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Chapter-1 Industry ProfileCompany Profile11) Marble Industry in India and world-
111) Products
India possesses a wide spectrum of stones ~ granite marble sandstone limestone
slate and quartzite It is amongst the largest producer of raw stone material
112) Production areas
Marble deposits are widespread in India concentration in states of Rajasthan Gujarat
Madhya Pradesh Haryana and Andhra Pradesh Next Gujarat also produces some very
fine marble followed by Madhya Pradesh
Rajasthan is the main depository of marble accounts for over 90 of total marble
production in India [1100 m tons] Newer varieties of marble are being developed in
Bihar Jammu amp Kashmir Maharashtra Sikkim and Uttar Pradesh amp Bengal
113) Production Technology
Industry has evolved into the production and manufacturing of blocks flooring slabs
structural slabs calibrated - ready to fix tiles monuments tomb stones sculptures
artifacts cobbles cubes pebbles and landscape garden stones
Advent of sophisticated mining machinery amp new mining fields has led to increase in
marble production Although India produces machinery there is an excellent
opportunity for exporting machineries for working stone cutting sawing grinding and
polishing
114) Indo-Italian Trade-
Italy imports blocks and after cutting and processing exports these all over the world
including India Italy imports large amounts of granite from India around euro 62 million
as compared to imports of Marble which amount to only euro 5 million (inclusive of
blockstilescrudetrimmed)]
The whole world economy is facing the recessionary trend since past few years This
has affected most of the industries but the commodities of necessity
1
112) The largest state of India accounts for over 90 of total marble production
of the country Main varieties here are
1121) Makarana Marble-
The famous marble of which the Taj Mahal is made it is highly calcic Main sub-
varieties are Kumhari Doongri Alberta and Makaran WhiteThe largest mines are
Makrana marble Length of mines is 1350m
1122) Rajnagar Marble-
Worlds largest marble-producing area with over 2000 gang saw units located in the
nearby town of Kishangarh to process the material produced Agaria is the best variety
of this area with numerous other varieties and patterns primarily in white base The
marble is dolomites and often has quartz intrusions
1123) Andhi Marble-
Located near the capital city of the state of Jaipur (also known as the Pink City) it is
dolomitic marble with intrusions of tremolite and is commonly known by the name of
pista (pistachio) marble because of the green coloured tremolite against an off-white
background One of the famous varieties of this area was known as Indo-Italian owing
to its resemblance with Satvario Marble Most of the mining of this famous field is now
banned by the Supreme Court of India because of the vicinity of the area to the Sariska
Tiger Reserve
1124) Salumber Marble-
Also known as Onyx Marble it has thick bands of green and pink hint A resemblance
to Onyx Marble from Pakistan gives it this name This is also highly dolomitic
Yellow Marble Though it has not been metamorphosed and hence is still a
limestone it is Known as Yellow Marble in trade circles It is mined in the
Jaisalmer District
Bidasar Again this is not marble but is known as marble in trade circles These
are ultra basic rocks in shades of brown and green colour The criss-cross linear
pattern given it a remarkable resemblance to a photograph of dense forest
1125) Gujarat Amba Ji Marble
2
is one of the finest marble produced in India It can be easily compared with Makarana
Marble It is highly calcic and is produced in a town called Amba ji (famous for its
temple of Durga Devi) The marble has a very soft and waxy look and is often used by
sculptors
Madhya Pradesh Katni Range is famous for its beige coloured marble which is
dolomitic but highly crystalline with very fine grain size and some quartz intrusions
The marble accepts excellent polish Another variety of the same range is redmaroon-
colored marble
1126) Granite
India is endowed with one of the best granite deposits in the world having excellent
varieties comprising over 200 shades India accounts for over 20 of the world
resources in granite Granite reserves in India have now been estimated by the Indian
Bureau of Mines at over 42916 million cubic metres Splendid black and multicolour
varieties of granite are available in the states of Karnataka Andhra Pradesh Tamil
Nadu and Uttar Pradesh Granite deposits are also widespread over the provinces of
Rajasthan Bihar West Bengal and Gujarat India is the largest exporter of granite and
granite products in the world
1127) Sandstone
Sandstone reserves in India are spread over the states of Andhra Pradesh Assam
Bihar Gujarat Haryana Madhya Pradesh Meghalaya Mizoram Karnataka Orissa
Punjab Rajasthan Uttar Pradesh Tamil Nadu and West Bengal Over 90 of the
deposits of sandstone are in Rajasthan spread over the districts of Bharatpur Dholpur
Kota Jodhpur Sawai-Madhopur Bundi Chittorgarh Bikaner Jhalawar Pali and
Jaisalmer
1128) Slate
Slate reserves in India are found in Rajasthan Haryana Himachal Pradesh Andhra
Pradesh and Madhya Pradesh Deposits in Rajasthan are spread over the districts of
Alwar Ajmer Bharatpur Tonk Sawai Madhopur Pali Udaipur Churu and
Chittorgarh
3
1129) Flaggy limestone
Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are
the prime limestone occurrences in India Other deposits include the Shahabad Stone of
Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool
and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from
Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat
amongst others
11210) Limestone deposits in Andhra Pradesh India
Andhra Pradesh has the privilege of possessing about 32 of the countrys total
reserves of limestone Commercial grade limestone deposits are being exploiting from
Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur
Anantapur Rangareddy and Nalgonda districts are widely used in our country for
panelling and flooring purposes Sullavai limestone of Karminagar and Warangal
districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs
limestone reserves are estimated about 30424 million tonnes Total Indias limestones
are estimated about 93623 million tonnes Limestones are extensively utilized for
manufacturing of cement and also building stones particularly flooring and roofing
(Dept of Mines and Geology APVenkat Reddy2006)
11211) Other dimensional stones
There are some other dimensional stones being quarried and used in consumption in
addition to the dimensional stones already detailed above Laterite bricks are quarried
in huge quantities and are utilised as bricks in the construction of houses and for
pavements in the states of Orissa Karnataka Goa and in other parts of coastal states
The felspathic sandstone occurring with the coal seams as overburden is also used as
building stone The huge deposits of basalt in the states of Maharashtra Karnataka and
Gujarat are used as building stones since ancient times Other quartzitic bands
occurring with phyllites and schists are also utilised for building purposes Khondelites
from Eastern coast are being used widely in sculptures and as a building material
Felsite from Karnataka is being extensively used as a dimensional stone as well
4
113) Types-
Historically notable marble varieties and locations
1131) Sculpture-
White marble was prized for its use in sculptures since classical times This preference
has to do with the softness and relative isotropy and homogeneity and a relative
resistance to shattering Also the low index of refraction of calcite allows light to
penetrate several millimeters into the stone before being scattered out resulting in the
characteristic waxy look which gives life to marble sculptures of the human body
1132) Construction marble-
Construction marble is a stone which is composed of calcite dolomite or serpentine
which is capable of taking a polish More generally in construction specifically the
dimension stone trade the term marble is used for any crystalline calcitic rock (and
some non-calcitic rocks) useful as building stone For example Tennessee marble is
really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that
geologists call the Holston Formation
114) Industrial use-
Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored
marbles are a very pure source of calcium carbonate which is used in a wide variety of
industries Finely ground marble or calcium carbonate powder is a component in paper
and in consumer products such as toothpaste plastics and paints Ground calcium
carbonate can be made from limestone chalk and marble about three-quarters of the
ground calcium carbonate worldwide is made from marble Ground calcium carbonate
is used as a coating pigment for paper because of its high brightness and as a paper
filler because it strengthens the sheet and imparts high brightness Ground calcium
carbonate is used in consumer products such as a food additive in toothpaste and as an
inert filler in pills It is used in plastics because it imparts stiffness impact strength
dimensional stability and thermal conductivity It is used in paints because it is a good
filler and extender has high brightness and is weather resistant However the growth
in demand for ground calcium carbonate in the last decade has mostly been for a
coating pigment in paper
Calcium carbonate can also be reduced under high heat to calcium oxide (also known
as lime)
5
12) Company Profile-
The Company R K Marble Private Limited was established in 1989 by the Patni group
of Kishangarh-District Ajmer to help serve increasing National and international
demands for Indian marble Since then we have enjoyed exponential growth and export
too many markets worldwide including European Union countries the Middle East
Japan other parts of Asia China and North America etc
The seagull who sees farther flies higher living up to the immortal words of
Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan
(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never
looked back The company now has 14 Gangsaw machines In November 1993 was the
time when state government took a step forward to allot a virgin marble mine on lease
to R K Marble at Morwad Distt Rajsamand in Rajasthan
By the touch of sheer hard work guts burning inner desire to reach unprecedented
heights and fulfilling their dreams the trio converted these marble mines to gold
mines Morwad from which the stone takes its name is a remote village in the eastern
part of Rajasthan India
Today the name Morwad Marble from R K Marble group has become almost generic
for a whole range of white and semi-white types of marble which are extracted from
these locations
6
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
112) The largest state of India accounts for over 90 of total marble production
of the country Main varieties here are
1121) Makarana Marble-
The famous marble of which the Taj Mahal is made it is highly calcic Main sub-
varieties are Kumhari Doongri Alberta and Makaran WhiteThe largest mines are
Makrana marble Length of mines is 1350m
1122) Rajnagar Marble-
Worlds largest marble-producing area with over 2000 gang saw units located in the
nearby town of Kishangarh to process the material produced Agaria is the best variety
of this area with numerous other varieties and patterns primarily in white base The
marble is dolomites and often has quartz intrusions
1123) Andhi Marble-
Located near the capital city of the state of Jaipur (also known as the Pink City) it is
dolomitic marble with intrusions of tremolite and is commonly known by the name of
pista (pistachio) marble because of the green coloured tremolite against an off-white
background One of the famous varieties of this area was known as Indo-Italian owing
to its resemblance with Satvario Marble Most of the mining of this famous field is now
banned by the Supreme Court of India because of the vicinity of the area to the Sariska
Tiger Reserve
1124) Salumber Marble-
Also known as Onyx Marble it has thick bands of green and pink hint A resemblance
to Onyx Marble from Pakistan gives it this name This is also highly dolomitic
Yellow Marble Though it has not been metamorphosed and hence is still a
limestone it is Known as Yellow Marble in trade circles It is mined in the
Jaisalmer District
Bidasar Again this is not marble but is known as marble in trade circles These
are ultra basic rocks in shades of brown and green colour The criss-cross linear
pattern given it a remarkable resemblance to a photograph of dense forest
1125) Gujarat Amba Ji Marble
2
is one of the finest marble produced in India It can be easily compared with Makarana
Marble It is highly calcic and is produced in a town called Amba ji (famous for its
temple of Durga Devi) The marble has a very soft and waxy look and is often used by
sculptors
Madhya Pradesh Katni Range is famous for its beige coloured marble which is
dolomitic but highly crystalline with very fine grain size and some quartz intrusions
The marble accepts excellent polish Another variety of the same range is redmaroon-
colored marble
1126) Granite
India is endowed with one of the best granite deposits in the world having excellent
varieties comprising over 200 shades India accounts for over 20 of the world
resources in granite Granite reserves in India have now been estimated by the Indian
Bureau of Mines at over 42916 million cubic metres Splendid black and multicolour
varieties of granite are available in the states of Karnataka Andhra Pradesh Tamil
Nadu and Uttar Pradesh Granite deposits are also widespread over the provinces of
Rajasthan Bihar West Bengal and Gujarat India is the largest exporter of granite and
granite products in the world
1127) Sandstone
Sandstone reserves in India are spread over the states of Andhra Pradesh Assam
Bihar Gujarat Haryana Madhya Pradesh Meghalaya Mizoram Karnataka Orissa
Punjab Rajasthan Uttar Pradesh Tamil Nadu and West Bengal Over 90 of the
deposits of sandstone are in Rajasthan spread over the districts of Bharatpur Dholpur
Kota Jodhpur Sawai-Madhopur Bundi Chittorgarh Bikaner Jhalawar Pali and
Jaisalmer
1128) Slate
Slate reserves in India are found in Rajasthan Haryana Himachal Pradesh Andhra
Pradesh and Madhya Pradesh Deposits in Rajasthan are spread over the districts of
Alwar Ajmer Bharatpur Tonk Sawai Madhopur Pali Udaipur Churu and
Chittorgarh
3
1129) Flaggy limestone
Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are
the prime limestone occurrences in India Other deposits include the Shahabad Stone of
Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool
and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from
Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat
amongst others
11210) Limestone deposits in Andhra Pradesh India
Andhra Pradesh has the privilege of possessing about 32 of the countrys total
reserves of limestone Commercial grade limestone deposits are being exploiting from
Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur
Anantapur Rangareddy and Nalgonda districts are widely used in our country for
panelling and flooring purposes Sullavai limestone of Karminagar and Warangal
districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs
limestone reserves are estimated about 30424 million tonnes Total Indias limestones
are estimated about 93623 million tonnes Limestones are extensively utilized for
manufacturing of cement and also building stones particularly flooring and roofing
(Dept of Mines and Geology APVenkat Reddy2006)
11211) Other dimensional stones
There are some other dimensional stones being quarried and used in consumption in
addition to the dimensional stones already detailed above Laterite bricks are quarried
in huge quantities and are utilised as bricks in the construction of houses and for
pavements in the states of Orissa Karnataka Goa and in other parts of coastal states
The felspathic sandstone occurring with the coal seams as overburden is also used as
building stone The huge deposits of basalt in the states of Maharashtra Karnataka and
Gujarat are used as building stones since ancient times Other quartzitic bands
occurring with phyllites and schists are also utilised for building purposes Khondelites
from Eastern coast are being used widely in sculptures and as a building material
Felsite from Karnataka is being extensively used as a dimensional stone as well
4
113) Types-
Historically notable marble varieties and locations
1131) Sculpture-
White marble was prized for its use in sculptures since classical times This preference
has to do with the softness and relative isotropy and homogeneity and a relative
resistance to shattering Also the low index of refraction of calcite allows light to
penetrate several millimeters into the stone before being scattered out resulting in the
characteristic waxy look which gives life to marble sculptures of the human body
1132) Construction marble-
Construction marble is a stone which is composed of calcite dolomite or serpentine
which is capable of taking a polish More generally in construction specifically the
dimension stone trade the term marble is used for any crystalline calcitic rock (and
some non-calcitic rocks) useful as building stone For example Tennessee marble is
really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that
geologists call the Holston Formation
114) Industrial use-
Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored
marbles are a very pure source of calcium carbonate which is used in a wide variety of
industries Finely ground marble or calcium carbonate powder is a component in paper
and in consumer products such as toothpaste plastics and paints Ground calcium
carbonate can be made from limestone chalk and marble about three-quarters of the
ground calcium carbonate worldwide is made from marble Ground calcium carbonate
is used as a coating pigment for paper because of its high brightness and as a paper
filler because it strengthens the sheet and imparts high brightness Ground calcium
carbonate is used in consumer products such as a food additive in toothpaste and as an
inert filler in pills It is used in plastics because it imparts stiffness impact strength
dimensional stability and thermal conductivity It is used in paints because it is a good
filler and extender has high brightness and is weather resistant However the growth
in demand for ground calcium carbonate in the last decade has mostly been for a
coating pigment in paper
Calcium carbonate can also be reduced under high heat to calcium oxide (also known
as lime)
5
12) Company Profile-
The Company R K Marble Private Limited was established in 1989 by the Patni group
of Kishangarh-District Ajmer to help serve increasing National and international
demands for Indian marble Since then we have enjoyed exponential growth and export
too many markets worldwide including European Union countries the Middle East
Japan other parts of Asia China and North America etc
The seagull who sees farther flies higher living up to the immortal words of
Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan
(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never
looked back The company now has 14 Gangsaw machines In November 1993 was the
time when state government took a step forward to allot a virgin marble mine on lease
to R K Marble at Morwad Distt Rajsamand in Rajasthan
By the touch of sheer hard work guts burning inner desire to reach unprecedented
heights and fulfilling their dreams the trio converted these marble mines to gold
mines Morwad from which the stone takes its name is a remote village in the eastern
part of Rajasthan India
Today the name Morwad Marble from R K Marble group has become almost generic
for a whole range of white and semi-white types of marble which are extracted from
these locations
6
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
is one of the finest marble produced in India It can be easily compared with Makarana
Marble It is highly calcic and is produced in a town called Amba ji (famous for its
temple of Durga Devi) The marble has a very soft and waxy look and is often used by
sculptors
Madhya Pradesh Katni Range is famous for its beige coloured marble which is
dolomitic but highly crystalline with very fine grain size and some quartz intrusions
The marble accepts excellent polish Another variety of the same range is redmaroon-
colored marble
1126) Granite
India is endowed with one of the best granite deposits in the world having excellent
varieties comprising over 200 shades India accounts for over 20 of the world
resources in granite Granite reserves in India have now been estimated by the Indian
Bureau of Mines at over 42916 million cubic metres Splendid black and multicolour
varieties of granite are available in the states of Karnataka Andhra Pradesh Tamil
Nadu and Uttar Pradesh Granite deposits are also widespread over the provinces of
Rajasthan Bihar West Bengal and Gujarat India is the largest exporter of granite and
granite products in the world
1127) Sandstone
Sandstone reserves in India are spread over the states of Andhra Pradesh Assam
Bihar Gujarat Haryana Madhya Pradesh Meghalaya Mizoram Karnataka Orissa
Punjab Rajasthan Uttar Pradesh Tamil Nadu and West Bengal Over 90 of the
deposits of sandstone are in Rajasthan spread over the districts of Bharatpur Dholpur
Kota Jodhpur Sawai-Madhopur Bundi Chittorgarh Bikaner Jhalawar Pali and
Jaisalmer
1128) Slate
Slate reserves in India are found in Rajasthan Haryana Himachal Pradesh Andhra
Pradesh and Madhya Pradesh Deposits in Rajasthan are spread over the districts of
Alwar Ajmer Bharatpur Tonk Sawai Madhopur Pali Udaipur Churu and
Chittorgarh
3
1129) Flaggy limestone
Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are
the prime limestone occurrences in India Other deposits include the Shahabad Stone of
Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool
and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from
Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat
amongst others
11210) Limestone deposits in Andhra Pradesh India
Andhra Pradesh has the privilege of possessing about 32 of the countrys total
reserves of limestone Commercial grade limestone deposits are being exploiting from
Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur
Anantapur Rangareddy and Nalgonda districts are widely used in our country for
panelling and flooring purposes Sullavai limestone of Karminagar and Warangal
districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs
limestone reserves are estimated about 30424 million tonnes Total Indias limestones
are estimated about 93623 million tonnes Limestones are extensively utilized for
manufacturing of cement and also building stones particularly flooring and roofing
(Dept of Mines and Geology APVenkat Reddy2006)
11211) Other dimensional stones
There are some other dimensional stones being quarried and used in consumption in
addition to the dimensional stones already detailed above Laterite bricks are quarried
in huge quantities and are utilised as bricks in the construction of houses and for
pavements in the states of Orissa Karnataka Goa and in other parts of coastal states
The felspathic sandstone occurring with the coal seams as overburden is also used as
building stone The huge deposits of basalt in the states of Maharashtra Karnataka and
Gujarat are used as building stones since ancient times Other quartzitic bands
occurring with phyllites and schists are also utilised for building purposes Khondelites
from Eastern coast are being used widely in sculptures and as a building material
Felsite from Karnataka is being extensively used as a dimensional stone as well
4
113) Types-
Historically notable marble varieties and locations
1131) Sculpture-
White marble was prized for its use in sculptures since classical times This preference
has to do with the softness and relative isotropy and homogeneity and a relative
resistance to shattering Also the low index of refraction of calcite allows light to
penetrate several millimeters into the stone before being scattered out resulting in the
characteristic waxy look which gives life to marble sculptures of the human body
1132) Construction marble-
Construction marble is a stone which is composed of calcite dolomite or serpentine
which is capable of taking a polish More generally in construction specifically the
dimension stone trade the term marble is used for any crystalline calcitic rock (and
some non-calcitic rocks) useful as building stone For example Tennessee marble is
really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that
geologists call the Holston Formation
114) Industrial use-
Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored
marbles are a very pure source of calcium carbonate which is used in a wide variety of
industries Finely ground marble or calcium carbonate powder is a component in paper
and in consumer products such as toothpaste plastics and paints Ground calcium
carbonate can be made from limestone chalk and marble about three-quarters of the
ground calcium carbonate worldwide is made from marble Ground calcium carbonate
is used as a coating pigment for paper because of its high brightness and as a paper
filler because it strengthens the sheet and imparts high brightness Ground calcium
carbonate is used in consumer products such as a food additive in toothpaste and as an
inert filler in pills It is used in plastics because it imparts stiffness impact strength
dimensional stability and thermal conductivity It is used in paints because it is a good
filler and extender has high brightness and is weather resistant However the growth
in demand for ground calcium carbonate in the last decade has mostly been for a
coating pigment in paper
Calcium carbonate can also be reduced under high heat to calcium oxide (also known
as lime)
5
12) Company Profile-
The Company R K Marble Private Limited was established in 1989 by the Patni group
of Kishangarh-District Ajmer to help serve increasing National and international
demands for Indian marble Since then we have enjoyed exponential growth and export
too many markets worldwide including European Union countries the Middle East
Japan other parts of Asia China and North America etc
The seagull who sees farther flies higher living up to the immortal words of
Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan
(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never
looked back The company now has 14 Gangsaw machines In November 1993 was the
time when state government took a step forward to allot a virgin marble mine on lease
to R K Marble at Morwad Distt Rajsamand in Rajasthan
By the touch of sheer hard work guts burning inner desire to reach unprecedented
heights and fulfilling their dreams the trio converted these marble mines to gold
mines Morwad from which the stone takes its name is a remote village in the eastern
part of Rajasthan India
Today the name Morwad Marble from R K Marble group has become almost generic
for a whole range of white and semi-white types of marble which are extracted from
these locations
6
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
1129) Flaggy limestone
Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are
the prime limestone occurrences in India Other deposits include the Shahabad Stone of
Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool
and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from
Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat
amongst others
11210) Limestone deposits in Andhra Pradesh India
Andhra Pradesh has the privilege of possessing about 32 of the countrys total
reserves of limestone Commercial grade limestone deposits are being exploiting from
Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur
Anantapur Rangareddy and Nalgonda districts are widely used in our country for
panelling and flooring purposes Sullavai limestone of Karminagar and Warangal
districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs
limestone reserves are estimated about 30424 million tonnes Total Indias limestones
are estimated about 93623 million tonnes Limestones are extensively utilized for
manufacturing of cement and also building stones particularly flooring and roofing
(Dept of Mines and Geology APVenkat Reddy2006)
11211) Other dimensional stones
There are some other dimensional stones being quarried and used in consumption in
addition to the dimensional stones already detailed above Laterite bricks are quarried
in huge quantities and are utilised as bricks in the construction of houses and for
pavements in the states of Orissa Karnataka Goa and in other parts of coastal states
The felspathic sandstone occurring with the coal seams as overburden is also used as
building stone The huge deposits of basalt in the states of Maharashtra Karnataka and
Gujarat are used as building stones since ancient times Other quartzitic bands
occurring with phyllites and schists are also utilised for building purposes Khondelites
from Eastern coast are being used widely in sculptures and as a building material
Felsite from Karnataka is being extensively used as a dimensional stone as well
4
113) Types-
Historically notable marble varieties and locations
1131) Sculpture-
White marble was prized for its use in sculptures since classical times This preference
has to do with the softness and relative isotropy and homogeneity and a relative
resistance to shattering Also the low index of refraction of calcite allows light to
penetrate several millimeters into the stone before being scattered out resulting in the
characteristic waxy look which gives life to marble sculptures of the human body
1132) Construction marble-
Construction marble is a stone which is composed of calcite dolomite or serpentine
which is capable of taking a polish More generally in construction specifically the
dimension stone trade the term marble is used for any crystalline calcitic rock (and
some non-calcitic rocks) useful as building stone For example Tennessee marble is
really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that
geologists call the Holston Formation
114) Industrial use-
Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored
marbles are a very pure source of calcium carbonate which is used in a wide variety of
industries Finely ground marble or calcium carbonate powder is a component in paper
and in consumer products such as toothpaste plastics and paints Ground calcium
carbonate can be made from limestone chalk and marble about three-quarters of the
ground calcium carbonate worldwide is made from marble Ground calcium carbonate
is used as a coating pigment for paper because of its high brightness and as a paper
filler because it strengthens the sheet and imparts high brightness Ground calcium
carbonate is used in consumer products such as a food additive in toothpaste and as an
inert filler in pills It is used in plastics because it imparts stiffness impact strength
dimensional stability and thermal conductivity It is used in paints because it is a good
filler and extender has high brightness and is weather resistant However the growth
in demand for ground calcium carbonate in the last decade has mostly been for a
coating pigment in paper
Calcium carbonate can also be reduced under high heat to calcium oxide (also known
as lime)
5
12) Company Profile-
The Company R K Marble Private Limited was established in 1989 by the Patni group
of Kishangarh-District Ajmer to help serve increasing National and international
demands for Indian marble Since then we have enjoyed exponential growth and export
too many markets worldwide including European Union countries the Middle East
Japan other parts of Asia China and North America etc
The seagull who sees farther flies higher living up to the immortal words of
Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan
(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never
looked back The company now has 14 Gangsaw machines In November 1993 was the
time when state government took a step forward to allot a virgin marble mine on lease
to R K Marble at Morwad Distt Rajsamand in Rajasthan
By the touch of sheer hard work guts burning inner desire to reach unprecedented
heights and fulfilling their dreams the trio converted these marble mines to gold
mines Morwad from which the stone takes its name is a remote village in the eastern
part of Rajasthan India
Today the name Morwad Marble from R K Marble group has become almost generic
for a whole range of white and semi-white types of marble which are extracted from
these locations
6
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
113) Types-
Historically notable marble varieties and locations
1131) Sculpture-
White marble was prized for its use in sculptures since classical times This preference
has to do with the softness and relative isotropy and homogeneity and a relative
resistance to shattering Also the low index of refraction of calcite allows light to
penetrate several millimeters into the stone before being scattered out resulting in the
characteristic waxy look which gives life to marble sculptures of the human body
1132) Construction marble-
Construction marble is a stone which is composed of calcite dolomite or serpentine
which is capable of taking a polish More generally in construction specifically the
dimension stone trade the term marble is used for any crystalline calcitic rock (and
some non-calcitic rocks) useful as building stone For example Tennessee marble is
really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that
geologists call the Holston Formation
114) Industrial use-
Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored
marbles are a very pure source of calcium carbonate which is used in a wide variety of
industries Finely ground marble or calcium carbonate powder is a component in paper
and in consumer products such as toothpaste plastics and paints Ground calcium
carbonate can be made from limestone chalk and marble about three-quarters of the
ground calcium carbonate worldwide is made from marble Ground calcium carbonate
is used as a coating pigment for paper because of its high brightness and as a paper
filler because it strengthens the sheet and imparts high brightness Ground calcium
carbonate is used in consumer products such as a food additive in toothpaste and as an
inert filler in pills It is used in plastics because it imparts stiffness impact strength
dimensional stability and thermal conductivity It is used in paints because it is a good
filler and extender has high brightness and is weather resistant However the growth
in demand for ground calcium carbonate in the last decade has mostly been for a
coating pigment in paper
Calcium carbonate can also be reduced under high heat to calcium oxide (also known
as lime)
5
12) Company Profile-
The Company R K Marble Private Limited was established in 1989 by the Patni group
of Kishangarh-District Ajmer to help serve increasing National and international
demands for Indian marble Since then we have enjoyed exponential growth and export
too many markets worldwide including European Union countries the Middle East
Japan other parts of Asia China and North America etc
The seagull who sees farther flies higher living up to the immortal words of
Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan
(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never
looked back The company now has 14 Gangsaw machines In November 1993 was the
time when state government took a step forward to allot a virgin marble mine on lease
to R K Marble at Morwad Distt Rajsamand in Rajasthan
By the touch of sheer hard work guts burning inner desire to reach unprecedented
heights and fulfilling their dreams the trio converted these marble mines to gold
mines Morwad from which the stone takes its name is a remote village in the eastern
part of Rajasthan India
Today the name Morwad Marble from R K Marble group has become almost generic
for a whole range of white and semi-white types of marble which are extracted from
these locations
6
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
12) Company Profile-
The Company R K Marble Private Limited was established in 1989 by the Patni group
of Kishangarh-District Ajmer to help serve increasing National and international
demands for Indian marble Since then we have enjoyed exponential growth and export
too many markets worldwide including European Union countries the Middle East
Japan other parts of Asia China and North America etc
The seagull who sees farther flies higher living up to the immortal words of
Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan
(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never
looked back The company now has 14 Gangsaw machines In November 1993 was the
time when state government took a step forward to allot a virgin marble mine on lease
to R K Marble at Morwad Distt Rajsamand in Rajasthan
By the touch of sheer hard work guts burning inner desire to reach unprecedented
heights and fulfilling their dreams the trio converted these marble mines to gold
mines Morwad from which the stone takes its name is a remote village in the eastern
part of Rajasthan India
Today the name Morwad Marble from R K Marble group has become almost generic
for a whole range of white and semi-white types of marble which are extracted from
these locations
6
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
The popularity of this range of marble continues to grow at an astonishing rate and it is
marketed in large quantities The white background with light gray veins corresponds
with nearly everyones perception of the most beautiful marble and architects for many
of the Indias important buildings suggest it
Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic
fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the
largest producer of marble in the world Bedecked with most sought after gadgets the
exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder
Marble thats wondrous and splendid in myriad hues
Wonder Marbles colour panorama and innate design makes it the right choice for
flamboyant users Our fascinating range can be floored to encompass living rooms
drawing arrangements dining spaces hotel lobbys pool sites wall claddings special
lounges and many more Among its endless usages left for creative imagination some
could be - artifacts and decorative objects
A) Products-
Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone
Figure White marble Marble Flooring Marble Tiles
121) Wonder Marble-
The WONDER MARBLE produced at the RK Majoli mines comes to you in
heartwarming shades of deep and dark red brown to rose patches in creamy base
7
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
coupled with abrasion resistant fine grained form luster and reflective gloss which
makes it truly a masterpiece for a lifetime
~ Wonder Marble is available in 4 exotic colours-
bull Milky Opal Creamy base Shades of beige amp mauve
bull Pink Pearl Ecstatic pink amp brown tones
bull Garnet Rush Reddish
bull Jasper Jazz Chocolate red amp brown
122) White Marble -
Famous from antiquity for the high quality the incomparable clearness and resistance
the Morwad Marble from R K Marble Private Limited have constituted the base of
many big monuments and works of art in India RK Milky Coral is a captivating
splendor with generous splashes of green and grey on milky white marble
~ Marble Patterns amp Fixing-
R K Marble Private Limited offers decorative flooring patterns stone inlaid borders
and marble inlaid items The most popular choice with architects and interior designers
for flooring and wall cladding
8
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
13) Mines-
World famous Morwad Mines of RKMarble Private Limited are situated 15km from
Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-
maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68
Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20
Kms from mines Electrical power line of 11KV from State Viduyat Nigam is
extended up to mines Captive Power generation to the tune of 2500 KVA is standing
by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and
Explosive magazine with 500 kg storage capacity are maintained at mines
9
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
An over head tank of 15 lakh liters capacity along with a filter plant is maintained for
meeting the requirement of drinking water and domestic use The quality of water is
potable
Safety Management Committee meetings are organized regularly for tacking stock of
safety preparation accident analysis and suggestions for remedial measures for
achieving ZERO accident status The personal protective equipment and safety gadgets
are provided to employees and all out efforts are made to inculcate the habit of their
regular use
Facilities of Modern store and well equipped workshops for repair and maintenance of
HEMM and other field machinery are available at mines
Technology the core aspect at R K Marble Private Limited can be seen at mining
campus where all means of communication are available which hooks this remote site
to the rest of the world and make them feel a part of larger community of R K Group
Eight telephone connections with a fax connection and two hot line between Mines to
Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky
sets are well maintained for smooth communications amongst the
staffworkersofficers
A four-bed hospital with Para medical staff and Doctor along with an ambulance is
available at a well-equipped Group Vocational Training Center is established at site to
provide initial training to new entrants and refresher and special training to existing
employees OEMS and other service agencies training programmes were conducted
periodically
14) Factory-
10
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM
from Jaipur the state capital of Rajasthan along the famous Makarana road We have
exclusively used our own marble in combination with other stone to give a fascinating
look at our factory site Our managing director Mr Suresh Patni looks after the factory
and is known for his motto Customer Satisfaction
The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment
plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most
modern layout with completely automatic plant to recycle water for marble cutting
Latest gadgets like wireless hotlines modems computerized MIS and costing systems
are being used in order to accelerate quality control and production hence contributing
to cost affectivity
141) People-
R K Marble Group has always stood for quality without compromise It believes in
long-term business relations and works hand to hand with the customers to ensure that
11
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
it gets the best value of money Stringent in-house quality control measures are in place
and yet it is always willing for third party quality checks
The Company has adopted quality policy to standardize its systems procedures and
processes with adequate documentation R K Marble Private Limited is an ISO 9001
2000 certification for its various activities at mines and factory and ISO 14001
certification for Environment Management System
Highly motivated team of professionals is dedicated to work The team created the
records of completing large projects before given time frame
Needless to say the growth of R K Marble Group has been spurred by the spirit of the
individuals who work at various levels to keep ahead of the rest and constantly rise to
the challenges that beckon them at the frontiers of technology
142) Strengths-
The endeavor of the company is to provide quality products by imbibing the latest
international mining technology This can be gauged from the fact that the entire mine
operations are carried out with the help of latest equipment for marble extraction
Sophisticated software developed internally on RDBMS platform tracks and evaluates
all possible functions cost areas and productivity of the mining operations
The company has made an extensive use of wireless communication to synergies all
activities from drilling to loading of the end product The optimum utilization of the
countrys natural resources can be seen here The Director of Mines amp Geology
12
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Udaipurrdquo reveals that the yield from companys mines is the highest per hectare
amongst all marble mines
AWARD NAME AWARDED BY YEAR
Guinness World Records Guinness World Records 1998 2000 2001
Appeared in Guinness World Record Books Guinness World Records 2003
ISO 9001 2000 BVQI USA 2003
ISO 14001 BVQI USA 2003
Entry in Limca Books of World Records Limca Books of World Records 1998 1999
Model Marble Quarry award - Best
Mechanized Quarry- First Prize
Federation of Indian Mineral
Industry (FIMI) amp All India Granite
amp Stone Association (AIGSA)
2003
The Best Stall for Stone amp Stone Products
(Outdoor)
Centre for Development of Stones
(CDOS)2003
Udyog Patra AwardInstitute of trade and Industrial
Development New Delhi2001
State Level Bhamashah Award Education Deptt Bikaner 2001
Highest Income tax payer Award (Individually
to Syt Ashok Patni Syt Suresh Patni
SytVimal Patni)
Income Tax Deptt Ajmer 2000
Best Annual Report Award for Rajasthan
Based Companies
Institute of Chartered Accountants of
India Jaipur2001
Indira Priyadarshini Award National Publication New Delhi 2001
Samman Patra Income Tax Deptt Udaipur 1998
Padm DivakarShree Digamber Jain Atishaya
Kshetra Padampura Jaipur1999
Social Welfare amp Development Lions Club Udaipur 2001
143) Quality Assurance-
13
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Chapter-2 Project Profile21) Introduction of Working capital management-
Working capital management is concerned with the problems arise in attempting to
manage the current assets the current liabilities and the inter relationship that exist
between them The term current assets refers to those assets which in ordinary course of
business can be or will be turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm
The major current assets are cash marketable securities account receivable and
inventory Current liabilities are those liabilities which intended at there inception to be
14
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
paid in ordinary course of business within a year out of the current assets or earnings
of the concern
The basic current liabilities are account payable bill payable bank over-draft and
outstanding expenses The goal of working capital management is to manage the firmrsquos
current assets and current liabilities in such way that the satisfactory level of working
capital is mentioned
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety
22) Definition-
bull According to Guttmann amp Douglas-
ldquoExcess of current assets over current liabilitiesrdquo
bull According to Park amp Gladson-
ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)
over current items owned to employees and others (Such as salaries amp wages payable
accounts payable taxes owned to Government)rdquo
221) Need of working capital management-
The need for working capital gross or current assets cannot be over emphasized As
already observed the objective of financial decision making is to maximize the
shareholders wealth
To achieve this it is necessary to generate sufficient profits can be earned will
naturally depend upon the magnitude of the sales among other things but sales cannot
convert into cash
There is a need for working capital in the form of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold
Therefore sufficient working capital is necessary to sustain sales activity
Technically this is refers to operating or cash cycle If the company has certain amount
of cash it will be required for purchasing the raw material may be available on credit
basis Then the company has to spend some amount for labour and factory overhead to
convert the raw material in work in progress and ultimately finished goods
15
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
These finished goods convert in to sales on credit basis in the form of sundry debtors
Sundry debtors are converting into cash after expiry of credit period Thus some
amount of cash is blocked in raw materials WIP finished goods and sundry debtors
and day to day cash requirements
However some part of current assets may be financed by the current liabilities also The
amount required to be invested in this current assets is always higher than the funds
available from current liabilities This is the precise reason why the needs for working
capital arise
23) Gross working capital and Net working capital-
There are two concepts of working capital management
231) Gross working capital-
Gross working capital refers to the firmrsquos investment I current assets Current assets are
the assets which can be convert in to cash within year includes cash short term
securities debtors bills receivable and inventory
232) Net working capital-
Net working capital refers to the difference between current assets and current
liabilities Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors bills payable and
outstanding expenses
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital the exact
amount varying from firm to firm and depending among other things on the nature of
industriesNet working capital is necessary because the cash outflows and inflows do
not coincide The cash outflows resulting from payment of current liabilities are
relatively predictableThe cash inflow are however difficult to predictThe more
predictable the cash inflows are the less net working capital will be required
The concept of working capital was first evolved by Karl Marx Marx used the term
lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion
of work He compared this with lsquoconstant capitalrsquo which according to him is nothing
but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked
16
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
in terms of financial management in working-process along with other operating
expenses until it is released through sale of finished goods Although Marx did not
mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of WIP the concept of working capital as we
understand today was embedded in his lsquovariable capitalrsquo
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year
234) CONSTITUENTS OF CURRENT ASSETS-
o Cash in hand and cash at bank
o Bills receivables
o Sundry debtors
o Short term loans and advances
Inventories of stock as
a Raw material
b Work in process
c Stores and spares
d Finished goods
6 Temporary investment of surplus funds
7 Prepaid expenses 8 Accrued incomes 9 Marketable securities
In a narrow sense the term working capital refers to the net working Net working
capital is the excess of current assets over current liability or say
NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES
Net working capital can be positive or negative When the current assets exceeds the
current liabilities are more than the current assets Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business
235) CONSTITUENTS OF CURRENT LIABILITIES-
Accrued or outstanding expenses
1 Short term loans advances and deposits
2 Dividends payable
17
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
3 Bank overdraft
4 Provision for taxation if it does not amt to app Of profit
5 Bills payable
6 Sundry creditors
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital Both the concepts have
their own merits
The gross concept is sometimes preferred to the concept of working capital for the
following reasons
bull It enables the enterprise to provide correct amount of working capital at correct
time
bull Every management is more interested in total current assets with which it has to
operate then the source from where it is made available
bull It take into consideration of the fact every increase in the funds of the enterprise
would increase Its working capital
bull This concept is also useful in determining the rate of return on investments in
working capital
2351) The net working capital concept is also important for following reasons-
bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating
expenses and short-term liabilities
bull IT indicates the margin of protection available to the short term creditors
bull It is an indicator of the financial soundness of enterprises
bull It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds
236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-
18
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2361) SOLVENCY OF THE BUSINESS-
Adequate working capital helps in maintaining the solvency of the business by
providing uninterrupted of production
2362) Goodwill
Sufficient amount of working capital enables a firm to make prompt payments and
makes and maintain the goodwill
2363) Easy loans
Adequate working capital leads to high solvency and credit standing can arrange loans
from banks and other on easy and favorable terms
2364) Cash Discounts
Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost
2365) Regular Supply of Raw Material
Sufficient working capital ensures regular supply of raw material and continuous
production
2367) Regular Payment Of Salaries Wages And Other Day TO Day
Commitments-
It leads to the satisfaction of the employees and raises the morale of its employees
increases their efficiency reduces wastage and costs and enhances production and
profits
2368) Exploitation Of Favorable Market Conditions-
If a firm is having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices
19
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2369) Quick And Regular Return On Investments-
Sufficient working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds in future
24) Type of working capital-
The operating cycle creates the need for current assets (working capital) However the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and temporary
working capital
241) Permanent working capital-
The need for current assets arises as already observed because of the cash cycle To
carry on business certain minimum level of working capital is necessary on continues
and uninterrupted basis For all practical purpose this requirement will have to be met
permanent as with other fixed assets This requirement refers to as permanent or fixed
working capital
242) Temporary working capital-
Any amount over and above the permanent level of working capital is temporary
fluctuating or variable working capital This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes
20
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
However when the business is growing the level of permanent working capital
also grows The working capital graph will be rising one as given in figure
below
25) Determinants of working capital management- the amount of working capital is depends upon a following factors
251) Nature of business-
Some businesses are such due to their very nature that their requirement of fixed
capital is more rather than working capital These businesses sell services and not the
commodities and that too on cash bases As such no founds are blocked in piling
inventories and also no funds are blocked in receivables Eg public utility services like
railways infrastructure oriented project etc
21
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
There requirement of working capital is less On the other hand there are some
businesses like trading activity where requirement of fixed capital is less but more
money is blocked in inventories and debtors
252) Length of production cycle-
In some business like machine tools industry the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high As
such amount may be blocked either in raw material or work in progress or finished
goods or even in debtors Naturally there need of working capital is high
253) Size and growth of business-
In very small company the working capital requirement is quit high due to high
overhead higher buying and selling cost etc as such medium size business positively
has edge over the small companies
But if the business start growing after certain limit the working capital requirements
may adversely affect by the increasing size
254) Business Trade cycle-
If the company is the operating in the time of boom the working capital requirement
may be more as the company may like to buy more raw material may increase the
production and sales to take the benefit of favorable market due to increase in the
sales there may more and more amount of funds blocked in stock and debtors etc
bullIn the case of depressions also working capital may be high as the sales terms of value
and quantity may be reducing there may be unnecessary piling up of stack without
getting sold the receivable may not be recovered in time etc
255) Terms of purchase and sales-
Some time due to competition or custom it may be necessary for the company to
extend more and more credit to customers as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital
requirement
22
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
On the other hand in the case of purchase if the credit is offered by suppliers of goods
and services A part of working capital requirement may be financed by them but it is
necessary to purchase on cash basis the working capital requirement will be higher
256) Profitability-
The profitability of the business may be vary in each and every individual case which
is in turn its depend on numerous factors but high profitability will positively reduce
the strain on working capital requirement of the company because the profits to the
extend that they earned in cash may be used to meet the working capital requirement of
the company
257) Operating efficiency-
If the business is carried on more efficiently it can operate in profits which may reduce
the strain on working capital it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc
26) Inventory Management-
261) Raw materials inventory
1048766 Stores of items used in production
1048766 Quantity discounts by large quantity to get discount on price
1048766 Assure supply in times of scarcity
262) Work-in-process inventory
1048766 Items at some intermediate state of completion
1048766 Size related to length and complexity of production cycle
263) Finished goods inventory
23
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
1048766 Items ready and available for sale
1048766 Permits prompt filling of orders
264) Costs Associated with an Inventory Policy-
1048766 Ordering costs Costs of placing and receiving an order of goods including
inspecting Shipments handling payment follow up calls and letters
1048766 Carrying costs Costs of holding inventory for a given period of time including
Storage and handling cost obsolescence and deterioration cost and opportunity cost
of funds invested inventory
1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales
and the extra cost of placing special orders or work overtime to produce the needed
product
1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is
received from customers the order for raw material is placed with the supplier and
the product is manufactured JIT method is used to reduce inventory cost by
supplying Inventory at exactly the right time and in exactly the right quantities
Example- Dell Computer Co
27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in
checking accounts Marketable securities consist of S-T investments made with idle
cash
271) Investing Idle Cash The Money Market
The securities normally used for temporary investments are usually purchased in the
Money market-
Where short-term high quality marketable securities are traded When cash needs are
known securities of specific short-term maturity may be selected If cash is needed
24
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
money market securities may be sold quickly and because there is little price
variability if market interest rates Change the cost of selling the securities is kept at a
minimumOne choice of short-term is Treasury bills which mature less than 6 months
and are the safestmoney market securities Another choice is high quality investment is
commercial paper the short-term notes (maturities usually less than 270 days) issued
by industrial and financial corporations
Certificates of deposits (CDs) are short-term notes issued by commercial banks
Repurchase agreements (repos) the purchase of securities under agreement to resell (at
a higher price) are issued by commercial banks when the checking account of the
business is higher than desired The money stays in the bank and the business has a
temporary earning investment
272) Reasons for Holding Cash and Marketable Securities-
Transactions Firms use cash to make transactions (pay bills) until they receive
cash from customers
Precautionary firms hold cash as a precaution to meet any unexpected demand
for cash
Future requirements firms hold cash to meet future planned needs (eg Capital
expenditure tax payments dividend payments loan payments)
Speculative firms hold cash to be more flexible in case any good investment
opportunity comes
273) Holding cash and marketable Securities incur an opportunity cost-
The cash in the bank earn very low rate of return The firm could have earned higher
return by investing this cash in the firmrsquos operation
274) Running short of cash and marketable Securities also incurs shortage costs-
Foregone cash discounts Suppliers frequently offer trade discounts for paying
bills early From a financing standpoint the cost of not taking these discounts is
very high so firms should always have enough cash on hand to take advantage
of them
Deterioration of the firmrsquos credit rating
25
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Credit rating take into account the level of liquid assets in the firm (quick ratio and
current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios
high enough to maintain a good credit rating
High interest expense
if the firm is not able to pay bills on time it will have to pay high financing
charges
Possible financial insolvency Bankruptcy
Collection and Disbursement of Cash-
Managers always try to speed up the collection of cash from customers and to slow
down the disbursements of cash to supplies and other parties
28) Working Capital Cycle-281) Introduction-
The working capital cycle can be defined as-
The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm The
upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a
tank through which funds flow
These tanks which are concerned with day-to-day activities have funds constantly
flowing into and out of them
bull The chain starts with the firm buying raw materials on credit
bull In due course this stock will be used in production work will be carried out on the
stock and it will become part of the firmrsquos work in progress (WIP)
bull Work will continue on the WIP until it eventually emerges as the finished product
26
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
bull As production progresses labour costs and overheads will need to be met
bull Of course at some stage trade creditors will need to be paid
bull When the finished goods are sold on credit debtors are increased
bull They will eventually pay so that cash will be injected into the firm
Each of the areas ndash stocks (raw materials work in progress and finished goods) trade
debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into
and from which funds flow
27
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Working capital is clearly not the only aspect of a business that affects the amount of
cash
bull The business will have to make payments to government for taxation
bull Fixed assets will be purchased and sold
bull Lessors of fixed assets will be paid their rent
bull Shareholders (existing or new) may provide new funds in the form of cash
bull Some shares may be redeemed for cash
bull Dividends may be paid
bull Long-term loan creditors (existing or new) may provide loan finance loans will need
to be repaid from time to time and
bull Interest obligations will have to be met by the business
282) Goals Of Working Capital Management-
~ Manage Firmrsquos Current Assets And Current Liabilities-
Main goal of WCM is to provide cash whenever there arise any liability It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM If the firm
maintains very high level of current assets then it will not able to invest in fixed asset
this will tend to high level of block up of cash in current assets and firm will not be able
to increase its wealth this in turn can create problems at the time of liquidation
If the firm will maintain low level of CA then it will not able to meet its current
obligations So to manage current asset according to the current liabilities is very
essential for any company
~ Maintain Level Of Working Capital-
Working Capital is important for any firm whether big or small Working Capital helps
to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses
If firm does not maintain a specific level of working capital then it can create problems
for the firm Sometimes due to lack of working capital even firm can face solvency or
bankruptcy
~ Trade Off Between Liquidity And Profitability-
28
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
One of the objectives of working capital management is balancing the ldquoliquidityrdquo and
ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management
toward risk
29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure
given below shows the financing-mix or sources-mix or working capital
A source is said to be spontaneous when its use is automatic or arise in the normal
course of business activities
A source is said to be negotiated when its use depends on prior deliberations between
the borrower and the lender The major sources of such financing are trade credit
(creditors and bill payable) and outstanding expenses Spontaneous sources of finances
are cost free
Therefore a firm would like o finance its curre3nt assets with spontaneous sources as
much as possible
29
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
(1) Trade Credit (1) BODCash Credit (1) Share Capital
(2) Outstanding (2) Public Deposit (2) Retained
(3) Short-loans Earnings (3) Bills payable etc (3) Debentures
(4) Bill Discounting (4) Other Long-
(5) Commercial Paper
(6) Factory etc term funds
~ Long-term Financing -
Long-term working capital should be provided in such a manner that the enterprise
might have its uninterrupted use for a long time It can be conveniently financed by
shares debentures loans from financial Institution term loans from banks reserve
surplus etc
~ Short-term financing -
The category of funds covers the need of working capital for financing day-to-day
business requirements It includes Bank Credit Commercial papers Certificate of
deposit Commercial Bills Market and Factoring
~ Spontaneous Financing -
It refers to the automatic sources of short-term funds arising in the normal course of
business
The major sources of such financing are trade credit (creditors and bill payable) and
outstanding expenses Spontaneous sources of finances are cost free Therefore a firm
would like o finance its curre3nt assets with spontaneous sources as much as possible
30
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Chapter-3
3) Research Methodology-
A research design is the arrangement of the condition for collection amp analysis of data
It is the blue print of data
~ Introduction-
Research methodology is a way to systematically solve the research problem It may be
understood as a science of studying now research is done systematically In that various
steps those are generally adopted by a researcher in studying his problem along with
the logic behind them
It is important for research to know not only the research method but also know
methodology rdquoThe procedures by which researcher go about their work of describing
explaining and predicting phenomenon are called methodologyrdquo
Methods comprise the procedures used for generating collecting and evaluating data
All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem Data collection is important
31
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
step in any project and success of any project will be largely depend upon now much
accurate you will be able to collect and how much time money and effort will be
required to collect that necessary data this is also important step
Data collection plays an important role in research work Without proper data available
for analysis you cannot do the research work accurately
31) Objectives of the study-
Study of the working capital management is important because unless the working
capital is managed effectively monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover With this primary objective of the study the following
further objectives are framed for a depthanalysis
1 To study the working capital management of RKMarble Pvt Ltd
2 To study the optimum level of current assets and current liabilities of the company
3 To study the liquidity position through various working capital related ratios
4 To study the working capital components such as receivables accounts cash
management Inventory position
5 To study the way and means of working capital finance of the RKMarble PvtLtd
6 To estimate the working capital requirement of RKMarble Pvt Ltd
7 To study the operating and cash cycle of the company
32) Research Design-
321) Exploratory Research Design-
32
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Exploratory research helps determine the best research design data collection method
and selection of subjects Given its fundamental nature exploratory research often
concludes that a perceived problem does not actually exist
33) Data collection Tool-There are two types of data collection methods available
331) Primary data-
The primary data is that data which is collected fresh or first hand and for first time
which is original in nature Primary data can collect through personal interview
questionnaire etc to support the secondary data But in this project report there is no
use of primary data And even not used any primary data
332) Secondary data collection method-
The secondary data are those which have already collected and stored Secondary data
easily get those secondary data from records journals annual reports of the company
etc It will save the time money and efforts to collect the data Secondary data also
made available through trade magazines balance sheets books etc
This project is based on primary data collected through personal interview of head of
account department other concerned staff member of finance department But primary
data collection had limitations such as matter confidential information thus project is
based on secondary information collected through five years annual report of the
company supported by various books and internet sides The data collection was aimed
at study of working capital management of the company
34) SCOPE amp LIMITATIONS OF THE STUDY-
341) Scope of the study-
1 To study of working capital based on tools like working capital through ratio
analysis cash management performance evaluation management inventory
management
2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd
33
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
342) Limitations of the study-
3421) Due to confidentiality project report only contains data which was
available in annual reports balance sheet and company website
3422) Limited period-
This project is based on four year annual reports Conclusions and recommendations
are based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
3423) Limited area-
Also it was difficult to collect the data regarding the competitors and their financial
information Industry figures were also difficult to get
Chapter-4
4) Interpretation and analysis-
41) Balance Sheet and Size of Working Capital -
A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition
on a given date It does not show the flows into and out of the accounts during the
period
A balance sheet provides detailed information about a companyrsquos assets liabilities and
shareholdersrsquo equity
Assets are things that a company owns and can either be sold or used by the company
to make products or provide services Assets include physical property such as plants
trucks equipment and inventory things that canrsquot be touched such as trademarks and
patents And cash itself is an asset So are investments a company makes
Liabilities are amounts of money that a company owes to others This can include all
kinds of obligations like money borrowed from a bank rent for use of a building
money owed to suppliers for materials payroll a company owes to its employees
34
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
environmental cleanup costs or taxes owed to the government Liabilities also include
obligations to provide goods or services to customers in the future
Shareholdersrsquo equity is part of the companyrsquos liabilities
They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other
words it is the money that would be left if a company sold all of its assets and paid off
all of its liabilities This leftover money belongs to the shareholders or the owners of
the company
The following formula summarizes what a balance sheet shows
ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY
A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and
Shareholdersrsquo equity
~ In this project report only those methods and points have taken by which company
measures his position of current assets and liabilities Because company thinks that
there is no requirement of all the calculation They calculate only those ratios and
working capital methods which actually shows companies current position Although
this company make all those financial assessment statements which are required in
under Companies Act-1956
Project is based on-
This project is based on five year annual reports Conclusions and recommendations are
based on such limited data
The trend of last four year may or may not reflect the real working capital position of
the company
35
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
1 Annual report of RKMARBLE PVTLTD 2006-07
2 Annual report of RKMARBLE PVTLTD 2007-08
3 Annual report of RKMARBLE PVTLTD 2008-09
4 Annual report of RKMARBLE PVTLTD 2009-10
The requirement of companyrsquos last four year Balance Sheet As follows-
PARTICULARS 2009 2008 2007 2006
Rs Rs Rs Rs(A) SOURCES
OF FUNDS
Shareholderrsquos
Fund
a Share Capital 631557000 631557000 210519000 210519000b Reserves amp
Surplus 1222272101726218351 757178319 533353633
1853829101 1357775351 967697319 743872633Loan Funds
a Secured Loans 21213810 465286672 177734222 476408145b Unsecured
Loans 212101522Nil 1005846 52381270
233315332 465286672 178740068 528789415Deferred tax
liability -- Nil 8095252
2087144433 1823062023 1146437387 1280757300APPLICATION
OF FUNDS
36
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Fixed Assets-
Gross Block 1317744204 1288819047 1515317426 1467404371Less
Depreciation -808478678(839919465) (921224640) -824547062
Net Block 509265526 448899582 594092786 642857309Capital work In
Progress 289066212633 6773177 79998466
Investments 116165596 63117050 32743750 319000Current Assets
Loans amp
Advances
a Inventories 162919124 59525304 80072275 84762968b Sundry
Debtors 186536141128915638 160808613 156660599
c Cash amp Bank
Balance 9953334588999018 71041834 31650698
d Other Current
Assets 1785808 1680502 950825 1032760
e Loans amp
Advances 10156632531403702208 463788031 512924855
Lesscurrent
iabilities amp
provisions
a Current
liabilities 4364190940781632 40370679 86742524
b Provision 14992437 12388575 232527392 142706831 net current
assets 14078033251252547679 503763507 557582525
Deferred tax
assets 5388108055285079 9064167 Nil
Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital
SCHG Current assets
loans and advances
2009 2008 2007 2006
Inventories
Block amp Laffars 64092260 3503050 22547046 25642814
37
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Marble slabs 96721253 53460214 54258193 57423643
Consumables amp stores 2105611 2562040 3267036 1696511
162919124 59525304 80072275 84762968
Sundry Debtors
(unsecured and
considered good)
More than six months
old
47378424 22227386 66938222 39015642
Others 139157717 106688252 93870391 117644957
186536141 128915638 160808613 156660599
Cash and bank balance
Balance in scheduled
bank in
Current account 62383407 30770043 40538052 6705052
Fixed deposit account 22108300 32131693 12318300 11908300
Cash in hand 15041638 26097282 18115482 12992346
99533345 88999018 71041834 36150698
Loans and advances
Advance recov in cash
or in kind or for value
to be received
1011893909 1026597424 463788031 512924855
Custom duty
recoverable
1080941 Nil _ _
Service tax paid under
GTA paid under protest
2688403 Nil _ _
Other current assets 1785808 1680502 950825 1032760
1017449061 1028277926 464738856 513957615
Total Assets(A) 1466437671 1305717886 776661578 787031880
SCH Current liabilities
amp provision
Current liabilities
Sundry creditors-due of
micro and small
enterprise
265377 1097616 811387 2979269
Sundry creditors others 4994392 2845435 11483134 53951229
Outstanding liabilities 21921452 12855903 22114586 25086944
Advance from
customer
594970 2425956 4735369 3618143
Earnest and retention 1033301 1105506 1236203 1106939
38
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
money
Income tax fringe
benefit amp wealth
tax(net of provision)
14832417 20451216 _ _
43641909 40781632 40370679 86742524
Provision
Provision for taxation _ _ 220406000 133535000
Provision for gratuity 14581720 12082206 12121392 9171831
Provision for leave
encashment
410717 306369 _ _
14992437 12388575 232527392 142706831
Total current
liabilities(B)
58634346 53170207 272898071 229449355
Total (A-B) 1407803325 1252547679 503763507 557582525
42) Calculation of Working Capital Management-
A) Assessment of current assets-
RKMARBLE PVTLTD is increasing his assets every year and it is very important
because market of marble industry have huge demand of transport facility cash
payment and receipt because this market all most 60 running on credit basis This is
very good thing that company is having sufficient cash in hand and bank
39
Year Increasedecrease Current Assets Growth
2006-2007 Base year 274107025 100
2007-2008 Increase 312873547 14
2008-2009 Decrease 279120465 -11
2009-2010 Increase 450774418 61
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2007-08 2008-09 2009-10
-20
-10
0
10
20
30
40
50
60
70
Assesment of CA
B) Assessment of current liabilities-
Year Liability Decrease
2006-2007 86762968 100
2007-2008 40370679 -5347
2008-2009 40781632 101
2009-2010 43641437 701
Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company
because in respect of liabilities assets are also increasing
40
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2007-2008 2008-2009 2009-2010
-60
-50
-40
-30
-20
-10
0
10
CL
C) Net Working Capital-
The amount of gross working capital during last four years is given in following table
Year Increasedecrease Net working cap Growth
2006-07 Base year 187344057 100
2007-08 Increase 272502868 45
2008-09 Decrease 238338833 -125
2009-10 Increase 407132981 7082
41
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2007-2008 2008-2009 2009-2010
-20
-10
0
10
20
30
40
50
60
70
80
Working Capital Evaluation
D) Net Working Capital to Net Assets Ratio-
Net working capital is difference between current assets and current liabilities This
ratio measures firmrsquos potential reservoir funds relate to net assets
Year Net working capital Net asset Ratio(In times)
2006-07 187344057 787031880 Base year
2007-08 272502868 776661578 035
2008-09 238338833 1305717886 018
2009-10 407132981 1466437671 028
42
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2007-08 2008-09 2009-10
0
005
01
015
02
025
03
035
NWC to NA
43) MANAGEMENT OF INVENTORY-
Inventory constitute major portion of current asset of public Ltd Companies in
India The manufacturing companies hold inventories in the form of Raw material
work-in-process and finish good
~ There are at least three motives for holding inventories-
(1) To facilitate smooth production and sales operation (Transaction motive)
1 average inventory 111222214 69798790 82417622
2 total current assets 312873547 279120465 450774418
3 cost of goods sold 752424441 873776892 688157782
43
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Ratiorsquos
a) inventory to gross
working capital(12)
035 025 018
b) inventory turnover
(31)
676 13 834
c) inventory
conversion period
(365b)
54 28 44
(2) To guard against the risk of unpredictable changes in usage rate and delivery time
(Precautionary Motive)
(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent
investment of a firms funds and that is why management of inventory is necessary for
the maximization of the value of the firm The firm should therefore consider
(a) Costs (b) Return (c) Risk
Factors in establishing its inventory policy
~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-
A) Inventory turnover-
44
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
B) Inventory conversion period-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
44) MANAGEMENT OF RECEIVABLE-
When firm sell goods for cash payments are received immediately and therefore no
receivables are created However when a firm sells goods or services on credit
45
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
payments are received only at a future date and receivables are created It is an
essential marketing tool in modern
business trade Credit creates receivables which the firm is expected to collect in near
future A firm grants credit to its customers so that its sales are its customers so that its
sales are not lost to competitors
Account receivable constitutes a significant portion of the total current assets of the
business after inventories
~ Receivables arising out of credit has three characteristics-
I It involves an element of risk which should be carefully analyzed
II It is based on economic value To the buyer the economic value goods or services
pass immediately at the time of sale white the seller expects an equivalent value to be
received later on
III It implies futurity The customers from whom receivables have to collected in
future are called debtors and represents the firmrsquos claim or asset
A) Debtorrsquos turnover ratio-
This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on
credit and cash basis When firm extends credit to its customers book debts are created
in firms Ac debtors expected to converted in to cash over short period and thus
included in current assets
It is used to measure liquidity of the receivables or to find out period over which
receivables remain uncollected
Receivable turnover Ratio = Total Salesaverage debtors
Debt collection period = 365 Receivable turnover ratio
Year Sales Avg debtors Ratio Collection
Period
2007-2008 1716898385 158734606 1082 100
2008-2009 1908959105 144862126 1318 82
46
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2009-2010 2336174835 157725890 1481 73
Debtorrsquos turnover ratio-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
B) Debtorrsquos Collection Period-
2007-08 2008-09 2009-100
2
4
6
8
10
12
14
16
45) MANAGEMENT OF CASH -
Cash in the important current assets for the operations of the business Cash is the basic
input needed to keep the business running on continuous basis it is also the ultimate
47
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
output expected to be realized by selling the service or product manufactured by the
firm The firm should keep sufficient cash neither more or less
Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash
will simply remain idle without contributing anything towards firmrsquos profitability
Thus a major function of the financial managers is to maintain a sound financial
position
~ Cash management involves following four factors -
1 Ascertainment of the minimum cash balance and controlling the levels of cash
2 Controlling cash in flows
3 Controlling cash outflows
4 Optimum utilization of surplus cash
Cash is required to meet a firmrsquos transactions and precautionary needs
A firm needs cash to make payment for acquisition of resources and services for the
normal conduct of business It keeps additional funds to meet any emergency situation
Some firms maintain cash for taking advantages of speculative changes in price of
input and output
~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-
The following ratios have been used to evaluate different aspects of cash management
(1) Cash to Current Assets Ratio
(2) Cash turnover Ration
(3) Average age of Cash
~ The figures of cash and Bank Balance total current assets and current liabilities for
the year 2007 2008 and 2009 are given in the table
Item 2010-2009 2009-2008 2008-2007
48
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
1 cash and bank
balance
99533345 88999018 71041834
2 current assets 312873547 279120465 450774418
3 current liabilities 43641909 40781632 40370679
Ratio
a) Cash to Current
Asset
Ratio (12)
32 32 16
b) Cash Turnover Ratio
(31)
44 46 57
c) Average age of cash
(365b) days
829 8 6
A) Cash turnover in percentage-
2007-2008 2008-2009 2009-20100
10
20
30
40
50
60
B) Average age of cash (days)-
49
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
2007-2008 2008-2009 2009-20100
05
1
15
2
25
46) Analysis through working capital ratio-
A study of the causes of changes in uses and sources of Working Capital is necessary to
observe that whether working capital is serving the purpose for which it has been
created or not In this technique for each aspect of analysis certain ratios are computed
and then results are compared with standard ratio or industry average
The ratio analysis provides guides and clues especially in sporting trends towards better
or poorer performance and in finding out significant deviation for any average or
relatively applicable standards
~ The following are the important ratios to measure the efficiency of working capital-
461) Ratios relating to liquidity of working capital -
Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in
time This ratio helpful for both short-term creditors and internal management of the
firm
~ The following are types of ratios relating to liquidity of working capital-
A Current Ratio -
50
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
It is most common measure for measuring liquidity It is also called ldquoWorking Capital
Ratiordquo It expresses relationship between CA amp CL
Current Assets
Current Ratio = ----------------------
Current Liabilities
Year Current assets Current liabilities Ratios
2007-2008 312873547 40370679 81
2008-2009 279120465 40781632 71
2009-2010 450774418 43641437 101
The acceptable norms for this ratio is 21 considering this it can be said that company
has maintained sound ratio over three year
B Quick Ratio -
It is also known as liquid ratio or acid test ration It is a relation between quick assets
and quick liabilities It is more useful in knowing the liquidity of firm than current
ratio
Quick Assets
Quick Ratio = ----------------------
Current Liabilities
Year Quick assets Current liabilities Ratios(times)
2007-2008 696589303 40370679 171
2008-2009 326192582 40781632 81
2009-2010 1303518547 43641437 291
The acceptable norm for this ratio is 11 but the company as already maintained it
above the norms which indicate sound financial position
C) Current Liabilities to Total Assets Ratio -
This ratio shows the relationship between current liability and total assets
[Net Fixed Assets + Investment + Current Assets]
51
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Current Liabilities
Current Liabilities to Total Assets Ratio = ----------------------
Total Assets
Year Current Liabilities Total Assets Ratio (times)
2007-2008 40370679 1146437387 0035
2008-2009 40781632 1823062023 0022
2009-2010 43641437 2087144433 0020
D) Current Assets to Total Assets Ratio -
The ratio brings out the percentage of current assets to total net assets of the business
This ratio indicates the extent of liquidity nature of assets required in comparison with
total net assets The formal for ratio is given below
Current Assets
Current Assets to Total Assets Ratio = ----------------------
Total Assets
Year Current assets Total Assets Ratio (times)
2007-2008 312873547 1146437387 027
2008-2009 279120465 1823062023 015
2009-2010 450774418 2087144433 021
E) Defensive interval Ratio-
Liquidity ratio revealing the ability of the business to meet its current debts It indicates
the period of time the entity can operate on its current liquid assets without needing
52
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
revenues from next periods sources The ratio equals defensive assets (cash
marketable securities and receivables) divided by projected daily operational
expenditures less noncash charges
2007-2008 2008-2009 2009-2010
F) Capital turnover Ratio-
A companys annual sales divided by its average stockholders equity Capital turnover
is used to calculate the rate of return on common equity and is a measure of how well a
53
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
company uses its stockholders lsquoequity to generate revenue The higher the ratio is the
more efficiently a company is using its capital Also called equity turnover
Sales
Capital turnover - --------------------
capital employed
2007-2008 2008-2009 2009-2010
Capital Turnover
47) My working at RKMarble PvtLtd
54
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
Besides that it is very important to learn external things related to office
work In this thing I was checking daily sales report which is on an average
40 lakhday and this is a big deal for a company and all the report which I
was checking of sale these are very confidential reports And to arrange
them in sequence Other than that I was checking purchase report of the
company it was also a very good work because we can analyse that how
much transportation services and other lubricants machinery Equipments
Company purchasing For the fulfillment of their daily requirement I was
learning tally programme also to learn how to do entries in computer and
their adjustment in software The sub accountant of the finance department
was helping me to learn everything Few days I was with data analysis
department who was teaching me everything related to primary stage work
that how to arrange data related to marble Laffars blocks these are in
tones Along with that I was checking the all billing payments and receipts
of the company I was getting problem in checking the bills because
sometimes I have to adjust them with previous related bill Than some time
I was with the head of department to know about the internal tricks like
how to reduce expenditure and what we can do at the time of raising
royalty and how they are arranging the salary of the employees And all
these works are very important to understand day to day working of
company and working capital management
Chapter-5
55
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong
position
2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it
current assets are more than that which is very high
3 Net working capital is also in good position It is increased by 5832
4 Inventory turnover is 44 times but turnover is also increased
5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is
doing transaction on cash basis rather than credit basis it is also a good sign for
company
6 Cash is also increased
7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means
company is doing very well It is increasing its assets every year
8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is
approximate 18331 it means it is also acceptable
CONCLUSION-
56
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
On the basis of above calculation it is noticed that solvency position of the company
does not differ significantly from the set std of sound financial status So the first
hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is
safe and sound Company current ratio is also in sound and safe
The calculation particularly tested with respect of evaluation of management
receivables performance and it is also accepted leading to the conclusion that the
company has followed a sound financial policy during period of study
Chapter-6
57
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58
SUGGESTIONS-
Company has excess assets so that it can use its assets in other investment can
purchase more mining land for more production
Company can convert its assets in cash and can easily pay its pending debts So
that liabilities can decrease
Company should make better marketing strategy (promotion strategy) So that it
can increase itrsquos selling all over the world
Company can improve upon its brand lsquoWonder Marblersquo
58