded systems R& D &
Implementation services, whereas NetMax web solutions is a web & software development
company that takes care of Software development & web service solutions.
It offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana &
Himachal Pradesh. NetMax Technologies is a pioneer in the field of IT education in northIndia.
NetMax Technologies set up education centre in Chandigarh (Punjab) and followed them
with centers in Patiala, Jalandhar, Ludhiana & Bhatinda in the years that followed. In 2005,
NetMax Technologies introduced corporate training programs which as an initiative were
highly appreciated by the industry and corporate alike
We are looking for someone who is smart, innovative, web savvy, hard working and has
strong experience in SEO and internet marketing. The successful candidate will be passionate
about great client service and will show it in their actions, their attitude, and their execution.
NetMax Technologies offers a vast portfolio of IT solutions to customers spread across
Punjab, Haryana & Himachal Pradesh. NetMax Technologies was set up in 2001 by young
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Indian entrepreneurs. It has pioneered the concept of high quality IT education in North India
and has trained over 10,000 plus networking, embedded systems & software professionals in
the country.
Area of Focus:-
NetMax Technologies focus areas include network support, network implementation,
embedded system research & development and robotics. NetMax Technologies addresses the
needs of well-defined industry segments such as BPOs, IT & ITES, and government
Agencies like CSIO & TBRL etc. It has alliances with global IT majors such as Microsoft,
CISCO and Red Hat. Lately; it has started programs like Android Apps. Development in
association with Google along with Cloud computing believed to be the only organization in
India running them on professional level.
Support Area (Network Solutions)
LINUX / UNIX networks SUN networks
CISCO devices (Routers, Switches, Firewalls, Cache Engine, RAS etc)
Bandwidth Manager Software and hardware
Radio Links
Security Solutions
NetMax Provide six weeks, six months and one year industrial training a in various fields.
Each training is designed according to market needs and student requirements. You can
choose from following available options for Industrial Training:
Networking
Software Development
Embedded System
PLC
6 Week Industrial Training is Available in:
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Software Development: JAVA, C Sharp, ASP, .Net, Android, PHP
Network Administration: Cisco, CCNA, Linux, Microsoft MCITP
Electronics & Embedded: 8051, PIC, AVR, ARM, Or CAD
6 Month Industrial Training is Available in:
EMBEDDED: PLC, AVR, ARM
CISCO: CCNP, CCVP,CCIP
.NET: C Sharp, ASP .NET
PHP: Advance PHP & CMS
JAVA: Advance Java, Andriod
Courses available in NetMax
Networking: - NetMax provide the course of CCNA in networking.Natworking is the
practice of linking two or more computing devices together for the purpose of sharing data.
Networks are built with a mix of computer hardware and computer software.
CCNA:-CCNA (Cisco Certified Network Associate) is the Cisco Academy Computer
Networking Course with a curriculum designed to prepare computer networking students topass the CCNA exam, or the ICND 1 and 2 certification exams. Here is an overview of
CCNA and where it fits among the Cisco career certifications.
Software: - Software is a general term for the various kinds ofprograms used to operate
computers and related devices.Netmax provide two courses in software such as PHP and
JAVA (core and advance).
PHP Training
PHP Training and Web Development
PHP stands for PHP: Hypertext Preprocessor, with that PHP standing for Personal
Homepage. PHP is an open-source language, used primarily for dynamic web content and
server-side applications.
Java Training
JAVA is a programming language originally developed by James Gosling at Sun
Microsystems and released in 1995. Java is a high-level, third generation programming
language, like C, FORTRAN, Smalltalk, Perl, and many others. You can use Java to writecomputer applications that crunch numbers, process words, play games, store data or do any
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of the thousands of other things computer software can do. Java technologys versatility,
efficiency, platform portability, and security make it the ideal technology for network
computing. From laptops to datacenters, game consoles to scientific supercomputers, cell
phones to the Internet, Java is everywhere!
Embedded System
An embedded system can be defined as a control system or computer system designed to
perform a specific task. Common examples of embedded systems include MP3 players,
navigation systems on aircraft and intruder alarm systems.NetMax provide the course in
embedded system such as 8051, PIC, ARV, ARM, and REBOTICS.
NetMax Technologies takes care of IT support, embedded systems R& D & Implementationservices, whereas NetMax web solutions is a web & software development company that
takes care of Software development & web service solutions.
It offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana &
Himachal Pradesh. NetMax Technologies is a pioneer in the field of IT education in north
India. NetMax Technologies set up education centre in Chandigarh (Punjab) and followed
them with centers in Patiala, Jalandhar, Ludhiana & Bhatinda in the years that followed. In
2005, NetMax Technologies introduced corporate training programs which as an initiative
were highly appreciated by the industry and corporate alike. NetMax Technologies provides
industrial training to BTech/MCA/BCA/Diploma students in fields like Embedded systems,Robotics ,PLC and SCADA Automation Technologies, Advance Networking
Technologies(CISCO) ,JAVA development, .NET development
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WORKING CAPITAL MANAGEMENT
Management is an art of anticipating and preparing for risks, uncertainties and overcoming
obstacles. An essential precondition for sound and consistent assets management isestablishing the sound and consistent assets management policies covering fixed as well as
current assets. In modern financial management, efficient allocation of funds has a great
scope, in finance and profit planning, for the most effective utilization of enterprise resources,
the fixed and current assets have to be combined in optimum proportions.
Working capital in simple terms means the amount of funds that a company requires for
financing its day-to-day operations. Finance manager should develop sound techniques of
managing current assets.
WHAT IS WORKING CAPITAL?
Working capital refers to the investment by the company in short terms assets such as cash,
marketable securities. Net current assets or net working capital refers to the current assets less
current liabilities.
Symbolically, it means, Net Current Assets = Current Assets Current Liabilities.
DEFINITIONS OF WORKING CAPITAL:
The following are the most important definitions of Working capital:1) Working capital is the difference between the inflow and outflow of funds. In other words
it is the net cash inflow .
2) Working capital represents the total of all current assets. In other words it is the Gross
working capital , it is also known as Circulating capital or Current capital for current assets
are rotating in their nature.
3)Working capital is defined as The excess of current assets over current liabilities and
provisions .In other words it is the Net Current Assets or Net Working Capital .
IMPORTANCE OF WORKING CAPITAL
Working capital may be regarded as the lifeblood of the business. Without insufficient
working capital, any business organization cannot run smoothly or successfully.
In the business the Working capital is comparable to the blood of the human body. Therefore
the study of working capital is of major importance to the internal and external analysis
because of its close relationship with the current day to day operations of a business. The
inadequacy ormismanagement of working capital is the leading cause of business failures. To meet the
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current requirements of a business enterprise such as the purchases of services, raw materials
etc. working capital is essential. It is also pointed out that working capital is nothing but one
segment of the capital structure of a business.
In short, the cash and credit in the business, is comparable to the blood in the human body
like finance s life and strength i.e. profit of solvency to the business enterprise. Financialmanagement is called upon to maintain always the right cash balance so that flow of fund is
maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance
between liquidity and profitability. Therefore the management of working capital is essential
in each and every activity.
WORKING CAPITAL MANAGEMENT
INTRODUCTION:
Working Capital is the key difference between the long term financial management and shortterm financial management in terms of the timing of cash.
Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years,
while short term financial decisions involve cash flow within a year or within operating
cycle.
Working capital management is a short term financial management.
Working capital management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities & the inter relationship that exists between
them. The current assets refer to those assets which can be easily converted into cash in
ordinary course of
business, without disrupting the operations of the firm.
Composition of working capital
Major Current Assets
i. Cash
ii. Accounts Receivables
iii. Inventory
iv. Marketable Securities
Major Current Liabilities
Bank Overdraft
Outstanding Expenses
Accounts Payable
Bills Payable
The Goal of Capital Management is to manage the firm s current assets & liabilities, so that
the satisfactory level of working capital is maintained. If the firm can not maintain thesatisfactory level of working capital, it is likely to become insolvent & may be forced into
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bankruptcy. To maintain the margin of safety current asset should be large enough to cover
its current
assets. Main theme of the theory of working capital management is interaction between
the current assets & current liabilities.
CONCEPT OF WORKING CAPITAL:
There are 2 concepts:
Gross Working Capital
Net Working Capital
Gross working capital: - It is referred as total current assets.Focuses on,
Optimum investment in current assets: Excessive investments impairs firm s
profitability, as idle investment earns nothing. Inadequate working capital can
threaten solvency of the firm because of its inability to meet its current obligations.
Therefore there should be adequate investment in current assets.
Financing of current assets: Whenever the need for working capital funds arises,
agreement should be made quickly. If surplus funds are available they should be
invested in short term securities.
Net working capital (NWC) defined by 2 ways,
Difference between current assets and current liabilities Net working capital is that portion of current assets which is financed with long term
funds.
If the working capital is efficiently managed then liquidity and profitability both will
improve. They are not components of working capital but outcome of working capital.
Working capital is basically related with the question of profitability versus liquidity &
related aspects of risk.
Implications of Net Working Capital:
Net working capital is necessary because the cash outflows and inflows do not coincide. In
general the cash outflows resulting from payments of current liability are relatively
predictable. The cash inflows are however difficult to predict. More predictable the cash
NET WORKING CAPITAL = CURRENT ASSETS
CURRENT LIABILITIES
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inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will
be necessary to maintain current assets at level adequate to cover current liabilities that are
there must be NWC.
For evaluating NWC position, an important consideration is trade off between probability andrisk.
The term profitability is measured by profits after expenses. The term risk is defined as the
profitability that a firm will become technically insolvent so that it will not be able to meet its
obligations when they become due for payment. The risk of becoming technically insolvent is
measured by NWC.
If the firm wants to increase profitability, the risk will definitely increase.
If firm wants to reduce the risk, the profitability will decrease.
PLANNING OF WORKING CAPITAL:
Working capital is required to run day to day business operations. Firms differ in their
requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders
and to earn sufficient return from its operations.
WCM is a significant facet of financial management. Its importance stems from two reasons:
Investment in current asset represents a substantial portion of total investment.
Investment in current assets and level of current liability has to be geared quickly to
change in sales.
Business undertaking required funds for two purposes:
To create productive capacity through purchase of fixed assets.
To finance current assets required for running of the business.
The importance of WCM is reflected in the fact that financial managers spend a great deal of
time in managing current assets and current liabilities.
The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are
necessary for earning profits. However, sales do not convert into cash instantly; there is
invariably a time lag between sale of goods and the receipt of cash. WC management affect
the profitability and liquidity of the firm which are inversely proportional to each other,
hence
proper balance should be maintained between two.
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To convert the sale of goods into cash, there is need for WC in the form of current asset to
deal with the problem arising out of immediate realization of cash against good sold.
Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or
cash cycle.
A firm requires many years to recover initial investment in fixed assets. On contrary the
investment in current asset is turned over many times a year. Investment in such current
assets is realized during the operating cycle of the firm.
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Each component of working capital (namely inventory, receivables and payables) has two
dimensions ... TIME ......... and MONEY. When it comes to managing working capital -
TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues
from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory
levels relative to sales), the business will generate more cash or it will need to borrow lessmoney to fund working capital. As a consequence, you could reduce the cost of bank interest
or you'll have additional free money available to support additional sales growth or
investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer
credit or an increased credit limit; you effectively create free finance to help fund future sales.
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc.
If you do pay cash, remember that this is now longer available for working capital. Therefore,
if cash is tight, consider other ways of financing capital investment - loans, equity, leasing
etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like
water flowing down a plughole, they remove liquidity from the business
If you Then
Collect receivables(debtors) faster.
You release cashfrom the cycle.
Collect receivables(debtors) slower.
Your receivables soakup cash.
Get better credit
(in terms of duration or amount)from suppliers.
You increase your
cash resourses.
Shift inventory (stock) faster. You free up cash.
Move inventory(stock) slower. You consume more cash.
Operating cycle:
The working capital cycle refers to the length of time between the firms paying the cash for
materials, etc., entering into production process/stock & the inflow of cash from debtors
(sales), suppose a company has certain amount of cash it will need raw materials. Some raw
materials will be available on credit but, cash will be paid out for the other part immediately.
Then it has to pay labour costs & incurs factory overheads. These three combined together
will constitute work in progress. After the production cycle is complete, work in progress will
get converted into sundry debtors.
Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be
again used for financing raw material, work in progress etc. thus there is complete cycle from
cash to cash wherein cash gets converted into raw material, work in progress, finished goodsand finally into cash again. Short term funds are required to meet the requirements of funds
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during this time period. This time period is dependent upon the length of time within which
the original
Injection of cash Cash withdrawals
PAYMENTS
To suppliers for raw material
To workers wages
GOODS
PRODUCED
Working capital cycle can be determined by adding the number of days required for each
stage in the cycle. For example, company holds raw material on average for 60 days, it gets
credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is
extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of
working capital. Thus the working capital cycle helps in the forecast,control &
management of working capital. It indicates the total time lag & the relative significance of
its constituent parts. The duration may vary depending upon the business policies. In light of
the facts discusses above we can broadly classify the operating cycle of a firm into three
phases viz.
1 Acquisition of resources.
2 Manufacture of the product and
3 Sales of the product (cash / credit).
First and second phase of the operating cycle result in cash outflows, and be predicted withreliability once the production targets and cost of inputs are known.
CASH
GOOD SOLD
Debtor generated
& then cash received
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However, the third phase results in cash inflows which are not certain because sales and
collection which give rise to cash inflows are difficult to forecast accurately.
Operating cycle consists of the following:
Conversion of cash into raw-materials;
Conversion of raw-material into work-in-progress;
Conversion of work-in-progress into finished stock;
Conversion of finished stock into accounts receivable through sales; and
Conversion of accounts receivable into cash.
In the form of an equation, the operating cycle process can be expressed
as follows:
Operating cycle = R + W + F + D - CR = Raw material storage period
W = Work in progress holding period
F = Finished goods storage period
D = Debtors collection period
C = Credit period availed
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Operating cycle for manufacturing firm
WORK-IN-PROGRESS
Raw materials stock Finished goods stock
Wages & overhead
Sale
Selling exp
Trade creditor
Taxation cash shareholders
Fixed assets Loan creditors
Lease payments
The firm is therefore, required to invest in current assets for smooth anduninterrupted functioning.
Trade debtors
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RMCPRaw Material Conversion Period
WIPCPWork In Progress Conversion Period
FGCPFinished Goods Conversion Period
ICP - Inventory Conversion Period
Payables (PDP)Payables Deferral Period
NOCNet Operating Cycle
GocGross Operating Cycle
Here, the length of GOC is the sum of ICP and RCP.
ICP is the total time needed for producing and selling the products. Hence it is the sum total
of RMCP, WIPCP and FGCP. On the other hand, RCP is the total time required to collect the
outstanding amount from customers.
Usually, firm acquires resources on credit basis. PDP is the result of such an incidence
and it represent the length of time the firm is able to defer payments on various resources
purchased.
The difference between GOC and PDP is know as Net Operating Cycle and if Depreciation
is excluded from the expenses in computation of operating cycle, the NOC also represents
the cash collection from sale and cash payments for resources acquired by the firm and
during such time interval between cash collection from sale and cash payments for resources
acquired by the firm and during such time interval over which additional funds called
working capital should be obtained in order to carry out the firms operations. In short, the
working capital position is directly proportional to the Net Operating Cycle.
Calculations:
On the basis of financial statement of an organization we can calculate the inventory
conversion period. Debtors / receivables conversion period and the creditors conversion
period and based on such calculations we can find out the length of the operating cycle (in
days) both gross as well as net operating cycle.
As mentioned above, on the basis of information presented in the Balance sheet and CMA
statement of NetMAx Technologies Limited, the length of gross as well as net operating
cycle is calculated as follows:
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Operating Cycle for the year 2009-10
a. RMCP = Average Stock x 360 = 54 days
Annual Consumption
b. WIPCP = Average Stock x 360 = 21 days
Cost of Production
c. FGCP = Average Stock x 360 = 5 days
Cost of Goods Sold
d. Debtors Conversion Period = Average Debtors x 360 = 123 days
Cost of sales
e. Payables Deferral Period = Average Creditors x 360 = 87 days
Particulars 2006-07 2007-08 2008-09 2009-10
MaterialCost
9132.58 11099.03 12084.02 15771.59
Labour
Cost
3597.64 3115.99 3336.02 3681.33
DirectExpenses
-- -- -- --
PrimeCost
12730.22 14215.02 15420.04 19452.52
+Manufacturing Exp
2103.89 1977.51 2080.21 2733.89
Cost ofProduction
14834.11 16192.53 17500.25 22186.81
+Opening WIP
284.22 1003.23 1025.54 1261.56
- ClosingWIP
1003.23 1025.54 1261.56 1327.47
Cost ofGoodsProduced
14115.1 16170.22 17264.23 22120.9
+OpeningFG
286.13 330.66 115.71 260.64
-ClosingFG
330.66 115.71 260.64 315.02
Cost ofGoodsSold
14070.57 16385.17 17119.3 22066.52
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Cost of Goods Sold
Gross operating Cycle = 54 + 21 + 5 + 123 = 203 days
Net Operating Cycle = 203 87 = 116 days
Operating Cycle for the year 2008-09
1. RMCP = 59 days
2. WIPCP = 24 days
3. FGCP = 4 days
4. Debtors Conversion Period = 149 days
5. Payable Deferral Period = 132 days.
Gross operating Cycle = 59 + 24 + 4 + 149 = 236 days
Net Operating Cycle = 236 132 = 104 days
Operating Cycle for the year 2007-08
1 RMCP = 48 days
2 WIPCP = 23 days
3 FGCP= 5 days
4 Debtors Conversion Period = 181 days
5 Payable Deferral Period = 162 days.
Gross operating Cycle = 48 + 23 + 5 + 181 = 257 days
Net Operating Cycle = 257 162 = 95 days
Operating Cycle for the year 2006-07
a. RMCP = 64 days
b. WIPCP = 27 days
c. FGCP= 9 days
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d. Debtors Conversion Period = 112 days
e. Payable Deferral Period = 137 days.
Gross operating Cycle = 64 + 27 + 9 + 112 = 212 days
Net Operating Cycle = 212 137 = 75 days
Types of working capital:
PERMANENT AND
VARIABLE WORKING CAPITAL
The need for current assets arises because of the operating cycle. The operating cycle is
a continuous process and, therefore, the need for current assets is felt constantly. But themagnitude of current assets needed is not always a minimum level of current assets which is
continuously required by the firm to carry on its business operations. This minimum level of
current assets is referred to as permanent, or fixed, working capital. It is permanent in the
same way as the firms fixed assets are. Depending upon the changes in production and
sales, the need for working capital, over and above permanent working capital, will
fluctuate.
For example, extra inventory of finished goods will have to be maintained to support the
peak periods of sales, and investment in receivable may also increase during such periods. On
the other hand, investment in raw material, work-in-process and finished goods will fall if themarket is slack.
The extra working capital, needed to support the changing production and sales activities is
called FLUCTUATING, or VARIABLE, or TEMPORARY working capital. Both kinds of
working capital PERMANENT and TEMPORARY - are necessary to facilitate production
and sale through the operating cycle, but temporary-working capital is created by the firm to
meet liquidity requirements that will last only temporary working capital. It is shown that
permanent working capital is stable over time.
While temporary working capital is fluctuating- sometimes increasing and sometimes
decreasing. However, the permanent capital is difference between permanent and temporary
working capital can be depicted through figure.
BALANCED WORKING CAPITAL POSITION
The firm should maintain a sound working capital position. It should have adequate working
capital to run its business operations. Both excessive as well as inadequate working capital
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positions are dangerous from the firms point of view. Excessive working capital not only
impairs the firms profitability but also result in production interruptions and inefficiencies.
The dangers of excessive working capital are as follows:
It results in unnecessary accumulation of inventories. Thus, chances of inventory
mishandling, waste, theft and losses increase.
It is an indication of defective credit policy slack collections period. Consequently,
higher incidence of bad debts results, which adversely affects profits.
Excessive working capital makes management complacent which degenerates into
managerial inefficiency.
Tendencies of accumulating inventories tend to make speculative profits grow. This
may tend to make dividend policy liberal and difficult to cope with in future when the
firm is unable to make speculative profits.
Inadequate working capital is also bad and has the following dangers:
It stagnates growth. It becomes difficult for the firm to undertake profitable projects
for non- availability of working capital funds.
It becomes difficult to implement operating plans and achieve the firms profit target.
Operating inefficiencies creep in when it becomes difficult even to meet day
commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the
firm s profitability would deteriorate.
The firm loses its reputation when it is not in a position to honour its short-term
obligations.
As a result, the firm faces tight credit terms.
An enlightened management should, therefore, maintain the right amount of working
capital on a continuous basis. Only then a proper functioning of business operations will be
ensured. Sound financialand statistical techniques, supported by judgment, should be used
to predict the quantum of working capital needed at different time periods.
A firm s net working capital position is not only important as an index of liquidity but it is
also used as a measure of the firm s risk.
Risk in this regard means chances of the firm being unable to meet itsobligations on due date.
The lender considers a positive net working as ameasure of safety. All other things being
equal, the more the net workingcapital a firm has, the less likely that it will default in
meeting its currentfinancial obligations. Lenders such as commercial banks insist that the
firmshould maintain a minimum net working capital position.
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DETERMINANTS OF WORKING CAPITAL
There are no set rules or formula to determine the working capital requirements of firms.
A large number of factors, each having a different importance, influence working capitalneeds of firms. Also, the importance of factors changes for a firm over time. Therefore, an
analysis of relevant factors should be made in order to determine total investment in working
capital. The following is the description of factors which generally influence the working
capital requirements of firms.
Nature of Business
Sales and Demand Conditions
Technology and Manufacturing Policy
Credit Policy
Availability of Credit Operating Efficiency
Price Level Changes
Nature of Business:
Working capital requirements of a firm are basically influenced by the nature of its
business. Trading and financial firms have a very small investment in fixed assets, but
require a large sum of money to be invested in working capital. Retail stores, for example,
must carry large stocks of a variety of goods to satisfy varied and continuous demand of
their customers. Some manufacturing business, such as tobacco manufacturers and
construction firm, also have to invest substantially in working capital and a nominal
amount in fixed assets. In contrast, public utilities have a very limited need for working
capital and have to invest abundantly in fixed assets. Their working capital requirements are
nominal because they may have only cash and supply services, not products. Thus, no funds
will be tied up in debtors and stock (inventories). Working capital requires most of the
manufacturing concerns to fall between the two extreme requirements of trading firms andpublic utilities. Such concerns have to make adequate investment in current assets depending
upon the total assets structure and other variables.
Sales and Demand Conditions:
The working capital needs of a firm are related to its sales. It is difficult to precisely
determine the relationship between volume of sales and working capital needs. In practice,
current assets will have to be employed before growth takes place. It is , therefore, necessary
to make advance planning of working capital for a growing firm on a continuous basis.
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A growing firm may need to invest funds in fixed assets in order to sustain its growing
production and sales. This will, in turn, increase investment in current assets to support
enlarged scale of operations. It should be realized that a growing firm needs funds
continuously. It uses external sources as well as internal sources to meet increasing needs
of funds. Such a firm faces further financial problems when it retains substantialportion of its profits. It would not be able to pay dividends to shareholders. It is, therefore,
Imperative that proper planning be done by such companies to finance their increasing needs
for working capital.
Sales depend on demand conditions. Most firms experience seasonal and cyclical fluctuations
in the demand for their products and services. These business variations affect the working
capital requirements, specially the temporary working capital requirement of the firm. When
there is an upward swing in the economy, sales will increase; correspondingly, the firm s
investment in inventories and debtors will also increase. Under boom, additional
investment in fixed assets may be made by some firms to increase their productivecapacity. This act of firm will require further additions of working capital. To meet their
requirements of funds for fixed assets and current assets under boom further additions of
working capital. To meet their requirements of funds for fixed assets and current assets
under boom period, firms generally resort to substantial borrowing. On the other hand, when
there is a decline in the economy, sales will fall and consequently, levels of inventories
and debtors will also fall. Under recessionary conditions, firms try to reduce their short
term borrowings.
Seasonal fluctuations not only affect working capital requirements but also create production
problems for the firm. During periods of peak demand, increasing production may beexpensive for the firm. Similarly, it will be more expensive during slack periods when
the firm has to sustain its working force and physical facilities without adequate production
and sales.
A firm may, thus, follow a policy of steady production, irrespective of seasonal changes
in order to utilize its resources to the fullest extent. Such a policy will mean accumulation of
inventories during off season and their quick disposal during the peak season.
The increasing level of inventories during the slack season will require increasing
funds to be tied up in the working capital for some months. Unlike cyclicalfluctuations, seasonal fluctuations generally conform to asteady pattern. Therefore,
financial arrangements for seasonal working capital requirements can be made in advance.
However, the financial plan or arrangement should be flexible enough to take care of
some abrupt seasonal fluctuations.
Technology and Manufacturing Policy
The manufacturing cycle (or the inventory conversion cycle) comprises of the purchase and
use of raw material the production of finished goods. Longer the manufacturing cycle,
larger will be the firm working capital requirements. For example, the manufacturingcycle in the case of a boiler, depending on its size, may range between six to twenty- four
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months. On the other hand, the manufacturing cycle of products such as detergent
powder, soaps, chocolate etc. may be a few hours.
An extended manufacturing time span means a larger tie- up of funds in inventories.
Thus, if there are alternative technologies of manufacturing a product, the technological
process with the shortest manufacturing cycle may be chosen. Once a manufacturing
technology has been selected, it should be ensured that manufacturing cycle is completed
within the specified period. This needs proper planning and coordination at all levels of
activity. Any delay in manufacturing process will results in accumulation of work- in-
process and waste of time. In order to minimize their investment in working capital, some
firms, especially firm Manufacturing industrial products have a policy of asking for
advance payment from their customers. Non-manufacturing firms, service and financial
enterprises do not have a manufacturing cycle.
A strategy of constant production may be maintained in order to resolve the working
capital problems arising due to seasonal changes in the demand for the firm product. A
steady production policy will cause inventories to accumulate during the off- reason periods
and the firm will be exposed to greater inventory costs and risks. Thus, if costs and risks
of maintaining a constant production policy, varying its production utilized for manufacturing
varied products, can have the advantage of diversified Activities and solve their working
capital problems. They will manufacture the original product line during its increasing
demand and when it has an off- season, other products may be manufactured to utilize
physical resources and working force. Thus, production policies will differ from firm to firm,
depending on the circumstances of individual firm.
Credit Policy
The credit policy of the firm affects the working capital by influencing the level of debtors.
The credit terms to be granted to customers may depend upon the norms of the industry to
which the firm belongs. But a firm has the flexibility of shaping its credit policy within the
constraint of industry norms and practices. The firm should be discretion in granting credit
terms to its customers. Depending upon the individual case, different terms may be given
to different customers. A liberal credit policy, without rating the credit-worthiness ofcustomers, will be detrimental to the firm and will create a problem of collections. A high
collection period will mean tie- up of large funds in book debts. Slack collection procedures
can increase the chance of bad debts.
In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a
rationalized credit policy based on the credit standing of customers and periodically review
the creditworthiness of the exiting customers.
The case of delayed payments should be thoroughly investigated.
Availability of Credit
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The working capital requirements of a firm are also affected by credit terms granted by
its 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 condition will operate with
less working capital than a firm without such a facility.
Operating Efficiency
The operating efficiency of the firm relates to the optimum utilization of resources at
minimum costs. The firm will be effectively contributing in keeping the working capital
investment at a lower level if it is efficient in mcontrolling operating costs and utilizing
current assets. The use of working capital is improved and pace of cash conversion cycle is
accelerated with operating efficiency. Better utilization of resources improves profitability
and, thus, helps in releasing the pressure on working capital. Although it,may not be possiblefor a firm to control prices of materials or wages of labour, it can certainly ensure efficiency
and effective use of its materials, labour and other resources.
Price Level Changes
The increasing shifts in price level make functions of financial manager difficult.
He should anticipate the effect of price level changes on working capital requirement of
the firm. Generally, rising price levels will require a firm to maintain higher amount of
working capital. Same levels of current as sets will need increased investment when priceare increasing. However, companies which can immediately revise their product price levels
will not face a server working capital problem. Further, effects of increasing general price
level will be felt differently by firm as individual price may move differently. It is
possible that some companies may not be affected by rising price will be different for
companies. Some will face no working capital problem, while working capital problems of
other may be aggravated.
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REQUIREMENTS OF FUNDS
Funds Requirements of company
Fixed Capital Working Capital
Preliminary Expenses Raw Material
Purchase of Fixed Assets Inventories
Establishment work exp Goods in Process
Fixed working capital Others
Every company requires funds for investing in two types of capital i.e. fixed capital, which
requires long-term funds, and working capital, which requires short-term funds.
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SOURCES OF WORKING CAPITAL
Long-term source Short-term source(Fixed working capital) (Temporary working capital)
a) Loan from financial institution a) Factoring
b) Floating of Debentures b) Bill discounting
c) Accepting public deposits c) Bank overdraft
d) Issue of shares d) Trade credit
e) Cash credit
d) Commercial paper
Sources of additional working capital include the following:
Existing cash reserves Profits (when you secure it as cash)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit
Term loans
If you have insufficient working capital and try to increase sales, you can easily over-stretch
the financial resources of the business. This is called overtrading. Early warning signsinclude:
Pressure on existing cash
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Exceptional cash generating activities e.g. offering high discounts for early
cash payment
Bank overdraft exceeds authorized limit
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay wages,
pending receipt of a cheque).
LONG TERM SOURCES
ISSUE OF SHARES
Ordinary shares are also known as equity shares and they are the most common form of share
in the UK. An ordinary share gives the right to its owner to share in the profits of the
company (dividends) and to vote at general meetings of the company.
Since the profits of companies can vary wildly from year to year, so can the dividends paid to
ordinary shareholders. In bad years, dividends may be nothing whereas in good years theymay be substantial.
The nominal value of a share is the issue value of the share - it is the valuewritten on the
share certificate that all shareholders will be given by the company in which they own shares.
The market value of a share is the amount at which a share is being sold on the stock
exchange and may be radically different from the nominal value. Wh
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