Micro Finish

DECLARATION

I, Gopalkrishna.R.hunagund of MBA 2nd Semester studying at INSTITUTE OF

EXCELLENCE In MANAGEMENT SCIENCE HUBLI .Hereby declares that this project

titled “WORKING CAPITAL MANAGEMENT AT FLOWSERVE

MICROFINISH VALVES PVT. LTD” has been prepared by me in the partial

fulfillment of the award of MASTER OF BUSINESS ADMINISTRATION under Karnataka

University during session June – August 2009.

I further declare that this project has not been submitted earlier in any other university

or institution for the award of any degree or diploma.

PLACE: HUBLI

GOPALKRISHNA.R.HUNAGUND

DATE: MBA II SEMESER

INSTITUTE OF EXCELLENCE IN MANAGEMENT SCIENCE HUBLI Page 1

ACKNOWLEDGEMENT

With immense gratitude, I acknowledge my sincere thanks to all those whose guidance made

my efforts to a success. First of all I would like thank my project guide Mr. NISHANTA

R.LALKA for providing me a base to start off with my dissertation work. I sincerely thank

our director Prof. Prashant. C for giving me the opportunity to carry out this dissertation. I

thank them for being a constant source of inspiration and encouragement.

I would also thank my friends for providing me continuous support and encouragement to go

about completing my project successfully.

Finally, I thank my parents, if not for whom this would not possible.

GOPALKRISHNA.R.HUNAGUND


CONTENTS

S.No Subject Matter Page No

1. Executive Summary 4

PART I ORGANISATION OVERVIEW

2. Introduction 6

3. Vision & Mission, Product Profile 11

4. Company at glance 13

5. Work Flow 14

6 Organization Chart 15

7.a Sales and Shipping Dept. 16

7.b Planning & Purchase Dept. 18

7.c Quality Assurance Dept. 21

7.d Production & Assembly Dept. 23

7.e Administration and Account Dept. 25

8 SWOT Analysis 28

PART II THEOROTICAL FRAMEWORK1 Introduction to finance 30

2 Introduction to working Capital 31

3 Definition & concept of WC 33

4 Importance of WC 35

5 Factors influencing WC 39

6 Analysis and Interpretation 40

7 Inventory Management 45

PART III1 Findings 62

2 Suggestion 63

3 Conclusion 64


Bibliography 65

EXECUTIVE SUMMARY

Flowserve Microfinish company, Hubli is a private Ltd company in the joint venture of

flowserve corporation, USA. The company incorporated on 19-4-1996 and commenced

commercial operation during year 1-6-1998. the company is started for manufacturing of

Valves and Pumps.

The various information regarding the project entitled “WORKING CAPITAL

MANAGEMENT”. Classification determinants, components sources, arrangement

operating cycle has been discussed and aspects relating to the prospective of Flowserve

Microfinish Valves Pvt Ltd. (FMVPL).

TITLE OF THE PAGE : “WORKING CAPITAL MANAGEMENT”. IN

FLOWSERVE.

OBJECTIVES: To know how Working Capital is managed at FMVPL.

To evaluate the Working Capital at FMVPL.

To compare the performance of Working Capital using Ratio Analysis taking five

years data.

RESEARCH METHODOLOGY:

Primary Sources:Primary data are the data gathered at first hand. It is collected by direct interviews and discussing the subject matter with the management, staff employees and Academicians were also contacted to understand the subject.

Secondary Data:


These are the data that have been complied or derived from original sources. The secondary data was collected from book records maintained by administration department, published books and also collected from the trading and Profit & loss a/c and Balance sheet of 5 years of Flowserve Microfinish.FINDINGS:

It can be seen that Net working Capital has increased consistently in the last 4 years.

The net working capital was increased by 15.7% from 2005 to 2006 at Rs. 11, 28,

39,161 and by 17.6% from 2006 to 2007 at Rs. 13, 28, 03,776.

The current ratio is increasing and decreasing yearly. 3.019 in the year 2005, 3.844

in the year 2006 and 6.666 in the year 2007, and in 2008 it has decreased.

SUGGESTIONS: The study has revealed that the current ratio is above the standard of 2:1 ratio.

It is, therefore, suggested that the FMVL should endeavor its efforts in

maintaining its working capital base and succeed in meeting out its current

liabilities.

The study has revealed that the current ratio is above the standard of 2:1 ratio.



liabilities.

LIMITATION OF THE STUDY:

CONCLUSION: FMVPL meet the growing aspiration of customer in the competitive environment by

delivering quality service and to achieve total customer satisfaction. FMVPL has crossed

several milestones and is improving its performance year after year. It has received many

awards for excellent performance.


INTRODUCTION Flowserve Microfinish is one of the 100% EOU(Export Oriented Unit) in the city

of Hubli. The Flowserve Microfinish group of companies consist of two units namely

Flowserve Microfinish Vaves Pvt. Ltd. (FMVPL) and Flowserve Microfinish Pumps Pvt.

Ltd. (FMPPL).

Flowserve Microfinish Vaves Pvt. Ltd. (Here after referred to as the company)

was established in 1997 to manufacture Industrial valves, plug valves, and valve components.

The company is located in the Industrial Area, Hubli which is one of the Biggest Industrial

centers in the state of Karnataka, India. Hubli is situated midway between Poona and

Bangalore on the NH-4 Highway and is connected by Road, Rail, and Air. The companies

manufacturing unit has a 15,000 Sq.ft of built up area to house the facility.

The Company is catering the major needs of industries in the field of

petrochemicals, refineries, fertilizers, fine-chemicals, pharmaceuticals, food & beverages and

other general chemical industries.

FLOWSERVE PVT. LTD., USA: Flowserve Pvt. Ltd is a U.S.A company which was set up in early 1920.

Flowserve Pvt. Ltd. Produces engineered and process pumps, precision mechanical seals,

automated and manual quarter-turn valves, control valves and valve actuators, and provide a

range of related flow management services, primarily for the process industries. Flowserve

engineers products and provides services to meet the needs of the global flow management

industry. Flowserve serves the flow management industry worldwide. More than 40& of the

company’s 2006 sales of $3 billion were outside the United States.

Flowserve Pvt. Ltd is having its business more than 30 countries o name few are

Canada, Belgium, Australia, India, Argentina, Mexico, Germany, etc. Flowserve Pvt. Ltd of

U.S.A. found a Indian market for its expanding its business and came to India by the way of

joint venture. The Indian Flowserve Microfinish Pvt. Ltd of USA. The joint venture is one of


the form of technical collaboration which is now a days a one kind mode of entering a

foreign market. The one such we find here is Flowserve Microfinish Pvt. Ltd.

FLOWSERVE MICROFINISH PVT.LTD

Micro finish was setup in the year 1978. The micro finish is manufacturing a industrial

pumps and valves. Micro finish is known for its quality product and has got certificate of ISO

9002. in 1998 Flowserve Pvt .Ltd of USA came to India by entering into a joint venture

with a Micro finish of Hubli. As Micro finish is known for its quality product world wide, the

Flowserve Corporation made a technical collaboration with the Micro finish valves.

Flowserve Pvt. Ltd. Came to India and gave technical and management training to the

employees of the Micro finish in the year 1996 and commercialized its business in the year

1998. The training they give was of high standard and then later Micro finish of Hubli was

able to produce spare parts of high quality. When Flowserve Pvt.Ltd inspected the spare parts

which came out to be more than their expectation. Later Micro finish started its separate

100% exporting unit and came to be known as a Flowserve Micro finish Pvt. Ltd. Hubli.

Now the Flowserve Micro finish Pvt. ltd. exports to more than 15 countries to name a few,

1. USA 5. SOUTH AFRICA 9. AUSTRALIA

2. U.K 6. TIWAN 10. HONGKONG

3. GERMANY 7. BELGIUM 11. KORIA

4. BRAZIL 8. MEXICO 12. SINGAPORE


INDUSTRY OVERVIEW Heavy Engineering Industry is one of the largest segments of Industrial production. It

occupies a whole range of industries such as Heavy Electricity Machinery. Turbines,

Generators, transforms, Switchgears, Textile Machinery etc. the Index of Industrial

Production figures of 8 of the 16 major industry groups show substantial growth with the

rates ranging from 6% to 28%.

Thought there was some signs of recovery in the quarter of 2002-2003 the stimuli seems to

have dissipated quickly. The problem with cotton textile sector has also continued to perform

badly in the last two years. The only positive development is the measures announced for

the textile industry in the recent budget.

Trends across major sectors show that growth in the two lead sectors-capital goods and

consumer non-durable goods have decelerated but still remain at the double-digit levels. This

has, however, been compensated by the strong recovery in the intermediate goods segment.

A major concern is the lackluster performance of the consumer durable goods segment over

the last year with production declining for the first time since themed-iineties.

VALVES AND PUMPS INDUSTRY:A valve is a device that regulates the flow of fluids (either gases, fluidized solids, slurries or

liquids) by opening, closing, or partially obstructing, various passageways. Valves are used

in a variety of application including industrial, military, commercial, residential,

transportation, etc.

They are mainly used in safety purposes in Steam engines and domestic heating or cooking

appliances. Others are used in a controlled way in Otto cycle engines driven by a camshaft,

and they have a major part in engine cycle control.


A Pump is a device that manages the needs of fluids(either gases, fluidized solids, slurries or

liquids) by pumping. Pumps are used in a variety of applications including industrial,

military, commercial, residential, transportation etc.

Process Control is the application of automatic control theories and hardware to operations

found in process industries. These industries handle three types of materials-fluids, bulk

solids and sheeted and welded materials. The most important variables measured and

controlled in the process industries include temperature, pressure, vaccum, flow, liquid level,

bulk solid level, density, vibration,ctyrical parameters, specific gravity and chemical

composition including pH, oxidation-reduction potential and many forms of

spectrometry and spectrophotometer.

GROWTH & DEVELOPMENT OF THE INDUSTRY The domain of primary sensing elements comprises of measurements of flow level,

temperature, pressure, vibration, electrical parameters and analyzers. Development in flow

elements is targeted towards reducing pressure loss and increasing accuracy.

The demand for the valve business is going to increase by 30-40% and pump

business would increase proportionately.

Pumps and Valve Manufacturing Industry in India is growing at the rate of 10-20%

per annum. 500 large, medium and small-scale manufactures in India manufacture

approximately 6,000 pumps and 20,000 valves per day in India.

All core sectors of industry namely power, oil, gas, water and infrastructure projects,

metal and mining, chemical, drugs, pharmaceuticals , food and beverages require

various types of pumps & valves and each of these industries are going at a exorbitant

rate today in India.


FUTURE OF THE INDUSTRY Valves and Pumps are tremendous growth opportunity in the areas of chemical

and process industries, Refineries, Petrochemical, Fertilizer plants, pharmaceuticals, oil

exploration, Thermal and Nuclear plants, Food and Beverage industries Efflunt

Treatment & Sewage plants, Water treatment, Cooling Water & Water Supply plants,

mining industries etc.

SHAREHOLDING PATTERN:

SHAREHOLDERS % OF

HOLDING

NUMBER OF

EQUITY

SHARES

EQUTY

CAPITAL(RS)

FLOWSERVE

(MAURITIUS)

CORPORATION,USA

76% 265200 26524000.00

MICROFINISH

VALVES LTD,

HUBLI, INDIA

24% 837600 8376000.00

TOTAL 100% 3490000 34900000.00

VISION: Vision is to manufacture quality valve products for the process industry worldwide.

We embrace the concept of total quality and people involvement to enhance “TOTAL

QUALITY SATISFACTION” and commit to maintain this standard of excellent

through continual improve and use of quality management systems.


MISSION: Mission is to manufacture quality valve products for the process industry worldwide.

We embrace the concept of total quality and people involvement to enhance “TOTAL

CUSTOMER SATISFACTION” and commit to maintain this standard of excellent

through continual improve and use of quality management systems.

PRODUCT PROFILE:

VALVES: By definition, valves are mechanical devices specifically designed to direct, stop, mix

or regulate the flow, pressure or temperature of a process fluid. Valves can be designed to

handle either liquid or gas application.

By nature of there design, function and application, valves come in a wide variety of

styles, sizes and pressure and class.

BASIC FUNCTION OF VALVES: Starting and stopping flow.

Regulating flow volume(frequently called throttling).

Preventing reserve flow (called anti-back down).

Changing flow direction.

Limiting fluid pressure.

The application of valves is done in every imaginable field. There are ranges of

valves we encounter in our everyday life; from the valves inside our body such as the

heart valve to the valves inside the automobiles we drive, to the water faucet we turn


ON and OFF. It is hard to realize how many there are and how we come to depend on

them.

SL.NO PRODUCT SIZE MAX Pr

RATING

MATERAL

OF C

1 Ball Valve 15-200 #300 CS/SS

15-50 #800 CS/SS

2 Plug Valve 15-300 #150 CS/SS

15-300 #300 CS/SS

HISTORY AND INSPECTION OF THE COMPANY As mentioned earlier, Flowserve Microfinish (FMVPL & FMPPL) was established in

the year 1997 to manufacture Valve viz Ball valve and Plug valves and Industrial Pumps viz

ISO pumps and ANSI pumps. The company is formed as a result of joint venture between

Microfinish and Flowserve Corporation USA, with Flowserve as a major shareholder.

Valves and Pumps manufacturing units have 15,000 Sq. feet and 10,000 of built up

area to house the facilities respectively. Both the divisions have a open space of 10,000 and

13,000 Sq. feet respectively for further expansion, in addition to the two units have excellent

machining testing facilities consisting CNC’s Centre Lather, Milling, Drilling, Grinding

machines SPM’s etc. supported by adequate gauging measuring instruments. Dedicated staff

and workers strive to ensure that the company’s quality objectives are achieved.

The company is having a documented Quality system to meet the requirements of ISO

9001-2001 to ensure that its orders processed, products manufactured meet the requirements

of the customer. Further the company is also certified for CE-marking.

ACHIEVEMENTS:


The company is an ISO 9000-2001 recognition.

The company is also certified for CE-marking.

As per the Safety Related Audit conducted by Flowserve USA, the company is

certified as the “Safety Entity” scoring 99%, beating even the Singapore and

Bangalore units.

It has also bagged the “Best Garden” award ensuring to get even the “Best Flower”

award.

FLOWSERVE MICROFINISH GROUP OF COMPANIES PVT .LTD.,

AT GLANCEName and Address of the industry Flowserve Microfinish Group of companies

Pvt. Ltd 568/1, Industrial Area, Gokul Road,

HUBLI-580030 India

Status of Organization Private Limited (100%EOU)

Certificates ISO 9001, ISO 2000and PED97/23/EC

Date of Registration 19th April 1996

Date of Commencement 1st June 1998

Availability of communication facility Telephone ,FAX, Internet, Printer, Hard copy,

P .O

Cost of Project (initial investment) 3 Crores

Exporting Capacity 20000 Valves

Turn over Per Year 20 Crores

Applicable Act 1) Factory Act

2) Provident Fund

3) ESI(Employee Status Insurance

4) Bonus Act

5) Payment of Gratuity

6) Product Processing Order

Bank 1)Canara Bank

2)Bank of India

Email [email protected]


mailto:[email protected]

[email protected]

Factory Area 3 ½ Acres, Built up area: 15000 Sq. feet

Manpower 76

Branches Pumps Pvt. Ltd., and Valves Pvt. Ltd.,


mailto:[email protected]

WORK FLOW


ORGANIZATION CHART


BOARD OFDIRECTOR

MANAGING DIRECTOR

ADMINISTRATIONAND ACCOUNTS

PLANNINGAND PURCHASE

PRODUCTIONAND ASSEMBLY

PRASHANT V

QUALITYASSURANCE

ARAVIND A. NATEKAR

PERSONAL OFFICER

ASSISTANTACCOUNTANT

SALES AND SHIPPING OFFICER

PLANNING AND PURCHASE ASST

STORE OFFICER ISHIVASHANKAR T

STORE OFFICER II

LOCALPURCHASER

.

SHIFT IINCHARGE

SHIFT IIINCHARGE

MAINTAINANCE

INCHARGENARAYAN PAI

ASSEMBLYSUPERVISOR

KUMAR KATKAR

RECEIVING QUALITY ENG.MANOJ N.

INPROCESS QUALITY ENG

FINAL PRODUCT ENGINEER

M. M. ROOGI

DEVELOPMENT

ENGINEERMAHESH CHILLAL

SALES & SHIPPING DEPARTMENT

I. RESPONSIBILITIES 1. HEAD OF THE DEPARTMENT

2. SALES ENGINEER

3. SHIPPING OFFICER

PROCEDURE 1. sales and shipping officer will study the packing slip through with respect to W.O.

2. Size of the box will be decided the S & SO depending on the quantity

3. S & SO will collect the Vale remember from Q.A. dept. against packing slip.

II STYLE: The style of management in the organization is very much similar to TOP

DOWN MANAGEMENT. The Director from USA who is at the top most

level takes strategic decisions and is passed on to the Managing Director of

HUBLI of the respective company.

Short term decisions are decentralized in FMVPL and Microfinish Valves Pvt.

Ltd., as the number of employees is more and it would be impractical for the

MD to take regular decisions.

II. STRATEGY To establish themselves as a global company with strong technology

capacities FMVPL, has laid increased emphasis on devising its business strategy on

aggressive top line growth, increased optional efficiencies and CPI programme to

improve the productivity. The company emphasizes on two key elements that form the

cornerstone of the company’s strategy:

Developing a global product strategy.

Creating an integrated organization with world class quality valve to produce

and full service supply capability.


V. STAFF: Number and types of personnel within the organization.

Number of employees: Above 70.

The company considers the employees as one of the major resource. The skills

of the employees are constantly improved through various training

programmes.

The company organizes regular Departmental meetings, MR meetings with

the members wherein the suggestions and feedbacks of the memers are

discussed.

VI. SHARED VALUE: Guiding concepts, fundamental ideas around which a business is built- it is

generally simply, usually stated at abstract level, have great meaning inside the

organization even though may not see or understand them.

VII. SKILL: Skills refer to the fact that an employee has the skills needed to carry out the

company’s strategy. Training and Development- ensuring people to know how to do their

jobs and stay up to date with the latest techniques.


PLANNING AND PURCHASE DEPARTMENT

PLANNING: Planning is the backbone of any organization depends on how well things are

planned. It is a process of chalking out the patch for attaining the ultimate purpose of

business undertakings. It is done for the usage of resources to meet the delivery commitment.

TYPES OF PLAN:TENTATIVE PLAN: It is a plan for a particular which is drawn five weeks prior to a month.

FINAL PLAN: It is a plan which is issued one week earlier to the particular month. It can be

modified, if required on the basis of information from other departments.

For usage of resources to meet the delivery commitments. Applicable to all work orders

and related activity of departments with respect to monthly manufacturing plan.

1. Planning & Purchase in charge is responsible for drawing tentative and final

“Monthly manufacturing plan” through planning assistant.

2. Production & Assembly in charge is responsible for modifying to meet urgent

customer requirements.

3. Plan is drawn to approximate 90% of capacity and 10% of capacity is reserved to

meet urgent amendments.


Planning& purchase

department

Sales& shipping officer

Planning Store Officer I

Store Officer II

Local purchase

4. Tentative plan is modified or amended if required on the basis o feedback information

from other departments.

5. Final plan is issued one month earlier to the particular month.

6. Final plan is amended, if required on the basis of feedback from Production &

Assembly department.

7. Valves which are planned to be manufactured in a particular month but could not be

manufactured are re-planned in consultation with P&A Department.

8. Cause of not meeting the plan is discussed with P&A Department.

PURCHASING DEPARTMENT:

OBJECTIVES: To ensure that all the purchase/processed items and services to meet the specified

requirements.

SCOPE: Applicable to all raw materials but bought out items, sub contracted items,

capital goods, consumable and services to be produced.

DEFINITIONS:

SUBCONTRACTOR: He is one who carries out processing on material or components supplied by

FMVPL.

VENDOR: He is one who supplies some specific components.

SUPPLIER: All vendors and subcontractors are considered as supplier.

RESPONSIBILITIES:1. P & P in charge is responsible for approval of supplier.

2. P & P in charge is responsible for approval of purchase order.

3. Planning assistant in co-ordination with quality assurance department is responsible

for evaluation of supplier and submit the report to P & P in charge for review and

approval.

On receipt of samples, planning assistant will arrange for inspection by QA department.


All the approved suppliers will be re-evaluated once in three years to know

there present capability for continuing purchasing/processing of material with

them. The process of re-evaluation will be completed within three months

Approved suppliers with whom purchasing is not done for more than 2 years

from his last supply, are deleted from the list of approved supplier and are

informed to supplier accordingly.

Records of approved supplier are maintained by Planning Assistant.


QUALITY ASSURANCE DEPARTMENT

QUALITY: Quality refers to the degree of perfection as perceived by the user of a product. At

Flowserve Microfinish, the objective of the Quality Assurance Department is to maintain

a consistent appraisal of the quality of the product at all the stages of manufacturing till

the product is dispatched.

FUNTIONS OF QUALITY ASSRENCE DEPARMENT Incoming material Inspection (receiving)

In-process Inspection

Final Inspection

1. Incoming Material Inspection:

All materials are coming from outside such as castings, bars, and bought

items-nuts, bolts and subcontractor items are inspected as per the drawings

or according to the applicable work instructions.

Receiving Quality Engineer is responsible to ensure that the quality of

incoming components/ raw materials/products in accordance with the

established methods and the quality of all accepted items are confirming to

the specified requirements.

2. In process Inspection:

Components taken for further process are also inspected. Machines that

are used in the manufacturing process are also inspected periodically.

In process Quality Engineer is responsible to ensure that the in process

components /raw material/products is in accordance with the

established methods and quality of all accepted items are confirming to

the specified requirements.


3. Final Inspection:

This inspection is mainly to check if any of the lapses that may have

occurred in the above stages.

Final Product Engineer is responsible to ensure that the products are in

accordance with the established methods and the quality of all the

accepted items is confirming to the specified requirements.

Inspection color codes used by the Q.A Department

Green: Confirming

Black: Accepted On Deviation

Yellow: Re-work

Red: Reject

Dark Blue Hold


PRODUCTION AND ASSEMBLY DEPARTENT


Production & Assembly

Shift I Maintenance Assembly Shift II

Machine Operation

MaintenanceAssistance

Filters Machine Operation

Helpers Helpers

PRODUCTION: The production Department ensures that production process is identified,

planned and carried out under controlled conditions in accordance with monthly

manufacturing plan. The objective of this department is to improve the productivity, to

reduce the cost of production without any compromise on quality and to manufacture non

defective quality products by training the people.

OBJECTIVES:1. Productivity improvement.

2. To reduce the cost without compromise on quality.

3. To manufacture “non defective product “by training the people.

PRODUCTON PROCESS:

The production process is carried out in the following 3 steps

1. Control of customers supplied product.

2. Process control.

3. Production planning and process.

1. Control of customers supplied product: It is the responsibility of the cell in charge or production planning assistance to

collect the customers supplied product from the store for incorporation into the Valve

product. He collects these products from stores against every requisition while ensuring

that the product has been issued for the particular work order for which it is meant.

2. Process control:


The production dept. ensures that the manufacturing process s carried out in

accordance with monthly manufacturing plan, provided planning. The production dept.

heads plans the production operation.

Necessary documents are prepared by the cell in charge for the production

process which affects the quality. The dept. head will ensure the suitable maintenance of

equipment for continuous process capability. Equipments are verified as capable of

production in accordance with product specification.

The production and process characteristics are mentioned in the consultation with

Q.A dept. any non conformity products/ components are duly identified and disposed off.

Any special/ extra services to the products are complied with as against the customer

demand.

3. Production planning and process: Upon the receipt or the work order copy, bill of material, monthly manufacturing

plan etc, the dept. head instruct the production planning personnel to define the material

availability with reference to bill of material.

ADMINISTRATION AND ACCOUNTS DEPARTMENT


FUNCTIONS OF ADMINISTRATION DEPARTMENT (H.R)

Training

Recruitment

Safety

House Keeping

1. TRAINING Objective:

Is to provide the adequate training to the personnel of all departments performing activities

affecting quality.

Responsibility: Administration and Accounts (A & A) In-charge through personnel officer is overall

responsible to ensure that the training needs of personnel of all the departments are fulfilled.


Administration & Accounts

Personal Officer (Factory &

Personal Safety)

Account Assistant

Personnel officer is responsible for identifying the appropriate trainer in consultation with the

top management for arranging the training.

In charge of respective departments are responsible to appraise and to forward the training

requirements of their department personnel to personnel officer.

Training is given for employees one’s or twice in a month depending on the need. In training

the following aspects are covered:

Product Application, Basic Computer Knowledge, Instrument Knowledge, Industrial Safety

and First Aid, Statistical Quality Control, ISO Awareness (9001:2000), Leadership Quality,

Manpower Handling, Commercial Acumen, Communication Skills, Identification and

Traceability, Material Handling.

2. RECRUITMENT

Personnel Officer is responsible for recruiting the right person for the right job. He

takes into consideration the knowledge, skill and work experience of the person.

3. SAFETY

Objective: To ensure safe and healthy environment for personnel

Responsibility: Administration and Accounts in charge through personnel officer is responsible for safety

related activities.

Procedure:Safety committee meeting is conducted every quarter. Safety related training for staff and

workers is conducted once in two months such as Fire Extinguisher, Chemical Hazardous,

Personal Hygiene etc and first-aid facility is also provided for workers.Safety round-up is carried out by the personnel officer accompanied by H.O.D and two

workmen\staff of different department.


4. HOUSE KEEPING

Objective: To ensure good, healthy, clean, neat and safe work environment.

Responsibility:While the activities are co-ordinate by the personnel officer, each and every individual in the

organization is responsible for the implementation.

Procedure:For effective implementation of the system, the entire premises of the company are divided

into sub-zones as Production and Assembly division, Quality Assurance division,

Administration and Accounts division etc. Each sub-zone is headed by a team leader and

supported by co-ordinates, supervisory staff and workers.

SWOT ANALYSIS OF THE COMPANY

STRENGTHS:

The company has excellent network, which provide good quality product with

minimum time

ISO standard helps to marketing in International Level.

The good HR system is their like - Motivation, Training, to new employee etc.


Feed-back information is provided to all employees.

Benefits provided by government to 100% EOU Unit.

The company has unity of team work, good salary to workers.

Regular medical checkup & help to employees.

They are exempted from tax for the 10 years.

WEAKNESSES:

It is not having a separate marketing dept.

No direct exporting.

No international recognition by its own name

OPPORTUNITIES:

Potential market for spare parts is growing high.

Export order received is greater than what they are able to produce, so opportunity to

increase production capacity for which ready market is available.

Whatever is produced is exported.

Opportunity to enter plug valve market.

International Customers shows more interest to buy Flowserve Microfinish products.

Company has an out bond logistic management

THREATS:

No threat in the sense, no competitors for it because it is not a independent firm but has got

JV with Flow serve USA. So threat may be any action of Flow serve USA on Micro finish

like taking back shares invested in Micro finish or can stop giving export order to Flow serve

Micro finish.


INTRODUCTION TO FINANCE It would be worthwhile to recall what Henry ford once remarked “Money is an

arm or a leg: you either can use it or lose it”. This statement throws light on the

significance of money or finance. A building concern may need a small amount of money

and yet it may be difficult for it to commence business simply because it is not in the

position to get required funds. A firm’s success and survival mainly depends upon its

ability to generate sufficient funds when need arises. Finance holds the key to all the


activities. The rule of finance manager, that is, the one who is in charge of the finance

function, is difficult because he has to play that role and relate it to the role of other

managers.

Finance management is mainly concerned with maximizing the company’s net

worth. Finance management helps in monitoring the effective development of funds in

fixed assets and in day to day cash management.

The project studying Working Capital Management procedure of Flowserve

Microfinish Pvt. Ltd is of major importance to the external and internal analysis due to its

close relationship with the day-to-day operations of the business.

INTRODUCTION TO WORKING CAPITAL Empirical observation shows that the financial managers have to spend much of

their time to the daily internal operations relating to current assets and current liabilities

of the firms. As the largest portion of the manager’s time is devoted to working problems,

it is necessary to manage working in the best possible way to get maximum benefit. The

effective management of the business, among other things primarily depends upon the

manner in which the short-term asset short run sources of financing are managed. The


management or current asset management consists of inventories, accounts receivables,

cash & bank balances as the major components. There is a difference between current

asset and fixed assets in terms of their liquidity. A firm requires many years to recover

the initial investment in fixed asset such as plant and machinery and land and buildings.

On the contrary, investments in current assets are turned over many times a year.

Investments in current assets such as inventories and book debts are realized during the

firm’s working capital cycle, which is usually less than a year. Working capital is that

proportion of a company’s total capital, which is employed in short term operations.

Even though, it is one of segment of the capital structure of a business, it

constitutes an inter-wove part of the total integrated business system. Therefore, neither it an

be regarded as an independent entity, nor, can the working capital decisions be taken in

isolation. Thus, a study in this field is of major importance to both internal and external

analysis, for its close relationship with the day-to-day operations of a business.

There are many aspects of working capital management, which from an important

function of a financial manager:-

Working management represents a large portion of the firm’s investment in asset.

Working management has grater significance not only for small firms but also for

large firms.

The need for working capital is directly related to sales growth.

Most of the work dealing with working capital management in confined to the

balance sheet, which is directed towards optimizing the levels of cash and marketable

securities, receivable and inventories. For the most part, optimization of these current asses is

isolated from the optimization of the other current assets or the overall valuation of the firm.

The decision concerning cash and resources, receivable, investment and current

liabilities is with an objective of maximizing the overall value of the firm. Once decisions are

reached these areas, the level of working capital is also reduced.

An appropriate level of working capital is to be maintained as the excessive

working capital interrupts to the smooth flow of the business activity and curbs profitability.


Also, there are a lot of circumstances where shortage of working capital has proved to be the

major factor for business failure. Operating plans are out of control and the corporate

objectives get blurred. The suppliers and the creditors give the firm an adverse credit rating

and tighten up credit terms.

The problem of working capital has got a separate entity as against different

decision-making issues concerning current assets individually. Working capital has to be

regarded as one of the conditioning factors in the long run operations of a firm, which is

often inclined to treat it as an issue of short-run analysis and decision-making.

The management of working capital hence involves constant vigilance to ensure

that the right quantum is available on a continuing base to support and promote the activities.

Sound financial and statistical techniques, supported by judgment should be used to predict

the quantum of working capital needed at different time periods.

DEFINITIONS OF WORKING CAPITAL Working capital has been in several ways as given bellow,

Operating capital: - As the working capital is the capital required to operate the business

and is the capital invested in the current assets, it is called as operating capital

Circulating capital: - Interchanging used word for working is circulating capital.

Gerestenberg gas suggested this item ‘circulating capital’ as all the assets of business

change from one form to another.


CONCEPTS OF WORKING CAPITAL Conceptually, working capital is either explained as: Net working capital or

gross working capital. These concepts are not exclusive; rather they have equal

significance from management viewpoint. Gross working capital refers to the firm’s

investment in current assets. Net working capital refers to the difference between current

assets and current liabilities.

GROSS WORKING CAPITAL CONCEPTSIt is called as ‘qualitative’ aspect of working capital and focuses attention on two aspects

of current assets management:

1. Optimum investment in current asset:

It is conventional rule to maintain the level of current assets twice the level of

current liabilities to constitute a margin or buffer for maturing obligation of a business.

2. Financing of current asset:

Another of gross working capital points to the need of arranging funds to

finance current assets.

NET WORKING CAPITAL CONCEPT Net working capital can be positive or negative. A positive net working capital

will arise when current assets exceed current liabilities, a negative working capital mean

excess current liabilities over current assets. Net working capital being the difference

between current assets and current liabilities is ‘qualitative’ concept and hence it:-

1. Indicates the liquidity position of the firm:- A weak liquidity position poses a threat to

solvency of the company and makes it unsafe and unsound.


2. suggests the extent to which working capital needs may be financed by permanent

sources of funds:- i.e., it covers the question of judicious mix of long term and short

term funds for financing current assets. Thus, it may be emphasized that both gross

and net concepts of working capital are equally important for the efficient

management of working capital.

NEED FOR WORKING CAPITAL FINANCE The need for working capital finance is over –emphasized,. Every business needs

some amount of working capital. The need for working capital arises due to the time gap

between production and realization of cash from sales. There is an operating cycle

involved in the sales and realization of cash. There are time gaps between purchase of

raw materials & production & sales and realization of cash. Thus, working capital is

needed for the following purposes.

For the purpose of raw materials, components and spares.

To pay wage and salaries.

To incur day-to-day expenses and overhead costs such as fuel, power and office

expenses, etc.

To meet the selling costs as packing, advertising etc.

To provide credit facilities to the customer.

To maintain the inventories of raw materials, work in progress, stores

And spares and finished stock.

OPERATING CYCLE Operating cycle indicates the length of time between firm’s paying for materials

entering into stock and receiving cash from sale of finished good. In other words the

duration of required time to complete the sequence of events is called operating cycle.

The operating cycle may take the following sequence:

Conversion of cash into raw materials.

Conversion of raw materials into work in progress.


Conversion of work in progress into finished goods.

Conversion of finished goods into debtors.

The following figure shows the operating cycle of a manufacturing concern.

3. In a trading concern

Cash into inventories.

Inventories into debtors and bills receivables.

Debtors and bills receivables into cash.

The following figure shows the operating cycle of trading concern


Cash Raw materials

Work in progress

Finished goods

Amounts Receivables

TYPES OF WORKING CAPITALThe working capital is classified into two types. They are as follows

I. Permanent working capital

II. Temporary working capital

Permanent working capital:

Permanent or fixed working capital is the minimum amount, which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current

assets. This investment if of a permanent type and as the size of the firm expands the

requirement of working capital also increases.

Temporary working capital:

Temporary working capital is also called as the fluctuating or variable working capital,

which varies according to the problem and sales. It is the capital required in addition to

the working capital.

Net working capital:


Cash

Inventories

Amount Receivables

It the difference between current assets and current liabilities. It is the excess of current

assets over current liabilities. This concept enables a firm to determine the exact amount

available at its disposal for operational requirements.

Gross working capital:

It refers to the total current assets of the business it is also known as circulating

capital, because current assets are rotating in there nature.

Negative working capital:

Hen a current liability exceeds current assets, is called as negative working capital.

ADEQUECY OF WORKING CAPITAL A firm should maintain a sound working capital position. It should have adequacy of

working capita to run its business operation. Both excessive as well as inadequate

working capital position are dangerous from the firm point of view. Excessive working

capital means idle funds which earn profits for the firm.

INADEQUECY OF WORKING CAPITAL In adequate working capital stagnates the growth of the firm It becomes difficult for

the firm to undertake profitable projects for non availability of working capital. It

becomes difficult to achieve profit target deficit of working capital renders the firm

unable to avail, attractive credit opportunities. The firm losses its reputation when it is not

in a position to honor its short-term obligations.

NEED FOR MAINTENANCE OF ADEQUET WORKING CAPITAL An adequate or optimum working capital balance refers to the desired working

capital where a firm will not have excess of shortage of working capital and indicates

both profitability and liquidity for the firm. It is necessary to maintain an optimum cash

balance, an optimum level of inventory and an optimum level of debtors and receivable.

DANGERS OF INADEQUATE WORKING CAPITAL


The production process will be obstructed f there is shortage of working capital.

The fixed assets are not efficiently utilized if there is lot of working capital funds,

which leads to deterioration in profits.

The firm loses its reputation when it is not in a position to honor its short-term

obligations.

Ultimately it leads to the reduction in sale, as the fir can not meet the demand for

the customers.

EFFECTS OF INADEQUATE WORKING CAPITAL ON DECISION

MAKING:- Stagnates the growth of the firm.

Threatens the solvency of the firm.

Creates the difficulties in implementing the operating plans.

Renders the firm unable to avail the attractive credit opportunities.

DANGERS OF EXCESS WORKING CAPITAL It results in unnecessary accumulation of inventory in the form of raw material or

work in progress or finished goods, leading to high cost of storage, space, insurance,

increased theft, deterioration in the quality of goods, etc

Also, it is an indication of defective credit policy and slack collection period.

Excess cash in hand indicates idle cash and even though the liquidity position of the

company is good, it lacks profitability.

Excessive working capital makes the management complacent, which degenerates

into managerial inefficiency.

EFFECTS OF EXCESS WORKING CAPITAL ON DECISION

MAKING:-


Impairs firm’s profitability through idle cash.

Makes dividend policy liberal.

Creates difficulties to cope up with the future, on the failure of the estimated

speculative profits.

IMPORTANCE OF WORKING CAPITAL Even though the skills for maintaining the working capital are somewhat unique, the

goals are same- viz. to make an efficient use of funds for minimizing the risk of loss to attain

profit objectives.

Firstly, the adequate of working capital contributes a lot in raising the credit-standing of

corporation in terms of favorable rates of interest on bank loan, better terms on goods

purchased, reduced cost of production on account of the receipt of cash discounts etc.

Secondly, a company with sufficient working capital is always in a position to take the

advantage of favorable opportunity either to purchase raw materials to execute a special

order or to wait for better market position.

In the third place, the ability to meet all reasonable demand for cash without inordinate

delay is a great psychological factor to improve the all rounds efficiency of the business.

Lastly, during slump the demand for working capital, instead of coming down, shoots

up. A good amount of working capital is locked up in the inventories and book debts.

Concerns having ample resource can idle tide over that period of depression.

Thus, working capital is regarded as one of the conditioning factors in the long run

operations of the firm, which is often inclined to treat it as an issue of short run analysis and

decision making.

FACTORS IFLUENCING WORKING CAPITAL Nature of business


The working capital of a firm basically depends upon the nature of it’s business

public utility undertakings like electricity, water supply and railways need very little

working capital because they offer cash sales only offer cash sales only and supply

services, not products and such no funds are tied up in inventories and receivables.

The manufacturing under takings also require sizable working capital along with

fixed investments because the have also to build up inventories.

Size of business

The working capital of a concern is directly influenced by the size of its business,

which may be measured in terms of scale of operations. Greater the size of unite,

generally, larger will e the requirements of working capital. However in some cases,

even some smaller concern may need more working due to high overhead charges,

inefficient use of available resources and other economic disadvantage of small size.

Production capacity

In certain industries the demand is subject to wide fluctuation due to seasonal

variations. The requirements of working capital in such case depend on the

production policy.

Manufacturing process

In manufacturing business the requirements of working capital increase in direct

proportion to length of manufacturing process. Longer the process period of

manufacture, larger is the amount of working capital required.

Seasonal variations

In certain industries, raw material is not available through out the year, they have to

buy raw materials in bulk during the season to ensure an uninterrupted flow and

process them during entire year. A huge amount is , thus, blocked in the form of

material inventories during such season, which gives rise to more working capital

requirements.

Working capital cycle


In a manufacture concern, the working capital starts with the purchase of raw

materials and ends with the realization of cash from the sale of finished products. The

speed with which the working capital completes one cycle determines the

requirements of working capital. Longer the period of cycle, larger the requirement of

working capital.

Rate of stock turn over

There is a high degree of inverse correlation ship between the quantum of working

capital and the velocity or speed with which the sales are affected. A firm having as

high rate of stock turnover will need lower amount of working capital as compared to

a firm having a low rate of turnover.

Credit policy

The credit policy of a concern in its dealing with debtor and creditors influences

considerably the requirements of working capital. A concern that purchases its

requirements on credit sales its products or services on cash requires lesser amount of

working capital.

Business cycle

Business cycle refers to alternate expansion and contraction in general business

actively. In a period of boom i.e, when the business is prosperous there is a need for

larger amount of working capital due to increase in sales, rise in prices. Optimistic

expansion of business, etc. on the contrary, in the time of depression i.e., when there

is a down swing of cycle, the business contracts, sales decline, difficulties are faced in

collections, from debtors and firms may have a large amount of working capital lying

idle.

Rate of growth of expansion

The working capital requirements of a concern increase with the growth and

expansion of its business activities.

Earning capacity and dividend policy

Some firms have more earning capacity than other due to quality of there products,

monopoly conditions, etc. such firm with high earning capacity may generate high


cash profits from operations and contributes to there working capital. The dividend

policy of a concern also influences the requirement of its working capital.

Price level changes

Changes in the price level also affect the working capital requirements. Generally,

rising prices will require the firm to maintain larger amount of working capital, as

more funds will require maintaining the same current assets. The effect of rising

prices will be different for different firs. Some firms may be affected at all by the rise

in prices.

Other factors

Certain other factors such as operating efficiency, management ability, irregularities

of supply, import policy, asset structure, importance of labor, banking facilities, etc.,

also influence the requirements of working capital.

SOURCES OF WORKING CAPITALThe various sources of working capital for the financing of working capital are as follows:


Sources of working capital

Permanent or fixed Temporary or variable

Permanent or fixed

1. Shares

2. Public deposits

3. Ploughing back of profits

4. Loans from financial institutions

Temporary or variable

1. Commercial banks

2. Indigenous bank

3. Trade credits

4. Installment credit

5. Accounts receivables

The current assets and current liabilities of Flowserve Microfinish Valves Pvt. Ltd, Are given

below.

CURRENT ASSETS

INVENTORIESRaw materials and packing materials

Work in progress

Finished goods

Finished goods in transit

Packing material

Scrap

SUNDRY DEBTORS (unsecured considered goods)

Debts outstanding for a period exceeding 6 months

Others


CASH AND BALANCESCurrent account with scheduled banks

Current account with deutsche bank

Margin deposit account

Cash in hand

LOANS AND ADVANCES (unsecured considered goods)

Advances receivable in cash or kind

Deposits

CURRENT LIABILITES AND PROVISIONS

CURRENT LIABILITIESSundry creditors

Advance from customers

Liabilities for expenses

PROVISIONSFor taxation (net of advance income tax)

For gratuity

For leave encashment


DATA ANALYSIS AND INTERPRETATIONCURRENT ASSETS

PARTICULARS 2004(Rs) 2005(Rs) 2006(Rs) 2007(Rs)

INVENTORIESRaw material 2,60,09,565 4,54,78,814 3,72,38,420 4,20,89,550

Work in progress 43,63,012 14,22,530 1,73,12,656 2,15,08,412

Finished goods 1,62,22,600 80,08,893 61,56,882 65,18,475

Stores and spares 10,54,522 9,48,207 12,15,833 13,48,286

4,76,49,699 5,58,58,444 6,19,23,791 7,14,64,723

SUNDRY

DEBTORS(unsecured

considered goods)

Considered good 926 1,16,504

Considered doubtful

Others

Considered good 3,78,06,811 6,63,81,383 4,64,11,224 6,28,89,194

3,78,07,737 6,64,97,887 4,64,11,224 6,28,89,194

CASH & BANK

BALANCESCash on hand 59,478 12,930 1,57,107 75,299

Balances with

Scheduled Bank

Current account 17,40,132 10,34,087 46,90,275 8,46,357

Fixed deposit

account

1,70,04,440 1,71,07,790 1,74,17,436 1,97,06,778

Other bank balance 7,24,700 29,63,065 1,49,83,001 99,484


1,95,28,750 2,11,17,872 3,72,47,819 2,07,27,918

LOANS &

ADVANCESAdvance

recoverable in

cash/in kind/for

a valve to be

received

4,64,596 4,17,603 3,02,775 8,25,514

Due from group

companies

88,348 1,48,929 88,752

Balance with

excise &

customs

authorities

26,088 26,483 10,393 25,042

Advance tax 5,167 1,52,724 1,67,766 10,35,173

5,84,199 7,45,739 4,80,934 9,39,308

OTHER

CURRENT

ASSETSInterest accrued 4,25,214 11,97,182 17,77,232 4,74,718

Deposit with

Govt. depts. &

others

3,43,200 3,43,200 3,43,200 3,43,200

7,68,414 15,40,382 21,20,432 8,17,918

TOTAL

CURRENT

ASSETS(A)

10,63,38,799 14,57,60,324 15,25,04,200 15,62,38,781


CURRENT LIABITIES


LIABILITIESSundry creditors

Dues to SSI undertakings 64,47,109 1,44,13,642 40,31,972 48,56,436

Dues to others 46,70,074 1,01,75,637 98,38,069 1,11,18,009

Other liabilities 69,79,606 77,53,601 57,96,915 71,97,216

1,80,96,789 3,23,42,880 1,96,66,956 2,31,71,661

PROVSIONSProvision for leave

encashment

1,37,626 92,014 1,49,031 1,59,321

Provision for gratuity 90,959 70,967

Proposed dividend 1,39,60,000 1,39,60,000 1,74,50,000

Taxation on proposed

dividend

17,88,625 18,24,398 23,49,468

1,59,77,210 1,58,76,412 1,99,48,499 2,30,288

MISCELLANEOUS

EXPENDITUREPreliminary expenses 66,112 49,584 49,584 33,056

66,112 49,584 49,584 33,056

TOTAL CURRENT

LIABILITIES(B)

3,41,40,111 4,82,68,876 3,96,65,039 2,34,35,005


NET WORKING CAPITAL


TOTAL

CURRENT

ASSETS(A)

14,57,60,324 15,25,04,200 15,62,38,781 22,09,66,183

TOTAL

CURRENT

LIABILITIES(B

)

4,82,68,876 3,96,65,039 2,34,35,005 7,50,97,943

NET WORKING

CAPITAL(A-B)

9,74,91,448 11,28,39,161 13,28,03,776 14,58,68,240


STATEMENT OF CHANGES IN WORKING CAPITALA. Current Assets 2005(Rs) 2006(Rs) Increase Decrease

(a) Inventories 5.58,58,444 6,02,70,775 44,12,331

(b) Sundry Debtors 6,64,97,887 4,64,11,224 2,00,86,663

(c) Cash and Bank

Balance

2,11,17,872 3,72,47,819 1,61,29,947

(d) Other Current Assets 15,40,382 21,20,432 5,80,050

(e) Loans and advances 7,45,739 4,80,934 2,64,805

Total Current Assets 14,57,60,324 14,65,31,184 2,11,22,328 2,03,51,468

B.(a) Current Liabilities 3,23,42,880 1,96,66,956 1,26,75,924

(b) Provisions 1,58,76,412 1,99,53,410 40,76,998

Total Current Liabilities 4,82,19,292

3,96,20,366

1,26,75,924 40,76,998

Working capital (A-B) 9,75,41,032 10,69,10,818 3,37,98,252 2,44,28,466

Net increase in working

capital

93,69,786 93,69,786

Grand total 10,69,10,818 10,69,10,818 3,37,98,252 3,37,98,252

INTERPRETATION:

The table shows that from current assets, during 2005-2006, there was decrease in debtors

by 30.2%, decrease in loans advances by 35.5% during the year 2005-2006. There was increase

in current liability by 39.19%. Over all there was increase of net working capital by 15.7%.


A. Current Assets 2006(Rs) 2007(Rs) Increase Decrease

(a) Inventories 6,02,70,775 6,88,35,885 85,65,110

(b) Sundry Debtors 4,64,11,224 6,28,89,194 1,64,77,970

(c) Cash and Bank

Balance

3,72,47,819 2,07,27,918 1,65,19,901

(d) Other Current Assets 21,20,432 8,17,918 13,02,514


Total Current Assets 14,65,31,184 15,52,90,452 2,65,81,683 1,78,22,415

B.(a) Current Liabilities 1,96,66,956 2,31,71,661 35,04,705

(b) Provisions 1,99,53,410 2,30,288 1,97,23,122

Total Current Liabilities 3,96,20,366 2,34,01,949 1,97,23,122 35,04,705

Working capital (A-B) 10,69,10,818 13,18,88,503 4,63,04,805 2,13,27,120

Net increase in working

capital

2,49,77,685 2,49,77,685

Grand total 10,69,10,818 13,18,88,503 4,63,04,805 4,63,04,805

INTERPRETATION:

The table shows that from current assets, during 2006-2007, there was decrease in cash &

bank balance by 44.35%, decrease in other current assets by 61.42% during the year 2006-2007.

There was increase in provisions of current liability by 98.84%. Over all there was increase of

net working capital by 17.6%.


A. Current Assets 2007(Rs) 2008(Rs) Increase Decrease

(a) Inventories 6,88,35,885 7,49,84,295 61,48,410

(b) Sundry Debtors 6,28,89,194 9,10,04,726 2,81,15,532

(c) Cash and Bank

Balance

2,07,27,918 4,70,73,751 2,63,45,833

(d) Other Current Assets 8,17,918 7,50,366 67,552


Total Current Assets 15,52,90,452 22,09,66,183

B.(a) Current Liabilities 2,31,71,661 5,81,04,281 3,49,32,620

(b) Provisions 2,30,288 1,69,93,662 1,67,63,374

Total Current Liabilities 2,34,01,949 7,50,97,943

Working capital (A-B) 13,18,88,503 14,58,68,240 1,40,47,289 67,552

INTERPRETATION:

The table shows that from current assets, during 2007-2008, there was increase in cash &

bank balance by 127.10%, decrease in other current assets by 8.25% during the year 2007-2008.

There was increase in current liability by 150.7%. Over all there was increase of net working

capital.


(A) CURRENT RATIO: The current ratio of a firm is its short term liquidity. It indicates that current assets

available current liabilities or obligation.

Current Ratio= Current Assets/ Current Liabilities Year Current Assets Current Liability Ratio

2005 14, 57,60,324 4,82,68,876 3.019

2006 15,25,04,200 3,96,65,039 3.844

2007 15,52,90,452 2,34,01,949 6.635

2008 22,09,66,183 7,50,97,943 2.942

0

1

2

3

4

5

6

7

Ratio

Year

Current Ratio

Year

2005

2006

2007

2008

INTERPRETATION: The above table shows the current ratio of company is more than satisfactory. As a

convention rule of a current ratio 2:1 considered to be satisfactory. The current ratio is

going on increasing, but in the year 2008 it is decreasing.


(B) QUICK RATIO: Quick ratio is the relationship between quick / liquid assets and current

liabilities. The quick ratio can be calculated by dividing the total f quick assets by total

current liabilities.

Quick Ratio= Quick Assets/ Quick Liabilities

Year Quick Assets Quick Liability Ratio

2005 89901880 48219292 1.86

2006 86260409 39620366 2.18

2007 86454567 23401949 3.69

2008 145975706 58933415 2.48

00.51

1.52

2.53

3.54

Ratio

Year

Quick Ratio

Year

2005

2006

2007

2008

INTERPRETATION:

By observing four years ratios, the company found to be sound liquidity position.

During 2006-07 the company was having ratio of 3.69, it may be interpreted that the amount

blocked. In slow moving asset, an i.e inventory is not too heavy when this is compared with

the current ratio.


(C) DEBTORS TURN OVER RATIO: In case firm sales goods on credit. The realization of sales revenue s delayed and

the receivable are created. The cash is realized from these receivables are collected affects

the liquidity position of the firm. The debtors turn over ratio throws light on the collection

and policies of the firm. It is calculated as follows.

Debtors Turn Over Ratio= Total Sales/ DebtorsYear Sales Debtors Ratio

2005 20,08,26,666 5,21,52,812 3.850

2006 16,23,45,990 5,64,54,556 2.875

2007 21,27,98,446 5,46,50,209 3.893

2008 26,86,72,843 9,10,04,726 2.952

0

0.5

1

1.5

22.5

3

3.5

4

Ratio

Year

Debtors Turn Over Ratio

Year

2005

2006

2007

2008

INTERPRETATION: Debtor turn over ratio was 3.850 in 2005, 2.875 in the year 2006, 3.893 in the year

2007 and 2.952 is in the year 2008. So there was alternate increase and decrease in the

ratio. It was decreased from 3.850 to 2.875 during 2005-2006 which is about 0.975. In the

year 2006-2007 it has increased about 1.018.


(D) AVERAGE COLLECTION PERIOD: The ratio measures the quality of debtors, since it indicates the speed of their

collection. It represents the number of day’s worth of credit sales that is locked in

debtors.

Average collection period= 365 Days/ Debtor turn over ratioYear Days in a year DTR Period

2005 365 3.850 95

2006 365 2.875 127

2007 365 3.893 94

2008 365 2.952 124

0

20

40

60

80

100

120

140

Period

Year

Average collection period

Year

2005

2006

2007

2008

INTERPRETATION: Average collection period for the year 2005 is 95 days, and in the year 2006 is

127 days. There is increase in 32 days. But in 2007 there is decrease in the collection

period, which is 94 days. In the year 2008 the average collection period increased to 124.


(E) CURRENT ASSET TURNOVER RATIO: The ratio which expenses the relationship between the current assets to sales

is called as Current assets turnover ratio. It is calculated as follows.

Current Asset Turnover Ratio= Sales/Current Assets

Year Sales Current Assets CATR

2005 20,08,26,666 14, 57,60,324 1.377

2006 16,23,45,990 15,25,04,200 1.064

2007 21,27,98,446 15,52,90,452 1.362

2008 26,86,72,843 22,09,66,183 1.215

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Ratio

Year

Current asset turn over ratio

Year

2005

2006

2007

2008

INTERPRETATION: The above table revels that current asset turnover ratio is alternatively

increasing and decreasing. It was 1.377 in the year 2005, 1.064 in the year 2006, 1,362 in

the year 2007, and 1.215 in the year 2008. There was decrease of 77% during the year

2005-2006.Again there was increase of 28% during the year 2006-2007. but in the year

2008 it has decreased to 1.362.

(F) WORKING CAPITAL TURNOVER RATIO:INSTITUTE OF EXCELLENCE IN MANAGEMENT SCIENCE HUBLI Page 58

The ratio, which expresses the relationship between the net sales and net

working capital, is called working capital turnover ratio.

Working capital turnover ratio= sales/ Net working capitalYear Sales Net working

capital

Ratio

2005 20,08,26,666 9,74,91,448 2.059

2006 16,23,45,990 11,28,39,161 1.438

2007 21,27,98,446 13,28,03,776 1.602

2008 26,86,72,843 14,58,68,240 1.841

0

0.5

1

1.5

2

2.5

Ratio

Year

Net working capital

Year

2005

2006

2007

2008

INTERPRETATION: The working capital turnover ratio was 2.059 in the year 2005, 1.438 in the

year 2006, 1.602 in the year 2007, and 1.841 in the year 2008.it has decreased from 2.059

to 1.438, a decrease of 0.621(decrease in 30.16%) during 2005-2006. again it has

increased slightly from 1.438 to 1.6023, increase in 0.164(increase in 28.8%) during

2006-2007. in the year 2008 it has increased to 1.841.


RATIO 2005 2006 2007 2008

CURRENT

RATIO

3.019 3.844 6.635 2.942

QUICK RATIO 1.86 2.18 3.69 2.48

DEBTOR

TURNOVER

RATIO

3.850 2.875 3.893 2.952

AVERAGE

COLLECTION

PERIOD

95 Days 127 Days 94 Days 124 Days

CURRENT

ASSET

TURNOVER

RATIO

1.377 1.064 1.362 1.215

WORKING

CAPITAL

TURNOVER

RATIO

2.059 1.438 1.602 1.841

INVENTORY MANAGEMENT

ABC Inventory Control System


Large companies like Floserve Microfinish Valves Pvt. Ltd, have to maintain

several types of inventories. It is not desirable to keep the same degree of control on all

the items. The firm should pay maximum attention to those items whose value is the

highest. The firm should, therefore, classify inventories to identify which items should

receive the most effort in controlling. The firm should be selective in its approach to

control investment in various types of inventories. This analytical approach is called

ABC analysis and tends to measure the significance of each item o inventories in terms of

its value. The high value items are classified as ‘A’ items and would be under the tightest

control. ‘C’ items represent relatively least value and would be under simple control. ‘B’

items fall in between these two categories and require reasonably attention of

management. The ABC analysis concentrates on important items and is also known as

control by importance and exception (CIE). As items are classified in there relative value,

this approach is also known as proportional value analysis (PVA).

CLASSIFICATION OF COMPONENTS UNDER ABC ANALYSIS

‘A’ CLASS ITEMS ‘B’ CLASS ITEMS ‘C’ CLASS ITEMS


1. Ball Valve Top cap lock Levers

Body Adjuster Sleeves

Tail peace TH collars Wrenches

Ball Stopper pin Adapters

2. Plug Valve Locking plate Adapter pipes

Body Gland Springs

Plug Steam fasteners Washers

Top cap Check outs Ring gaskets

Seats Body seal

Bushes Steam seal

Retainers Circlips

Bonnets Metal Tags

Steam seals Lock strips

Gear box Rubber caps

Diaphragm Plastic grips

Round balls

INVENTORY TURNOVER RATIO


Inventory Turnover Ratio = Cost go goods sold / Average inventory

Year Cost of goods sold Average inventory Ratio

2005 110592413 51754072 2.14

2006 110026857 58064610 1.89

2007 129527059 59553330 2.17

2008 178349735 73608050 2.42

0

0.5

1

1.5

2

2.5

Ratio

Year

Inventory Ratio

Year

2005

2006

2007

2008

INTERPRETATION: The inventory turnover ratios for four years are 2.34 times, 1.89 times, 2.17 times,

2.37 times respectively. By observing the ratios, the company having higher inventory

turn over ratio. It may be interpreted that that inventory does sell fast and does not stays

in the warehouses for longer time.

FINDINGS


It can be seen that Net working Capital has increased consistently in the last 4 years.

The net working capital was increased by 15.7% from 2005 to 2006 at Rs. 11, 28,

39,161 and by 17.6% from 2006 to 2007 at Rs. 13, 28, 03,776.

The current ratio is increasing and decreasing yearly. 3.019 in the year 2005, 3.844

in the year 2006 and 6.666 in the year 2007, and in 2008 it has decreased.

Quick ratio is also increasing and also decreasing. In the year 2008 it has decreased.

Debtor turnover ratio has increased in the year 2005 but in 2008 it has decreased.

Inventory turnover ratio is also increasing yearly.

Working Capital Turnover ratio is fluctuating and in inconsistent with the 2005 ratio,

which seems better than the next 3 years.

The examination of the current assets ratio could reveal that it is above the standard

of 2:1 ratio. It is indicative of the fact that the Flowserve Microfinish is not

witnessing shortage of working capital to meet out its current liabilities.

The observation of absolute liquidity ratio reveals that

the liquidity position of FMVL is totally satisfactory.


SUGESSTIONS

The study has revealed that the current ratio is above the standard of 2:1 ratio.



liabilities.

The study has revealed that the Quick ratio is above the standard of 0.5:1

ratio. It is, therefore, suggested that the FMVL should continue to make

efforts in maintaining its adequate cash balance.

The general description has revealed that the Debtors turnover ratio is

fluctuating. It is, therefore, suggested that the FMVL should endeavor its

efforts in strengthening its collection process

The avg. collection period is showing fluctuating trends for the past 4 yrs.

This has to be leveled with the standards of 60 days and also ensure that avg.

collection shows consistent trends.

The Current Asset Turnover Ratio determines the amount of CA as against the

sales. The trend is undeterminable as there is a fluctuation in this ratio’s also.

Hence the ratio should show consistency in the reduction of CA as against the

sales being induced.

The Current Ratio is showing an increasing trend which is a good sign except

for the year 2008, where it has reversed. The organization has to ensure that

this trend again shows an increasing pattern.


CONCLUSION FMVPL meet the growing aspiration of customer in the competitive environment by

delivering quality service and to achieve total customer satisfaction. FMVPL has crossed

several milestones and is improving its performance year after year. It has received many

awards for excellent performance.

Working capital is the integral part of the corporate planning. The quantum of

working capital fund reflects the solvency of the firm. A sound financial and statistical

technique supported by judgment is used to predict the quantum of working capital

needed at different time period. Therefore FMVPL has adequate working capital to run

its business activities. Net working capital of the company increase year by year which

should a good sign of profitability and even that of ratios which has been calculated.


BIBLIOGRAPHY

1. I.M Pandey

-Financial management

2. Khan and Jain

-Financial management

3. Company Manuals


Annexure

FLOWSERVE MICROFINISH PVT LTD.

BALANCE SHEET AS AT MARCH 31, 2007

SOURCES OF FUNDS: SCHEDULE: 2007 2006

Rs. Rs.

Shareholders Funds

Share capital 1a 34900000 34900000

Advance against share capital 1b 35179 35179

Reserve and Surplus 2 114932716 91373642

Net deferred tax liability 358133 358133

150226028 126666954

APPLICATION OF FUNDS:

Fixed Assets

Gross block 3 49825927 48904788

Less: depn 33869036 30298491

Net block 15965891 18606297

Capital work in progress 1098562 1096283

17055453 19702580

Investments 4 20500 20500

Current Assets Loans & Advances

Inventories 5 68835885 60270725


Sundry debtors 6 62889194 40411224

Cash & bank balance 7 20727918 37247819

Other current assets 8 817918 2120432

Loans & advances 9 2699664 480934

155970579 146931184

Less: Current liability

Liability 10 22744380 19666956

Provisions 11 92652 19953410

Net Current Assets 133133547 106910818

Miscellaneous expenditure 12 16528 33056

Notes to Accounts 150226028 126666954

SCHEDULE TO ACCOUNT’S 2007 2006

Rs. Rs.

Schedule 1a

CAPITAL:

Authorized

5000000 (2006-5000000)

Equity Shares of Rs.10 each 50000000 50000000

Issued, subscribed & paid up capital:

3490000 (2006-3490000)

Equity Shares of Rs.10 each fully paid up 34900000 34900000

34900000 34900000


Schedule 1b

ADVANCE AGAINST SHARE CAPITAL

Share application money

Pending allotment 35179 35179

35179 35179

Schedule 2

RESERVE AND SURPLUS

General reserve

Balance at the beginning of the year 16360757 12442784

Add: transferred from P&L a/c 3917973

16360757 16360757

Profit and loss a/c 98571959 75012885

114932716 91313642

Schedule 4

INVESTMENT (AT COST)

Long term, other than Trade 20500 20500

20500 20500

Schedule 5


INVENTORIES

Stores and spares 1348286 1215833

Raw material and components 42089550 37238420

Work in progress 21508412 17312656

Finished goods 6518475 6156882

71464723 61923791

Less: provisions for old & absolute inventory 2628838 1653016

68835885 60270775

Schedule 6

SUNDRY DEBTORS:

Over 6 months

-considered goods

-considered doubtful

Other considered goods 62889194 46411224

62889194 46411224

Schedule 7

CASH AND BANK BALANCE

Cash on hand 75229 157107

Balance with Scheduled Bank

-Current a/c 846357 4690275

-EEFC a/c 99484 14983001

-Fixed deposit a/c 19706778 17317436

20727918 37247819

Schedule 8


OTHER CURRENT ASSETS

Interest accrued 474718 1777232

Deposit with govt department & others 343200 343200

817918 2120432

Schedule 9

LOANS AND ADVANCES

Advance Recredable in cash 825514 302775

Due from GP companies 88752

Advance to suppliers 25183

Balance with excise and customs authorities 25042 10393

Advance tax 1735173 167765

2699664 480934

Schedule 10

Liabilities

SUNDRY CREDITORS

Small scale industrial undertakings

Other 15974445 13870041

Other Liabilities 6769935 5796915

22744380 19666956

Schedule 11

PROVISIONS

Employee Retirement Benefit

Leave Encashment 142183 149031


Gratuity 70967

Proposed Dividend 17450000

Taxation on Dividend 2349468

Fringe benefit tax (120498) 4911

92652 19953410

Schedule 12

MISCELLANEOUS EXPENDITURE

Preliminary expenses 32056 99584

Less: amortization of preliminary 16528 16528

16528 33056


PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2007

2007 2006

INCOME: Rs Rs

Sales 212798446 162345990

Less: excise duty & sales tax 7019 7697

212791427 162338293

Other income 3472828 5377661

216264255 167715954

EXPENDITURE:

Materials 124969710 95988742

Employee expense 10976784 9421213

Operating and Other expense 20431894 17768510

Depreciation 4393116 4369693

160771504 127548158

Profit for year before taxation 35492751 40167796

Less: Provision for Income Tax

Current tax 505000

Deferred tax 358133

Fringe benefit tax 124932

Profit for year after taxation 55492751 39179731

Appropriation

Transfer to general reserve 3917973

Interim dividend 27920000 10470000

Proposed dividend 17450000


Dividend tax 4013676 3817886

Profit for year after appropriation 23559035 3523872

Profit brought forward from previous year 75012884 71489012

Profit carried to Balance Sheet 98571959 75012884



Documents

Micro Finish